How do we feel about studios?

Question

I'm looking for my first rental and have seen lots of studios pop up in my search. I have found one that looks interesting as it fits my budget and seems to provide positive cash flow from scratch. What are your thoughts on studios? Mainly focus is: Highrise in the lakeview/Uptown area.  Thank you!

John Warren · Answer

@Fernando Lozada as long as the numbers work, I guess they are fine. I have normally not found the spread to be that great on them. I own several buildings with studios, and they are my least favorite unit type. We get shorter tenured tenants in them versus in a 1 bedroom.

Fernando Lozada · Answer

This is so interesting, thanks for sharing! One of my biggest concerns was Tenant Quality. In your experience with studios, does this improve with a better location? I'm focusing primarily on Lake view/LV east/Uptown.

Henry Lazerow · Answer

In Chicago on the north side studios rent very fast as so much demand for affordable units, I would say even faster then 2/3 br units when priced right. I think in less nice areas the tenant quality would probably go down though and vacancy up. I have a few clients with studios in suburbs and they said its significantly more turnover there.

Jennie Berger · Answer

I would echo what @Joe Freeman & @John Warren wrote about shorter term / mid term tenants. Studios are IDEAL for individual travelers coming to the city for a 32+ day stay.

I would say the bulk of these travelers are traveling medical professionals, international & U.S. based students on internship / rotations / abroad programs, business travelers (esp international travelers), and traveling theatre troupe individuals (think about the actors who come to Chicago for Broadway tour shows by themselves).  Rental income can be anywhere from 50%-150% more than what you'd earn as an LTR, depending on your design, location, whether or not you have an in-unit washer/dryer (uncommon in older highrises), proximity to the El train, and complimentary (or easily available in-building) parking along with being pet friendly.

This said, the biggest hurdle with highrises in addition to HOAs (which can go up and/or CHANGE at ANY time) is the rental restrictions. Make sure you understand them clearly and know what you're getting into. Have a plan A & B. If plan A is a mid-term furnished rental-- and for some reason the HOA changes their restrictions-- then you'll want to make sure the numbers work as an LTR. Prior to purchase, of course.

If you go the MTR route, your design should kick a$$.

Good luck! :)

Jennie

Joe Freeman · Answer

@Fernando Lozada With studios some of my clients have found a lot of success in MTR by renting out to traveling nurses and flight attendants.

It's very important also to make sure you know any and everything about the HOA for that studio because typically there will be rules and regulations that could cause some issues for you wanting to rent out the studio. Whether there is a rental cap in place for the HOA, or possibly they don't allow rentals at all. If they do allow rentals though, next question should be what types of leases does the HOA allow.

Happy to share any of my experiences with you regarding managing condo associations here in Chicago and some of the issues/concerns owners have with rentals in HOA's.

Jonathan Klemm · Answer

To echo on @Henry Lazerow post...You will definitely find higher quality tenants on the north side of Chicago in the lakeview and uptown neighborhoods.  Plus a quality product will rent out quickly...think clean and simple, but with nice finishes.

Nonetheless...there are in fact professional tenants EVERYwhere so proper due diligence and screening are still needed.  @Fernando Lozada

Bonnie Low · Answer

Studios can be a great fit for travel nurses and sometimes for digital nomads who want to be in metro areas. That said, many studios are located in condos or units with HOAs so that can be a bigger barrier than the unit itself. Just make sure if you're in an HOA that you know what their rules are for leasing it out.

Jonathan Klemm · Answer

Hi @Fernando Lozada - If the numbers work...go for it!

Oftentimes it seems like condos are hard to make work before of the high HOA fees.  Do you know what the fees are for the Chicago building you are looking?

If you have them share as many of the numbers here as possible and then we can all help review them for you.  You can even share the BP calculators if you use them.

Peter Vekselman · Answer

@Fernando Lozada

It all comes down to the numbers and understanding your local market.  If the numbers make sense and there is a demand for these studios that there is nothing wrong with doing the deal.

YOu may need to consult with a few local realtors and property management companies to help you with both of those questions...

Alecia Loveless · Answer

@Fernando Lozada I have room to add a studio over a garage in one of my buildings. It’s on hold at the moment while I work on the funding but with the sudden exponential increase in the price of properties in the last 3 weeks in my market adding the studio is looking smarter and smarter.

I see nothing wrong with starting with a studio. I wouldn’t recommend getting stuck in that market forever where you own 10 studios, especially if they all are in HOAs where you are being charged a fee  on top of your mortgage payment every month. It just seems like a waste of money to me. That’s why I avoid condos in my market, they’re usually the only things with association fees where I invest.

I’d strive to maybe do 2-3 studios if that’s your current budget then work on building up to something bigger like a few 1 or 2 bedroom units or a small SFH.

How do we feel about studios?

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