Can't afford that urban experience? Try buying a home in a second-tier downtown

Columbus city officials wanted to bring more people to their Ohio city's downtown. In the spring of 2011, they took a step closer to that goal, opening Columbus Commons, a 9-acre urban park on the site of the former City Center Mall, an indoor shopping mall that had long been dying.

Tom McGarity, managing principal of the Columbus office of commercial real estate firm Cassidy Turley, says that the move paid off. Today, downtown Columbus is a busy place, with residents -- especially younger ones - steadily moving into the area.

"The young professionals want to live in the city," McGarity said. "That's a change from the past. Before, they wanted to buy a home in the suburbs. Now they want to be in the city, in the heart of all the action."

This trend isn't limited to Columbus. The U.S. Census Bureau reported that in 2013 there were 2.3 million more people living in metropolitan areas than there were in 2012. The Census Bureau reported that 269.9 million people were living in cities and their immediate surrounding areas last year. According to the bureau, only 92 of the United States' 381 metropolitan areas saw their populations dip from 2012 to 2013.

Finding affordable downtown living

There is a problem, though. Renting an apartment in an urban downtown is one thing. But what if you want to buy a condo or single-family home in a major city's downtown? That can be expensive, with monthly mortgage payments out of the reach of many U.S. home buyers.

But there is a solution, one that McGarity and other real estate pros doing business in smaller, but still urban cities, recommend: Buy a home in the downtown of what is known as a second-tier market.

Homes in the downtown areas of major cities such as Chicago, New York City and Boston might be out of your price range. But what about homes in the downtowns of such smaller cities as Minneapolis, Milwaukee or St. Louis? These cities still offer plenty of amenities. If you live in their downtowns, you can still walk to public transportation, theaters, bars and restaurants. You can still ride your bike to parks and the local grocery store.

But you won't be paying nearly as much -- and you'll face much smaller mortgage payments -- if you get your urban experience in one of these second-tier markets.

Living well on 1/3 the cost

Consider a recent study that calculated the annual salary buyers need to afford the principal and interest payments for the mortgage on a median-priced home in 27 U.S. metropolitan areas.

In New York City, you'd need a yearly salary of more than $89,000 to afford the interest and principal payments on a median-priced home, according the study. And remember, this doesn't include insurance or the sky-high property taxes that come with living in New York City.

But if you instead choose to live in the metro area of Cleveland, you'd need a yearly salary of just $30,000. And in St. Louis you'd need to make an annual salary of about $31,000.

The lesson is clear: You are far more likely to be able to afford the urban experience if you buy a home and take out a mortgage loan in cities that don't quite draw the attention of a downtown New York City or San Diego.

Consider outlying communities as well

Kevin Gallegos, vice president of Phoenix operations with Freedom Financial Network, recommends that home buyers who want that urban feel go a step further and explore certain "suburban urban" areas, suburbs located close to major cities that also feature their own walkable downtowns.

The Chicago area, as an example, features many of these areas, such as Naperville, Ill. The suburb is located a reasonable train ride from downtown Chicago, but it also boasts its own thriving downtown area filled with restaurants, boutique shops and bars. In the Los Angeles area, similar "suburban urban" choices can be found in areas such as Arcadia or Pasadena.

"Live within your means," Gallegos said. "Easier said than done, but learning to not spend more than you have will allow for a lifetime of lower stress and greater happiness."

Dan Rafter has been covering mortgage financing and real estate news for 15 years. He's written for such publications as the Chicago Tribune, Washington Post, Consumers Digest, BusinessWeek Online and Business 2.0 Magazine.

Published on June 20, 2014