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Is a one bedroom apartment really a good investment?

With our cities becoming more and more populated each year, is a one bedroom apartment really an acceptable investment?  Due to soaring house prices and our preference towards inner-city living, many owners and investors are sacrificing their living size for close proximity to shops, bars, restaurants and many other attractions big cities offer. Not to be overlooked, but the peak hour commute from the outer suburbs can often be a long and painful road.

If purchasing in a city is a priority, then surely purchasing a two bedroom apartment makes a lot more sense with their greater potential rental appeal? Not necessarily, according to Binnari Property’s Head of Research; Kim Campbell, “Obviously two bedroom apartments appeal to a wider audience, however what is often overlooked is the availability of one bedroom apartments in the marketplace. Many developers aim to limit their exposure to one bedroom apartments, as they tend to be less profitable which in turn limits the supply of this type of dwelling.”

A recent Australian Bureau Statistics report indicated the growth in single living households is set to outstrip all other house types over the next 25 years. So what are some of the key factors driving tenants and buyers to choose one bedroom living:

1.     Affordability – Regardless of someone’s desire to own a two or three bedroom apartment, the reality for most buyers and investors is that one bedroom apartments offer a more accessible entry point

2.     Generational shift – When talking to many Gen Y and Millennials, the need to own the big backyard in the outer suburbs just isn’t a priority. Living close to transport, shops, cafes, bars and their employment ranks much higher for today’s younger generation

3.     Women in the workforce – With women no longer expected to stay home and have kids in their early 20’s, single women with well paid jobs are a fast growing category driving the one bedroom living

4.     Divorce – Apparently almost one in every two marriages ends in divorce, often leaving one or both parties looking for new accommodation at a time when finances can be strained

5.     Death of a partner – With the dramatic increase in the life expectancy over the last 50 years, the death of one partner can leave the remaining partner looking for accommodation that is affordable and easy to maintain

Another key consideration for investors is the strong rental return generated by one bedroom apartments. For example, below is an outline of the average rental return for one, two and three bedroom apartments for all Binnari Property clients who have leased apartments between January 2015 and September 2017:

Type Median Yield Median Price Median Weekly Rent
1 Bedroom 5.18% $381,600 $380
2 Bedroom 4.78% $507,348 $466
3 Bedroom 4.77% $694,933 $638

So does this mean all one bedroom apartments make great investments? Well, not exactly. To get a better idea of the risks involved when purchasing a one bedroom apartment or any investment property, click here to speak to one of our property investment team.