There’s an adage that good things come in small packages. This applies to real estate, although this counters many people’s beliefs. Many people want the biggest apartment, associating it with luxurious living, but there are benefits to smallness. We go through some areas where thinking “small” can provide a better quality of life, economically and otherwise.
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Certain people prefer a smaller building over a larger one. They point to the “charming” feeling and the chance to know your neighbors better. You can also have a greater say in the building’s affairs since there are fewer units. Should you choose to serve on the co-op or condo’s board, you might find it is easier than getting elected to a larger building’s entrenched board.
Economically, the building is more likely to have more “exclusivity.” This comes down merely to supply and demand. Barring unusual circumstances, there are fewer units that typically come up for sale, making it valuable when one does come on to the market.
Many New York City, real estate shoppers, resign themselves to the fact that they must sacrifice amenities in a smaller building. This need not be the case, but you have to figure out which ones are so important to you that living without it is a dealbreaker.
Of course, no one wants to compromise on safety, security, or quality maintenance, but you shouldn’t have to do so just because you live in a small building.
A lot of people, particularly those relocating to New York City, have unrealistic expectations about the size of apartments. This is particularly true of Manhattan’s units. The New York City metro (includes Newark, NY) average square footage for apartments built from 2000-2009 was 890 square feet, but this fell to 866 square feet for those built between 2010 and 2016, according to a 2016 study by real estate analytics firm RCLCO. With high real estate prices, square footage comes at a premium.
A few years ago, the trend amongst developers in large buildings was to make the apartments small but add building amenities such as a bowling alley, screening room, and outdoor terraces with attractive dining options.
Aside from the amenities, you can reap other benefits when you decide to purchase a smaller apartment. This means lower upfront and ongoing outlays for housing, and you can use those savings for other things such as vacations and college funds for your kids. Aside from a lower down payment, there is lower maintenance or common charge payments. Your mortgage payment is likely smaller than if you had chosen a larger apartment, too.
From a lifestyle perspective, there is less upkeep (e.g., less to clean). Economically, a smaller apartment in a more desirable building and the neighborhood has better price appreciation potential than a larger one in a building and neighborhood that is less desirable.
You must decide if the potential financial benefits overcome lifestyle considerations. For instance, a smaller living space makes it difficult to host larger social gatherings; and there are also major storage considerations. This requires planning your layout carefully to maximize your living space.
Once you decide on a smaller apartment, you can choose to divide the unit into smaller rooms. This provides the opportunity for separate spaces. For instance, you can create distinct living areas for a dining room and a bedroom.
We have already discussed how a more modest purchase price could lead to lower monthly mortgage payments. There are other ways you can achieve smaller mortgage payments. You can also make a larger down payment or prepay your loan to reduce the balance and terms, which cuts down on your interest cost. Either choice does mean typing up capital that you can use for items such as boosting your emergency fund and investing.
There are multiple advantages to a smaller mortgage. The lower mortgage balance reduces your monthly burden, and the extra monthly cash flow can prove particularly helpful should an unexpected event happen, such as a job loss. Aside from the monetary benefits, it makes your co-op application more attractive to the board, and the bank is more likely to approve your loan. They both look at specific ratios, including debt-to-income, which is more favorable when your mortgage balance is lower.
Before the passage of the tax reform law in 2017, there were certain tax advantages to paying mortgage interest. However, the appeal of a higher mortgage balance from a tax perspective was greatly reduced for many people following the passage of the Tax Cuts and Jobs Act of 2017. This limited mortgage interest deductions to loans up to $750,000, down from $1 million. Additionally, fewer people are eligible to itemize since the law raised the standard deduction significantly; and there is a $10,000 deductibility limit on state and local taxes.
Smaller maintenance or common charges
Related to a lower mortgage, smaller maintenance or common charges also save you money. However, the key is to make sure the board is being wise in its spending. You will want to ensure that they are maintaining the building properly. Otherwise, if they are keeping it artificially low, the board is bound to either raise it or impose a special assessment when an emergency arises.
Your attorney can help you determine this when he or she conducts his or her due diligence.
Smaller carbon footprint
A study conducted by the city showed that the Big Apple’s greenhouse gas emissions were much lower on a per capita basis than the rest of the country. Furthermore, the city’s emissions per metric ton fell by 15% from 2005 to 2016, despite population and economic growth.
Living in a smaller apartment can help you further the cause. You will use less lighting, heating, air conditioning, electricity, heat, and should have less garbage. Not only can you help your wallet, but you can help the world, too.
Small thoughts, a big payoff
Thinking small in real estate is not only a practical necessity for many New Yorkers; it also may provide financial and other benefits. These include a cozy setting and a lower monthly obligation. According to a survey conducted a few years ago, the city’s residents spent about 65% of their income on rent. While others may brag about the size of their apartment, you can laugh all the way to the bank.