Match The Investment Property To The Market: Choosing Studios, One or Two Bedroom Apartments

When you’re looking at investing in property – especially in apartments – you will have to decide whether you want to focus on studios or one and two bedroom places for sale.  There are pros and cons to each type of property, and which one you choose will depend greatly upon your budget and your long-term strategic plan but also the needs of potential tenants in the area.  Let’s look at some of the factors you should consider when choosing the number of bedrooms your property should have.

 

Studio Versus One or Two Bedroom Apartments

Choosing the number of bedrooms your off the plan apartment should have will depend greatly on the rental demand for the area.  Studios, for example, makes them ideal for first time investors who want to break into the market but don’t wish to overleverage themselves or be locked into an expensive mortgage.  Especially off the plan and brand new studio apartments can provide great value for money, especially if they are located in inner city locations where rental demand is highest.  According to residential property investment experts, studio apartments should be seen as a long-term investment – over a ten to 15 year period – because they will grow in value during this time as well as provide favourable rental income.

Another consideration is that traditionally studio apartments and units are rented out by students (a lot of the time they are international students who are studying at university).  Having your property appeal to a relatively niche market can be both a good and bad thing:  on the one hand, you might find that your apartment does not appeal to anyone in the area and it might sit untenanted for a period of time, but on the other hand if you pick your location properly – for example, near to where students tend to live or around educational facilities – then you are more likely to find that your residential property investment is in great demand.

Because they are generally larger in size, the initial outlay for one or two bedroom apartments will naturally be more expensive than for a studio, however over the long term your capital growth is also likely to be higher, and residential property investors will generally not be subjected to the same strict rules around lending as with a studio apartment.  One or two bedroom apartments also tend to attract a wider range of tenants than studios – your property might, for example, appeal to young professionals who want to live in the city or a small family who need to be near to transport links.

If you are planning on investing in property and looking at a studio rather than one or two bedroom apartment you need to be aware that the majority of banks and other mortgage lenders have stricter lending rules about studios, including expecting a higher initial deposit for the investment – generally the smaller the property the larger the deposit will have to be to offset the lender’s risk.  You may also be required to have lenders’ mortgage insurance.[i] The best idea if you are looking at off the plan or brand new apartments is to contact a property investment expert who will be able to assist you create a long term investment plan and help you explore opportunities that are right for you.

 

[i] http://news.domain.com.au/domain/real-estate-news/big-ask-for-a-small-start-20120727-22wrg.html

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