Every day the demand for studio apartments is rising in different cities in the world, as a reasonable and an affordable space to live in.
However, not to be mistaken with a one-bedroom apartment, a studio apartment is usually one large room with a kitchen and a bathroom. You basically have everything in one unit, and you can design each corner of the apartment to be a living room, for instance. But these spaces are unrepeated, unlike one-bedroom apartments that are more likely to be higher in price and larger in size.
Studio apartments, also known as bachelor apartments or efficiency apartments, are usually 300-500 sq ft in size. This is considered the perfect choice for students, couples who just got married, singletons, or for someone who just moved to a new city for a job. They are simple, resilient, affordable, and usually located in vital areas.
Related: Why and Where to Invest in Studio Apartments
Studio apartments are an attractive choice not only for homeowners but also for tenants and real estate investors. This type of housing is getting more and more popular among many for its convenience. Investors look for this type of property to own, especially if they are making their first steps in the real estate business. However, others might disagree saying that studio apartments are favored by a limited group of people, which raises the risks of owning one. So, is this type of property a hit or a miss to invest in? Here are the pros and cons of investing in studio apartments:
The pros of investing in studio apartments:
Similar to any other investment you make, you need to plan ahead and know what you want and what your goals are. Many experts believe that a studio apartment that is well designed and that lies in a good location can really be a great investment opportunity to catch. Studios close to downtown, universities, transportation, and work hubs are often a good idea to invest in. Because, always keep in mind that tenants seeking studio apartments are willing to sacrifice the space for the location. So, choose the unit wisely to keep your studio apartment in demand.
Another appeal in studio apartments is the high rental yield. Usually, studio apartments make a rental income up to 1.5% higher than other one-bedroom or even two-bedroom apartments. The studio rental yield is around 6%, compared to 3-4% for bigger units like a one-bedroom apartment. What makes this even better is that the list of potential tenants is not dropping anytime soon. It will either stay the same or increase.
Related: What Does it Take to Have a Profitable Studio Apartment for Rent?
Studio apartments have another positive aspect which is the financial one. As a real estate investor with little capital on hand, studio apartments are a low-cost asset. The great thing about this besides the low price is a low stamp duty and sometimes none at all, depending on the price, of course. Also, such affordable housing is considered to have good capital-growth over the years – although not as good as with bigger units, it is still a good aspect of investing in studio apartments. Coupled with small space comes less maintenance job to do than when owning a bigger house, which makes studio apartments also cheaper to design and furnish.
Another thing to consider when buying a studio apartment is that they are easy to sell, especially with the increasing demand as mentioned earlier, particularly in huge cities where the population demand for this type of real estate is huge. So, when you decide to sell you are most likely to easily find a buyer fast.
The cons of investing in studio apartments:
The downside of investing in studio apartments appears in cities where people look to rent a place rather than to own one. The prices of studio apartments to own can be ridiculously high per foot, so it is not absolutely always cheap to invest in as a startup. Keep in mind that the units capital growth is slower than other properties, so it is fair to say it is a long-term investment.
And just like any other rentals, owning a studio apartment for rental purposes lacks liquidity; you can’t just cash out the money you have invested whenever you want. So, if you are tight on the budget, this could form a financial load you.
Another downside is the case with any other owner who has a property offered for rent. It is, in fact, dealing with renters, and collecting rent, which can consume a lot of time and energy, especially if you are not a full-time landlord. You need to be prepared for rental contracts and late payments. How will you cover your loans when the payment is late, and what is the eviction procedure in your city? Equally important, be prepared for unforeseen expenses such as sudden water leakage or even a broken toilet.
Related: The Most Common Reasons for Lawsuits between Landlord and Tenant
Privacy is another aspect to consider. Many people prefer a one-bedroom apartment because the bedroom comes separately, whereas studio apartments are only an open space in which you will have a bedroom and a kitchen as well as a bathroom. This leads to the fact that renters might have guests overnight, which might make it hard to have some privacy. Of course, this is from a renter’s point of view.
Any real-estate investment option comes with a certain risk, but it all depends on what you are really seeking in an investment. Depending on your financial status and on your aims, plan an investment strategy and stick to it. Investing in studio apartments has, in fact, many positive aspects. However, it is a matter of planning and making the right choice. Especially, take into consideration the city and the location of the studio apartment since it plays a major role in determining whether it is going to work for you or not.