Micro apartments are being called the next big trend in commercial real estate investing.
The word “trend” tends to ward off experienced and successful real estate investors and for a good reason too. Trends come and go, but real estate investors typically take time to analyze and purchase an investment property in order to guarantee a steady income in the future.
The question remains then: Are micro apartments for sale a good real estate investment or a trend that will fade and leave real estate investors with vacant rental properties? The only way to get the answer to this question is to take a look at these investment properties from every possible angle. Here is everything you need to know about investing in micro apartments.
What Are Micro Apartments, Exactly?
A micro apartment is a kind of investment property in the multifamily real estate section. Because micro apartments for sale aren’t widely considered by real estate investors, the definition can vary. Generally, micro apartments are income-producing assets that are 250-300 sq. ft. There is variation in the size of these rental properties, but the biggest size for micro apartments is 600 sq. ft.
Micro apartments for sale are a one-room living space. These rental properties have an area for sleeping, a small bathroom, and a kitchenette. Tenants of micro apartments sometimes don’t have private amenities, but rather shared kitchens and bathrooms with other tenants of the multifamily real estate. Patios and roof gardens, while not common for these income-producing assets, can be part of the amenities for micro apartments.
Related: Real Estate Market Trends: Living in Micro Apartments
What Tenants Flock to Micro Apartments?
There are two types of tenants who prefer these income-producing assets: millennials and retirees. Millennials and retirees prefer micro apartments for pretty much the same reasons. Millennials turn to micro apartments when they first rent right out of college or their parents’ home. Micro apartments allow millennials to live in big city centers at much more affordable prices than a studio apartment. Retirees like micro apartments for this reason as well as looking for options to escape property taxes and mortgages in their golden years.
Property Investment Strategies for Micro Apartments
Micro apartments can be used for both major property investment strategies: traditional, long-term rentals and Airbnb rentals. As mentioned, micro apartments are in high demand among millennials and retirees, meaning that real estate investors who choose to use these income-producing assets as long-term rentals will have no trouble with occupancy rates and rental income, in the right location of course.
Tourists also favor micro apartments as Airbnb rentals. The small space is usually just enough for guests of Airbnb rentals, and the typical location of micro apartments puts tourists in the center of the bustling cities they are visiting.
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Financing Micro Apartments
While it’s true that micro apartments are an affordable option for real estate investors as well as tenants, these rental properties can be difficult to finance with a conventional bank loan. Because of the size, many lenders don’t provide financing for micro apartments.
However, there are a few steps real estate investors can take to secure financing for micro apartments:
- Keep a good credit score and credit history.
- Choose micro apartments with amenities like private kitchenettes and bathrooms.
- Try to invest in micro apartments that are larger in size.
- Shop around for a mortgage lender who will finance micro apartments.
- Look into other financing options besides conventional bank loan.
If a mortgage lender provides financing, real estate investors should be prepared to put down a larger down payment than what would be required for a typical investment property. Mortgage lenders may require up to a 40% down payment.
Related: What Are Your Options for Financing Rental Properties?
Micro Apartments: A Trend or a Great Real Estate Investment?
It would seem that with the high demand from tenants in the real estate market as well as the possibility for different property investment strategies, micro apartments can be a great real estate investment. Demand for this investment property is so high in the real estate market that there are waiting lists for tenants looking to fill these rental properties in certain locations.
This high demand should not be mistaken as a trait of a fleeting trend in real estate investing that will soon cool down. A micro apartment provides something unique features to tenants looking to live in urban areas and stay at Airbnb rentals in these locations. Tenants can enjoy the city lifestyle in an affordable multifamily real estate property. This need that micro apartments fill is unlikely to fade anytime soon, making this type of investment property a great option for real estate investing.
Best Locations for Investing in Micro Apartments
The location for micro apartments will affect their success. The right real estate market would be one that is located in a city center with z strong job growth as well as a high cost of living. These factors drive tenants to micro apartments for their affordability. The following cities are considered top choices for real estate investing in a micro apartment:
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A micro apartment in these cities will be more expensive in terms of both purchase price and rent price. Most real estate investors still prefer them as the return on investment resulting from the high demand is worth it.
Related: Location Location Location: What Makes for The Best Place to Invest in Real Estate?
Real estate investors have the option to go for this investment property in a secondary real estate market as well, as long as it follows the same trends of job growth and cost of living.
Micro apartments are, in fact, a viable option for real estate investing. Even though their popularity might have sparked all of a sudden, micro apartments have been around for decades and are a reliable multifamily real estate investment. Consider choosing micro apartments for your next real estate investment and enjoy the high occupancy rate with either of the property investment strategies.