Investing in studio apartments is quickly becoming a successful form of real estate investment. But why are studios, as they are called, becoming such a common thing in all cities around the US? The sudden rise of studio apartments in recent years has been driven by demand shown for this type of properties by both renters and buyers. The fact that studio apartments are appealing to so many people makes them one of the smartest and cheapest investments for real estate investors.
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 this group of potential tenants think is important in order to succeed. Studio apartments must be equipped with what people who are renting them are expecting; this is how you make money in studio apartment rentals.
Why the High Demand for Studio Apartments?
- Probably the most important factor for the competition to rent studios is the price that tenants pay. Studio apartments usually are the go to property type for working class renters because they are looking for an affordable and modern style of housing. Young professional, students, and most people on a low budget rent studios because it gives them a chance to pay less rent in order to save the remaining money for other things, including for buying their own home.
- Studios offer the chance to live in central areas of major urban cities without paying too much rent. This is exactly the case in cities like New York, Los Angeles, and San Francisco amongst many others. This makes a lot of sense since the renters are working people who need to attend jobs that will probably be located in the central part of large cities.
- Students and young professionals actually prefer living in studio apartments because they are more practical for their use. They 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.
- Studios can be a great option for short-term rental use. Visitors and tourists usually want the cheapest options available when they are travelling. Using platforms like Airbnb, users are targeting studio apartments for their holidays rather than bigger houses where they’d feel that it was money wasted on a bigger space.
Related: Is Buying a House Becoming Obsolete With the Younger Generation?
4 Reasons to Invest in Studio Apartments
1. Perfect Investment for Beginners
While real estate is considered a stable and safe investment, it is worth pointing out that inexperience can get the better of some real estate investors. A studio apartment doesn’t require a lot of experience because it doesn’t need as much effort or money as a single family house or even more so a multi family home. If we compare the maintenance, repairs, and other costs of a 40-square-meter studio with those of a 150-square-meter house, then it becomes clearer that a studio apartment is a more viable option. Studios are generally less effort because it will be easier for inexperienced investors to find tenants for their properties.
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2. Studios Cost Less
Investors who are looking to purchase a rental property without having the need to get a loan and pay years of mortgage payments find studios as a perfect option. Saving big bucks to purchase a house can take many years and/or money lost in interest payments. Even for potential investors who don’t have enough money to purchase a studio, this is a safer mortgage option because of its lower price range. Mortgages for studio apartments will have less payments and shorter duration.
3. Rental Income
Investing in a smaller sized real estate property doesn’t mean that there are no possibilities of serious profit. Studios still hold value in the rental markets, and the level of profitability will depend on the location and quality. In New York City for example, the average studio apartment that has 1 bedroom has a rental income between $1,500 and $2,000 per month. This shows that studio apartments have the ability to give an excellent return on investment for the owners.
4. Studios & Airbnb: A Perfect Match
The tourism industry has gradually progressed to free itself from the shackles of hoteliers because of the emergence of Airbnb. However, users of the platform 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 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 Airbnb occupancy rates, then it generates $4,000 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: Best Cities for Airbnb Occupancy Rates
Are Studios Worth It?
The answer to that question is a convincing yes. Studio apartments can be a great source of rental income that would cost real estate investor half of what other investment properties might cost. The demand for studios also eliminates risks and vacancies year round, which gives owners peace of mind regarding managerial issues of real estate investing. Investors who succeed in studio apartment investments can build on that to create a real estate portfolio that stems from their experience with that type of investment. They would understand its needs, best locations, tenants, and when to rent short-term or long-term. The opportunities that come with studio apartments are worth it considering this low-risk, low-cost income property.
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