Yields of up to 6% draw investors to studio apartments

Yields of up to 6% draw investors to studio apartments
Cassidy KnowltonDecember 8, 2020

They’re low-maintenance, affordable and concentrated in the hippest parts of town. No wonder studio apartments are proving hard to resist for buyers and tenants alike.

For investors, studios are a more affordable and safer option than bigger properties and can provide a higher rental return.

Andrew Donnelly, CEO of property marketing firm Whiterock Capital Partners, says studios can command rental yields of 1% to 1.5% higher than one-bedroom and two-bedroom apartments.

“That means from an investment perspective, studios are affordable to buy but the yields are much better than bigger properties,” he says.

“Studios offer yields closer to 6%, whereas a one-bedroom apartment will provide a yield of 5% and a two-bedroom a yield of 4.5%. And when it comes to renting out studios, there’s a queue halfway down the street with people wanting to rent these properties.”

Real estate agent Eileen Carroll of Ray White Glebe in Sydney recently sold a studio apartment on Ward Avenue, Potts Point for $253,000. The property was rented at $380 a week on a casual basis but is more likely to secure a weekly rent of $350 on a longer lease. A $350 weekly rent would still deliver an impressive rental yield of 7.2%.

By way of comparison, Carroll sold a two-bedroom apartment on Cook Street, Glebe for $505,000. With a potential weekly rent of $500, the two-bedder would return a 5.1% rental yield. “Studios definitely offer a better rental return for investors,” Carroll says.

Luke McDonnell, an agent with Richardson & Wrench Elizabeth Bay, says studios in Sydney’s inner east can command rental yields of 5.5% versus a rental yield of 4.8% for two-bedroom apartments.

However, he says investors after quick capital gains should steer clear of studios. “It depends on why they’re investing,” McDonnell says. “If it’s for short-term capital gains, I wouldn’t advise them to buy a studio as capital growth isn’t as strong in the short term as it is for bigger apartments.

“But if you’re looking for strong rental return and an investment you don’t have to think about, then go for a studio.”

Melbourne agent Nay Baeck, of Little Residential South Yarra, agrees strong rental return is the most attractive feature of studios for investors. “You can’t expect as much in capital growth, but the rental income is very good,” she says. “Studios are popular with tenants because they are cheaper and easier to manage.”

A concentration of studios in Melbourne’s CBD attracts overseas students who pay high rents, according to Baeck. In this case, furnished apartments tend to fare better in attracting tenants.

Yesterday we looked at the increasing numbers of owner-occupiers and investors who are buying studios, which have sometimes been renamed suites. 

 

 

 

 

 


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