Why Invest In a Studio Apartment?
Offering the perfect mix of stability, affordability and investment returns, more property investors are turning their eye to the investment potential of a studio apartment.
More than ever studio apartments are popping up in fast-growing cities across the UK, particularly in city centre areas where there is strong demand for housing. Investing in a studio apartment can mean higher rental yields, greater capital gains and a steady stream of tenants looking to rent – namely young professionals and students.
As well as offering strong financial returns, investing in a studio apartment can also have other benefits which we’ll touch on in this article. All of these factors make studio apartments an attractive option for investors looking for a low-risk investment with strong potential for growth.
If you’re wondering whether you should invest in a studio apartment, the difference between a studio apartment and a flat and whether you’re likely to see a high return on investment, we take a closer look at what you need to know as an investor, right here.
What is a Studio Apartment?
The popularity of a studio flat or studio apartment has been on the rise across the UK in the last decade. A studio apartment is defined as a self-contained living space. Usually, the bedroom, living room and kitchen are all within the same open-plan space alongside a separate bathroom.
Studio flats may also go by the name of “bachelor apartments” or “efficiency apartments”. The exact floor plan of a small apartment studio flat will vary, and some may have a wall or sliding doors to separate the living area, while others will be one room. Typically, a studio flat will fall within the 400 – 600 sq ft size.
These types of apartments are ideal for single people or couples who do not need a lot of space. They are also becoming increasingly popular among those who want to live in a city center and be close to amenities. Small studio apartments are also much cheaper than larger homes, making them an attractive option for those on a budget. Additionally, studio flats require less upkeep, as there is only one room to clean and maintain.
What is the Difference Between a Studio Flat and a One-Bed Apartment?
The key difference between a studio flat and a regular apartment is that a studio flat usually has an open floor plan where everything is contained within one room. In a one or two-bed apartment, each room is separated by walls, giving each key living area – bedroom, living room, kitchen – its own space. However, some one or two-bed apartments may have an open kitchen/ living area.
A studio flat typically has a kitchenette, a small living area, and a sleeping area. It may also have an enclosed bathroom. The sleeping area is usually separated from the living area by a partition wall or by furniture. The kitchenette is usually equipped with basic amenities like a sink, stove, refrigerator, and cupboards. Some studio flats may also come with a balcony or terrace.
Why Consider Investing in a Studio Apartment?
If you’re an investor looking for your next property purchase, a studio flat might be something to consider. Here are a few of the benefits that a studio apartment can offer:
Lower Purchase Price
Overall, studio flats are cheaper to buy than one-bedroom apartments or other types of property. More affordable and a safer option than bigger properties like HMOs, for investors, studio flats might be the step they’ve been looking to get onto the increasingly competitive property ladder.
As well as studio apartments offering investors a lower purchase price (due to their smaller size) they also generally offer lower overall costs in terms of maintenance, taxes and fees. With high demand from certain tenant groups, they deliver potentially high rental yields, too.
Attractive Rental Yields
While the overall purchase price is lower, city centre studio apartments tend to be in high demand from certain tenant groups. Studio apartments in the right location can attract yields of around 8%, making the returns attractive. With rents on the rise and set to continue to increase in the coming years, studio apartments can be a great investment that delivers strong returns.
City dwellers tend to be looking for a modern studio flat that they don’t have to fix up, that is more economical and environmentally friendly. Due to their nature of being smaller in size, studio apartments tend to be easier to maintain and come with lower repair and maintenance bills. With the living space all in one room and generally being newer build, they tend to experience fewer problems when compared to other types of housing.
Because they tend to be newer and take up lower square footage, utility bills in a studio apartment tend to be cheaper. With more modern heating and lighting, there’s a higher likelihood of environmentally-friendly appliances too with lower energy bills. Lower running costs tend to make properties appealing when compared to a house, and being more environmentally friendly can be a positive for a younger tenant demographic.
Appealing to Tenants
Studio apartments tend to offer a modern, stylish living space that is attractive for couples, young professionals and students looking for a living space that is well located. By targeting these prime rental groups your investment is more likely to be profitable to both these rental demographics. Additionally, studio apartments are often more affordable than traditional one-bedroom apartments. This is especially attractive to those who are looking for a place to live but may not have the budget for a larger space.
Studio apartments give tenants the chance to live in an area that would usually be cost-prohibitive. For example, in the centre of a popular town or city, owning or renting a house would be much more expensive. Studio apartments tend to be cheaper, making them a good option for tenants. This means that tenants can enjoy all the benefits of living in a busy area without having to worry about being too far away from home. Additionally, studio apartments are also a great choice for those who want to be close to their work or university.
Get onto the Property Ladder
With a lower purchase price and lower – or sometimes zero – stamp duty (depending on property price), studio apartments can be a great way for investors or first-time buyers to get onto the property ladder. Lower purchase prices also make it easier to get a mortgage as the typical 25% deposit needed will be lower than with a larger, more expensive property and you’re likely to get a good studio interest rate on the mortgage.
Is Buying a Studio Flat a Good Investment?
