Article by Adrianne Kalla
Studio apartments are becoming a popular choice not only for homeowners and renters but also for real estate investors. They’re small, reasonably priced, well-located and are ideal for those looking to downsize and move closer to the city, which is becoming a common trend for Australians. To help you decide whether or not it is worth investing in a studio apartment, we’ve summarised the key benefits and drawbacks that come with owning one of these unique properties.
What is a studio apartment?
Not to be mistaken with a one-bedroom apartment, a studio apartment is typically one large room and a bathroom. In big cities like Sydney and Melbourne, these apartments can get as small as 15sqm with larger ones usually being around 40sqm.
Studios have become a popular choice for students, empty nesters and young professionals given their relative affordability, prime location in inner-city hubs and hip, minimalistic design. They’re easy to style, keep clean and are perfect for people who are out and about and want the freedom of living close to a major city or university without having to endure a crowded share house.
Location, location, location
Location is what will determine the value of investing in a studio apartment. Studio apartments are typically nestled in the heart of big cities, making them convenient for young, on-the-go professionals or students. Properties with easy access to the city historically have higher occupancy rates. This gives some peace of mind as an investor as you’re not having to worry about the apartment being vacant for long periods of time.
Easy to rent, tricky to buy
The key factor attracting both investors and tenants to studio apartments is the affordability. The rental yield of studio apartments is higher than other property types by 1 to 1 ½ per cent. They’re also a great choice for Airbnbs, given their size and typically central locations.The strong rental yield can come at the cost of capital growth, however, with less land resulting in higher prices.
It’s also trickier to secure finance on studio apartments as opposed to other dwellings, with some lenders having strict policies surrounding property size and layout. Some require a property to be larger than 40 or 50sqm and/or there must be partitions between spaces, particularly bedrooms. It is worth noting that when lenders do approve finance applications for studio apartments, you will still need to provide at least a 20% deposit.
What’s the verdict?
Investing in a centrally-located studio apartment does have a lot of benefits. Your tenants will be attracted to the idea of a single, multi-use space, as it means there is less room to create clutter, cheaper utility bills and less furniture to buy. Looking to the future, there is strong resale value in studio apartments as lower prices mean lower stamp duty, and studios located in basic complexes (e.g. without a swimming pool, fitness centre, concierge etc.) will have much lower strata costs. There are risks attached to any investment, and it’s worth remembering that, although rental yield is high, capital growth is lower for studio apartments. Your best bet is choosing to invest in a property in a location so good that tenants are willing to sacrifice space for convenience.
Have a bit more cash to splash? Perhaps a penthouse apartment has more appeal. There are of course pros and cons to buying a penthouse apartment that you should consider before signing on the dotted line.
Savvy buyers may also look at purchasing a dual key property. Living in one section and renting out the other.
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