Hello everyone, I am looking at purchasing an apartment studios complex. It was a hotel repurposed as a studio apartments. Anyone has had experience with this property type and is willing to share their perspective in general? Thanks in advance BP community!

Ive come across one of these and thought about keeping enough studios filled to cover the operating expenses, and short term rental out the others to try and squeeze a little extra out of them. Ultimately I decided I didn't want to work that hard with the extra turnover, studio tenants just seem not to stay as long it seems like.

It depends on the market and your target demographic. The plus side is that your $/sft is typically the highest compared to other units while the nominal rent is cheaper than most 1 bed units.

The downside is that turnover can be higher as studio residents tend to be a bit more transient adding some additional turn expenses. 

I would take a hard look at comps of other studios in your immediate sub market.

Hi @Eddie Quispe

What are your plans?

Do you intend to rent-out the unit or flip it?

If you are looking to rent it, I would encourage you have a thorough understanding of the HOA's rules regarding leasing to determine whether it can be used as a short-term rental.

If the unit is in a desirable location, you might be inclined to list it on Airbnb, but you could encounter restrictions through the HOA, so it helps to know this ahead of time.

-Eric

@Eddie Quispe

Another angle to possibly consider would be to combine some adjoining units. Many hotels actually have connecting doors as well. See if the additional income could offset the cost. With adjoining units, the cost shouldn’t be significant. 

The units were converted several years ago, it has been operating as Studios for quite a few years. The current vacancy is high. I don’t mind this being a “job” for a year or so, I see three areas that will need to be addressed in order to make it profitable: 1. Keep up with studio repair and maintenance due to turn over, so they are ready to be rented again. 2. Marketing, to bring clients on a continuous bases to keep the studios occupied. 3. It seems roaches and bed bugs seem to be a problem with studios in general. This will be another area to aggressively address as part of the strategy to have an edge over our competition.

@Eddie Quispe : In my experience, turn overs are one of my biggest expenses. If you can either do them yourself or figure a way to reduce this expense, you have a chance at producing CF. If I am netting a $100 a door on my properties, one turnover a year can destroy it. As you know, all too often the fewer the bedrooms, the higher the turnover. I’d take into account their average lease duration. 

Totally market dependent. I would only consider that in a dense market with high housing costs. My investments are in less dense markets where space is at less of a premium, so the market demands larger units, and the supply side is able to provide at an acceptable price.

You say the vacancy is high - why? Is it because there are enough 1brs in the market at a similar price, so tenants won't go for a studio?

Thanks for all the replies and ideas.

@Spencer Gray , @Eric Skadson there is not HOA, it is a large complex over 200 units.

@Jeffery Wilen thanks for the idea of combining units, I might need to do some research on that.

@Taylor L. I believe the reason for the high vacancy is both competition and poor management.

@Eddie Quispe

With the old hotel aspect to it, I'd look into the Mechanical Electrical Plumbing Sprinkler Roofing and make sure you're not looking at a major CapEx without warning. Also with that many units you can plan your renovations & vacancies and get some cost efficiencies when you do your renos, I'm talking ordering pallets of ceramic&carpet&paint& 30 same light fixtures, sets of cabinets/sinks/faucets, major appliance package purchase and making it as easy for the contractor as possible. It would take some serious planned CapEx savings and vacancy tenant planning and shifting.

@Frank Hinck that's an excellent point. There will be some major cost savings involved when doing renovations, upgrades or just repairs if planned carefully and purchased in bulk. Thanks!!

@Eddie Quispe that is a lot of studios to fill. Studios do tend to have high turnover. What kind of area is it in? Is it urban, with lots of bars, restaurants, cafes, and retail? Close to jobs? It could appeal to millennial workers. Maybe you can do a portion as short term rental.

Are they at market rent, or is there room to grow there?

My first thought is Short term rental as well. Urban setting will be better. My company has some 1 bedroom apartment that's doing great before covid in downtown Atlanta. If HOA is not a problem, location is prime, you might be able to turn then into Short term for maximum profit.

With studios, you have several things vs. larger units:

1) More rent in terms of $/sqft, however,

2) Smaller households mean more turnover than larger units.

3) I think a neighborhood has a lower capacity (they don't need as many) for studios vs. 2 beds.  In Portland, a lot of new const was studios and now we have an excess of those spaces.

In every city I have invested in, property managers all have advised me try to avoid purchase buildings with studios.  It is more than just the turn overs, but also type of tenants - many have criminal back ground.  To the extreme that one property manager told me stories about a 12 units studio building under his management with 8 tenants registered sex offenders.   They told me it is hard to fill studio apartments unless you compromise your standards on screening.   With so many similar units (200+), it is recipe for disaster.   Don't believe what the seller tells you.   

I don't think it is coincidence where so many property managers have said the same thing to me about studio units.   Personally I own 0 studio units, so maybe I am not the best person to advise.   Just my 2 cents.