You may be wondering, “are studio flats a good investment”? Studio apartments make a particularly great investment for first-time buyers, new or more conservative investors. If you’re lucky enough to buy a studio apartment outright, you can enjoy higher than average yields that studio apartments tend to deliver. Even if you do get a mortgage, with a large studio apartment to rent in the right location, you can usually cover the cost of maintaining the property and have money to spare.
In growing cities with rising populations, apartment living is on the rise and so is the popularity of studio apartments. With this type of property likely to remain popular, it’s likely you will always have a stream of tenants looking to rent your property. With property prices at an all-time high and the number of people renting for longer increasing too, studio apartments are likely to remain popular for the long term.
Why Invest in a Studio Apartment?
Due to the comparatively lower price, another advantage of investing in a studio apartment is that the stamp duty is low or even non-existent.
For instance, if you buy a studio flat to rent out worth £125,000 in Liverpool, the stamp duty will be zero. If you purchase one that costs anything above £125,000 and up to £250,000, the stamp duty will be 1%. This equates to a minimum of £1,250 to a maximum of £2,500 in stamp duty. You can read more about stamp duty in this article or get more information on how to avoid stamp duty on a second home here.
What Yields can you Expect from a Studio Apartment?
As we’ve mentioned before, studio apartments tend to deliver high capital appreciation and good rental yields. Those in city centres that are rising in popularity – think Manchester and Liverpool – are in huge demand. Studios can command rental yields of 1-3% higher than one or two-bedroom flats. Capital appreciation of 10-20% per year depending on the area, is in favour of studios as well.
When looking from an investment perspective, studio apartments can be more affordable. Also, they generally deliver higher yields and have a high tenant demand. But what is a good rental yield for a studio apartment? A good return of 5-10% is ideal. Be sure to work out the rental yield before making any investment decision. Read more about what makes a good rental yield in this article.
What You Need to Know Before Investing in a Studio Flat
Location, Location, Location
Location is always important in any property investment, but more so for studio properties. If you are looking for a buy-to-let for young professionals then you should purchase a property near a work hub or city centre.
If you are looking to target the student market, look for locations in proximity to educational hubs or close to campus in university towns or cities. Quality studio apartments in enviable locations in the heart of the action will always be in demand. Regardless of tenant groups! This will ensure you can generate decent rental yields and strong capital growth from the property. It is also important to consider the local amenities and transport links.
When assessing a property, you should look at the local area to determine if it is an up-and-coming neighbourhood or an area that is already thriving. The level of demand for rental properties in the area should be taken into account when making a decision.
Consider your Investment Priorities
Investors looking for short-term capital gains may want to steer clear of studio apartments. Usually, bigger apartments will deliver stronger short-term capital growth. Those looking for strong rental returns and an investment that is quite straight-forward without too much to think about might find a studio flat the perfect investment.
When it comes to investing in property, it is important to consider both the short and long-term objectives. While studio apartments may not be as attractive for short-term gains, they can be an excellent choice for long-term investments. Nevertheless, it is up to you as an investor and what your goals are.
Think about your Studio Apartment’s Resale Value
With a studio apartment you should pay close attention to design and decor, space and layout. If the property market is slow, studio apartments can sometimes be trickier to resell. Especially when compared to other types of housing. You can avoid resell challenges by ensuring you purchase a property in a thriving location. Having an apartment that isn’t too cramped and is well-presentable in terms of decor.
Make sure there are plenty of natural light sources, and that the property is well-maintained. You should also consider any potential renovations or improvements. A simple renovation can make all the difference to a studio apartment’s resale value.
What are the Best UK Cities to Invest in a Studio Apartment?
Across the UK’S major cities, developers are incorporating studio apartments into their plans. Due to their popularity these sell out quickly in thriving locations.
If you’re wondering where to invest in a studio apartment, here are some thriving UK cities:
Liverpool is seeing property prices rise rapidly! There are a number of high-growth areas where studio flats can be found. Average yields for Liverpool studio flats are 5%. In some postcodes, like the city centre L1, yields of up to 10% are possible. Across the city regeneration projects are transforming the area, and now is a great time to snap up an investment property that can deliver decent yields and strong capital growth.
If you need more info on which Liverpool postcodes are the best choice, this article is for you.
Looking for a studio flat in Manchester can be equally as lucrative as a Liverpool studio flat. Plenty of job prospects, as well as a number of popular universities in the city, mean demand for studio apartments, is high. The city centre is a particular hotspot as many young professionals seek to live in this area.
Average rent in the central area of Manchester is over £1,000 per calendar month, and average yields are around 5%. House prices in the North-west region are expected to increase by 28% by 2025. This alone is making a studio flat a great capital growth generator.
Here you can find more information about Manchester house prices and the property market as a whole.
Studio apartments offer a lot of positives for investors. From their lower purchase point to their ability to generate higher yields. Not to mention prime locations and lower maintenance costs. Investing in the right flat in the right location can deliver a great investment property.
Generally, studio apartments are in strong demand and expected to remain so in the future. Especially with property prices at an all-time high and rents at record rates. If you’re a first-time buyer looking for the right property, or first-time investor looking to minimise risk, we think a studio apartment makes a great option. To find out more about investing in a studio apartment in the UK, get in touch with our team.