There is a real estate trend that has been on the rise for the last decade, and it is showing no signs of slowing down. That trend, as we all know it, is called studio apartments. Investing in studio apartments is becoming a very successful investment idea for many real estate investors, especially when buying a studio rental property in the biggest metropolitan areas.
In the United States, studio apartments investing is becoming one of the best value for money investments in the housing market as a whole. But why has the studio apartments trend grown so rapidly? And in which cities is it best to invest in studios?
To understand the logic behind why it makes sense to invest in studio apartments, a real estate investor must fully comprehend the reasons why renters are fighting each other off to rent them. An investment of this type will be based on a reasoning that targets a certain segment of tenants, and understanding how these groups of potential tenants think is important in order to succeed in your real estate investing business. Studio apartments must be equipped with what people who are renting them are expecting; this is how you make money in studio apartments rentals.
Why Investing in Studio Apartments Makes Sense?
Lower Investment Costs
For many potential real estate investors, the ability to get a hefty loan or having a substantial sum of money saved up over the years is not something common. Many investors have lower budgets when they are starting their real estate investment paths. A studio costs much less than most other apartments or houses, given the same location. When you apply for a mortgage to purchase a studio apartment, you will find that it is easier to pay back the mortgage in a shorter time because of the cheaper price compared to other real estate property types.
Rental Income Possibilities
When you purchase a studio apartment in one of the big cities around the United States, you will find that the value of this tiny rental property is greater than of others. This has to do with the demographics and the distribution of wealth in these cities. When you invest in a studio apartment in a city like New York, you will be overwhelmed with the amount of tenant applications you will receive if you post your listing online for a single day only. These types of apartments are considered the cheapest in the urban zones, which makes them the most demanded nationwide.
When you have so much demand for your studio rental, you appreciate the value of its rental income that will surely increase over the years. Prices of studio rentals have doubled in many major cities compared to 10 years ago. That rental income makes you generate a passive income that can be used to pay your mortgage on the studio comfortably and maybe even put the extra money into your own pocket or even start saving up for a new investment property.
The Millennial Generation
Owning a studio apartment means you can target the millennials who actually prefer living in studio apartments rather than sharing apartments with others. Young workers especially are always looking for these types of apartments because of their affordability and the comfort that they offer. Tenants wouldn’t have to worry about cleaning unnecessarily large areas, spending a ton of money on heating, or purchasing a lot of furniture when equipping the apartment, which makes it way more convenient that large rental properties.
Related: Real Estate Market Trends: Living in Micro-Apartments
Studio Apartments and Airbnb
The tourism industry has gradually progressed to free itself from the shackles of hoteliers because of the emergence of Airbnb. However, most platform users are still comparing the listing on Airbnb with those of hotel rooms as a standard. How many times have we heard the phrase, “The apartment is hotel quality.”? Studios are probably the closest thing to hotel rooms available on Airbnb, albeit with a lower cost for guests. Listing your studio apartment on Airbnb will give guests the privacy, quality, and convenience they require on their holiday or business trip.
The reality is that listing studio apartments on Airbnb is way more profitable than renting them out to long-term tenants. In the example of New York City, long-term monthly rent ranges between $1,500 and $2,000, while on Airbnb a studio apartment would cost $100 per night on average. If the studio can be rented for an entire month based on the occupancy rates, then it generates $3,000 per month. Of course, the profits will differ from one location to the other, but so will the cost of the investment and utilities.
Related: Are Studio Apartments a Good Real Estate Investment?
Best Cities to Invest in Studio Apartments
New York City
Purchasing a studio apartment in New York might sound expensive at first because the city in general is witnessing its highest property prices ever. An average studio apartment in NYC would cost around $150,000 in most areas, and it would be even more expensive than that in central locations. However, investing in NYC means getting a considerable amount of money in rental income. The average studio is NYC is being rented for $2,000 minimum per month. This is extremely an profitable rental income considering the price you pay for the property.
Related: Top 5 Major Cities for Buy-and-Hold Investment Properties
Los Angeles
San Francisco
The growing real estate market of San Francisco has coincided with it becoming a major tech hub for companies from around the world. This resulted in many professionals moving to San Francisco, and ultimately renting more properties causing rentals to rise. The average studio apartment in the San Francisco Bay area is priced at around $300,000. The high investment number shouldn’t come as a concern though, because the average rental income for a studio apartment in San Francisco in today’s market is around $3,200 per month, meaning that the investor can have a full return on investment within 10 years while having a rental property that will most likely increase in value in the years to come.
Conclusion
Investing in studio apartments is the smart step for many real estate investors who are looking to find a cheap investment opportunity in a big city. Investing in urban areas means that vacancies will be a non-issue. Without suffering vacancies, investors can focus on ways to increase profit and pay off their investment quicker. This is why studio apartments are still one of the biggest investments around the United States.