Are Efficiency Apartments Good Real Estate Investments?

Efficiency Apartment Investment Considerations

Efficiency Apartments are a great real estate investment as long as the buyer has done their homework. Efficiency Apartments are most valuable in high-density urban neighborhoods with more up-scale appeal for renters. Rentals for Efficiency Apartments can be lucrative due to the demand for smaller, shorter-term rental units across a wide range of demographics. Businesspeople, students, transitioners, and many other renters are in the market for the right kind of apartment in the right environment.

Why Rent an Efficiency Apartment?

The biggest factor involving the decision to rent an Efficiency apartment is cost. In many large metropolitan cities, traditional apartments can go for as much as $2,750 per month or more. A Studio apartment can rent for around $2,000 a month. An Efficiency apartment usually rents for about half the cost of a traditional apartment. That makes Efficiency apartments attractive to a lot of renters for a lot of reasons. In many areas, the availability of Efficiency apartments is limited despite the increasingly high demand for lower-cost alternatives, making them a great investment opportunity.

Efficiency Apartments versus Studio Apartments – What’s the Difference?

This is a big difference between what is called an “Efficiency” apartment and what has traditionally been called a “Studio” apartment. Each type of dwelling has its advantages and disadvantages. The main difference between the two is what they are supposed to have for creature comforts. In both cases, the apartment area itself is usually an open space without additional rooms separated by walls. Some studio apartments may have dividers that break up the open area and separate off a sleeping area. For the most part, however, both types of apartments work on the same principle of a lower-cost option to traditional apartments for singles or couples without children.

Which Apartment is a Better Investment

For real estate investors, the differences between the two styles of living spaces are significant. Efficiency apartments are designed to be exactly that – efficient. Think of a nice extended stay hotel room. An Efficiency apartment has a sink and toilet but no bathtub, just a shower. There is no oven and stove in an Efficiency Apartment as there would be in a Studio Apartment. Efficiency Apartments generally use a couch that folds out to a bed where a Studio apartment may have both a couch and a bed. Overall, the costs of the appliances, bathtub, and extra furniture influence both the purchase price and the maintenance costs of owning a Studio Apartment. Where an Efficiency Apartment shines is in the lower investment cost along with reduced maintenance expenses.

Other Financial Advantages for Investing in Efficiency Apartments

Due to a difference in contents and square footage, most Efficiency Apartments are smaller than Studio Apartments. That means more rental units per building in many cases. More rental units means more gross revenue. It also means each apartment is generating more dollars per square foot. For real estate investors looking at the long term picture, this could mean enhancing the time required to gain valuable equity. That additional equity can be used to acquire more real estate in a shorter length of time than traditional rental properties may require. For those investors looking for a shorter-term opportunity, Efficiency apartments can be purchased, remodeled or rehabilitated, and re-sold quickly because the time it takes to perform the remodeling is much less and the costs are much lower.

Renters Market for Efficiency Apartments

Because Efficiency apartments are considered a short-term rental, the turnover rate of occupants will be higher than for traditional apartments. While some investors may see this as a negative, smart real estate investors recognize the turnover factor as an opportunity to gain additional income. When the economy, either local or national, heats up and jobs are scarce, many people will take temporary jobs or permanent jobs in a new city. For Efficiency apartment owners, this can be good news. In either situation, a new job means finding a new residence and Efficiency apartments are perfect for these renters. Looking for a home can take time and might interfere with new job duties. An Efficiency apartment provides a great landing spot to use while searching for the right home in the right area. Part-time or short-term employees can better afford an Efficiency apartment and aren’t tied into a long-term rental agreement.

The Appeal of Efficiency Apartments

Renters for Efficiency apartments come from all walks of life, Seniors with fixed incomes who don’t want or need a large living space find Efficiency apartments more conducive to their lifestyle. Handicapped renters who don’t like maneuvering through doorways or up and down stairs find the living space much more functional for their needs. Students who spend most of their time outside the apartment find the cost and privacy much more preferable to dormitory or “Frat house” living and the costs are comparable. Folks experiencing divorce as well as newlyweds can have an affordable, comfortable space while they move into the next phase of life. Out-of-town businesspeople who don’t want to commute weeknights after work find Efficiency apartments far preferable to hotels because they’re often close to where they work. Family members who live outside the city but need a place to stay during the week to take care of relatives like Efficiency apartments because they don’t need to spend money to have all the kitchen appliances and space an apartment contains.

Location, Location, Location!

Ever heard that one before? It’s as true for Efficiency Apartments as it is for any other real estate investment. Efficiency apartments perform well as an investment in a specific set of conditions. Due to the size of the space and other factors, it’s often a good idea to have parks, shopping, restaurants, and other distractions close by the building property. Many Efficiency apartments house young people and students who prefer outdoor spaces. Seniors want to have services they need like pharmacies and medical clinics nearby whenever possible, as well as restaurants and parks. Most Efficiency apartment buildings are situated in more upscale downtown areas with a multitude of coffee shops, clothing stores, smaller grocery outlets, and entertainment venues nearby.

How to Invest in Efficiency Apartments

The real estate market for Efficiency apartments is extremely limited. A US News and World Report article estimated that only 4% of the real estate market involves Efficiency apartments and Studio apartments together. That’s a pretty narrow slice of the real estate investment opportunity pie. However, there are resources and information that helps locate and identify existing Efficiency apartment real estate properties as well as real estate that can be converted to Efficiency apartments. Investors can also search for available properties by contacting local real estate agencies and real estate websites like Zillow.com, Realtor.com, Craigslist.org, and other commercial property listing sites. Investment requires performing an in-depth analysis of properties, economies, markets, and other important considerations. It’s always best to consult with a professional before deciding to invest in any real estate opportunity.

Who Should Invest in Efficiency Apartments

Regardless of experience or background in real estate investing, chances are the lack of available Efficiency apartment properties results in a larger group of inexperienced investors than experienced investors. Many factors like market suitability and sustainability must be analyzed diligently before determining potential returns on investment properties. Real estate investors also need to understand the cash flow, costs, and potential fluctuations in the local rental market. Out-of-town investors should work with a trusted inspection service to evaluate a property’s condition and suitability for investment. With all the safeguards available to investors, it’s important to perform detailed due diligence to determine if an investment in Efficiency apartments is the right decision.

When to Invest in Efficiency Apartments

Timing for investing in Efficiency Apartments is critical. The markets for apartments are best near high-density metropolitan areas with large populations. Places like large military installations located near population centers and concentrations of universities and colleges are excellent locations to prospect. Areas with high concentrations of seniors are another target market. High-density city centers undergoing renovation and revitalization efforts are a good place to start as well. More and more, the construction and availability of Efficiency apartment real estate investment opportunities are growing all across North America. As population growth and economic growth continue, the demand for Efficiency apartments will only increase and become more popular among real estate investors.

Learn More

Many resources exist which can provide information, trends, and guidance for identifying and investing in Efficiency apartment opportunities. Online resources offer valuable statistics, prices, and other data which help investors make decisions. Real estate investment newbies and old hands always benefit from doing their homework before taking the final steps to invest. Real estate investment seminars, webinars, and advice are available from investment professionals, real estate agents, and property developers to help fill in the gaps. With the right opportunity in Efficiency Apartment investment can come big rewards.

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