Multifamily Unit Mix - 100% Studios

[Matt Kvalheim]

Hello everyone, I’m wondering what you multifamily investors think of efficiency units (studios). I would normally stay away from them due to higher management intensity and probably higher turnover (vacancy) rates, but I happen to be evaluating a building that is 10 studios rented for about $450/month each and I would love to get the perspective of some investors who are more experienced at this than I am.

What do you think? Should I stay away from an investment property comprised of 100% studio units?

[Henry Melair]

I used to be dead-set against them for some of the reasons you mentioned but, after an opportunity came my way and some very thorough due diligence, I bought something similar to what you describe and did very well before selling it for reasons unrelated to what it was.

Bottom line, you're not sharing enough information for anyone to give you solid guidance unless they happen to know the market wherein the property is located.  You have to determine the economic strength of the area today and going forward, the demand for this particular location and type of unit, and what type of tenant they will attract.  Once you have that perspective you can make projections of income and the level of your time that will be demanded and determine how much of return is reasonable for your time, dollars, and risks.