Studio Apartment – Why Invest in a Studio Apartment?
More real estate investors are focusing on the studio apartment’s investment possibilities, offering the ideal combination of reliability, convenience, and investment returns.
More than ever, studio flats are being constructed in the urban regions of the United Kingdom, where there is a high demand for accommodation. Investing in a studio apartment may result in greater rental returns, higher capital gains, and a consistent flow of rent-seeking tenants, particularly young employees and students.
To help you decide whether or not a studio apartment is suitable for you as an investor, we break down what makes a studio apartment different from a flat and whether or not you can expect a significant return on your money.
What is a Studio Apartment?
In the United Kingdom, the popularity of studio flats or apartments has increased during the past decade. Studio apartments are described as self-contained living spaces. Typically, the bedroom, living room, and kitchen share an open floor layout with a separate bathroom.
Studio apartments are often known as “bachelor apartments” and “efficiency apartments.” Some studio apartments will have a wall or sliding doors separating the living space from the sleeping area, while others will be separate rooms. Typically, a studio apartment will range from 400 to 600 square feet.
Why Should You Consider Purchasing a Studio Apartment?
If you are an investor searching for your next investment property, you may want to consider a studio apartment. Here are a few advantages that a studio apartment might provide:
Reduced Purchase Cost
Overall, studio apartments are less expensive than one-bedroom apartments and other property categories. Therefore, it is a more reasonable and safer bet than larger properties. For investors, studio apartments might be the step they have been looking to get onto the highly competitive property ladder.
In addition to giving investors a reduced purchase price (because of their smaller size), studio apartments typically have fewer overall expenditures for management, taxes, and fees. In addition to the potential for high rental returns, many properties are in great demand from specific tenant categories.
Profitable rental yields
Despite the lower overall buying price, city-centre studio apartments are frequently in great demand among particular renter groups. Studio flats may yield approximately 8 percent in the correct location, making the returns highly appealing. With rents on the rise and expected to grow over the next few years, studio apartments may be an excellent investment with greater capital appreciation.
The majority of city inhabitants seek contemporary, no-repair studio apartments that are more cost-effective and ecologically friendly. Due to their smaller size, studio apartments are typically easier to maintain and have fewer repair and maintenance costs. In addition, because the living area is contained in a single room and they are often constructed more recently, they tend to have fewer issues than other forms of housing.
Because studio apartments are often newer and have smaller square footage, utility costs are typically lower. In addition, with more modernised heating systems, the chance of eco-friendly products with lower energy expenditures increases. In comparison to a house, buildings with lower operating expenses tend to be more enticing, and for a younger renter population, being environmentally friendly might be a plus.
Attractive to Tenants
Studio apartments often provide couples, young professionals, and students seeking a well-located living space with a modern and fashionable interior. Therefore, it is more probable that your investment will be lucrative if you target these ideal rental demographics.
Studio apartments allow residents to live in areas that would otherwise be too expensive. For instance, purchasing or renting a home in the heart of a popular town or city would be considerably more costly. In addition, studio apartments are often less expensive, making them an attractive alternative for renters.
Climb the Property Ladder
With a cheaper purchase price and lower – or often free – stamp duty (depending on property price), studio apartments may be an excellent option for investors and first-time purchasers to climb the property ladder. Lower purchase prices also make it simpler to obtain a mortgage since the standard 25 percent down payment required will be less than with a bigger, more costly house, and you are more likely to qualify for a decent studio interest rate.
Is a Studio Apartment a Good Investment?
Studio apartments are a wise option for first-time purchasers, novice investors, and investors with a more conservative outlook. In cities with expanding populations, apartment living and the popularity of studio flats are on the rise. As this sort of property will probably stay popular, you will always have a steady stream of tenants interested in renting your home. With property prices at an all-time high and the number of people renting for more extended periods on the rise, studio flats are expected to continue in demand in the coming years.
Why Should You Invest in Studio Apartment?
A further advantage of investing in a studio apartment is that the stamp duty is minimal or nonexistent due to the lower price.
For instance, if you purchase a £125,000 studio apartment for rental purposes, you will pay no stamp duty. However, if the purchase price is greater than £125,000 but less than £250,000, the stamp duty will be 1%. This corresponds to a stamp duty cost of between £1,250 and £2,500. This is true at the time of writing the article.
What Returns Should You Anticipate from a Studio Apartment?
As previously mentioned, studio flats often offer substantial capital appreciation and excellent rental returns. Those in rapidly growing urban centres, such as Birmingham, Manchester and Liverpool, are highly demanded. Studios can attract 1-2% better rental returns than one- or two-bedroom apartments.
From an investment point of view, studio flats might be more cost-effective. In addition, they often offer greater yields and have a strong demand among tenants. But what is an acceptable rental return for a studio? A return between 5% and 8% is ideal. Calculate the rental yield before making any investment decisions.
What You Should Know Before Purchasing a Studio apartment/Flat
Location is crucial for any real estate investment, especially for studio properties. If you are searching for buy-to-let property for young professionals, you should acquire a home near a central business district or city centre.
If you wish to target the student market, you should seek places near educational centres or university campuses in university towns and cities. Quality studio flats in great central locations will always be in demand. This guarantees that the property generates enough rental income and high capital appreciation.
Think About Your Investment Priorities
Investors seeking short-term cash gains would wish to avoid studio units. Typically, larger flats will have greater short-term capital appreciation. On the other hand, a studio apartment may be the ideal investment for those searching for high rental yields and a simple, uncomplicated investment that requires minimum effort.
Consider the Studio Apartment’s Resale Value
You must pay great attention to space, design, and arrangement with a studio apartment. When the real estate market is stagnant, studio flats might be more difficult to resell, especially compared to other home types. You may prevent resale difficulties by purchasing a house in a flourishing area. It’s essential to have an apartment that isn’t too cluttered and well-decorated.
What are The Top UK cities for Studio Apartment Investments?
In the major cities of the United Kingdom, architects include studio flats in their designs. In prosperous areas, studio apartments sell out rapidly due to their appeal.
Here are some flourishing UK cities where studio apartments are a worthwhile investment :
The housing prices in Liverpool are rising quickly! There are a lot of high-growth regions where studio apartments are located. The average yield for studio apartments in Liverpool is 5 percent. In specific postcodes, such as L1 in the city centre, yields of up to 10 percent are feasible. Across the city, revitalisation projects are reshaping the landscape, and now is an ideal time to invest in a property that may produce solid returns and capital appreciation.
Searching for a studio apartment in Manchester might be just as profitable as searching for one in Liverpool. The strong demand for studio flats in the city is due to the abundance of employment opportunities and the number of prestigious colleges. Numerous young professionals are drawn to the city centre as a result.
In the central region of Manchester, the average monthly rent is over £1000, and the average yield is over 5%. By 2025, house prices in the North-West are expected to have increased by 28%. This alone makes a studio apartment an excellent source of capital growth.
For investors, there are several advantages to purchasing studio flats. They’re a worthwhile investment because of their cheaper entry cost and more significant dividends. A wonderful investment property may be obtained by buying the ideal apartment in the ideal location.
According to the current market trends, studio apartments are quite famous and are likely to stay so in the coming years. With property values and rents at all-time highs, this is especially true. So if you’re a first-time home buyer or investor trying to reduce your risk, we believe a studio apartment is an excellent choice. Find more about studio apartment investments in the UK by contacting our specialists.