Is it better to invest in a studio apartment or buy a house right away?
1, 2, or 3: How many rooms shall it be?
Not every property is the same
Property can mean anything from apartments and (multi-family) houses to commercial buildings. Clustering is vital to avoid any unnecessary confusion.
So, let's get into it. For starters, there are two types of properties: commercial and residential. As you may have guessed, commercial properties are any properties used for commercial purposes. In contrast, residential properties are any properties in which people live.
So far, so good. But, of course, that's not the end of the story. Commercial and residential properties differ in size, use, financing, and, of course, risk. While you will earn higher returns on commercial properties, the vacancy risk is much lower on residential properties.
So, what kind of property you invest in also depends on you as an investor. Are you more of a risk-taker, or are you looking for security? Feel free to discuss this with other owners in the Urbyo Community.
In addition to your risk tolerance, which property is right for you depends on where you stand financially. Depending on your income, savings, and other equity sources, the bank will determine your creditworthiness and, thus, how much money it will lend you for the purchase. Here's where the different types of ownership come into play. For example, is a small condo a better investment for you (and your wallet), or could you buy a house outright and rent it out? Or a supermarket?
If you need an expert opinion on this topic, go ahead and email us. Of course, you can also get all the information and tips on this website to help you find the right investment property.
Property types: an overview
There are many different property types. For a better overview, here's a summary:
|Detached house with self-contained annex||Hotels|
|Semi-detached house||Retail stores|
|Terraced house||Office space|
What makes Urbyo special
On the Urbyo platform, you can find residential properties, most of them freehold apartments as capital investments. You can buy 1, 2, or 3-room apartments — and sometimes even an entire apartment building. However, 4-room apartments are seldom investment properties; People usually prefer to buy them for personal use.
Of course, everyone has their preferences regarding size and location within the building: some prefer to live on the second floor, in a maisonette, or enjoy the panoramic view of a penthouse. For some people, buying a detached house makes the most sense because they prefer not to share walls with neighbors.
The good news: If you're buying a residential property as an investment, these factors are secondary to your purchase decision. Sure, the apartment has to be attractive enough to avoid vacancy. But even a ground-level or basement apartment can be rented out easily if the size is decent, it's dry, and the general conditions are right. For example, if the apartment is in a student city like Leipzig and has direct access to the courtyard.
We've also compiled a list of advantages and disadvantages of each apartment type to keep in mind when investing:
|studio apartment||Low purchase price | Low incidental acquisition costs | Financing needs may be lower | Possibility to charge a higher price per square meter than for larger apartments||Higher vacancy risk in unattractive locations | Higher fluctuation possible | A relatively small circle of potential tenants|
|2-room apartment||One of the most frequently chosen apartment types | Especially popular with young couples and single people with a secure income | Rare vacancies due to high demand|
|3-room apartment||Frequently rented by small families, who often seek longer leases -> Fewer tenant changes||Possibility of rent increase only to a limited extent for long tenancies|
|4-room apartment or more||Long-term leases||They are rarely chosen as an investment, as apartments of this size and above tend to be owner-occupied.|
|Apartment building/ multi-family house||No community of owners -> no coordination with other owners necessary||All costs for renovations etc., must be borne 100% by the company itself. | Increased risk of not receiving rent payments -> then part of the monthly installment must be paid temporarily from own funds|
|Terraced house||High demand from tenants who also want to set up their office at home -> often families with a secure income|
|Detached house||Mostly long tenancies with families who have a secure income||Generally not suitable as an investment property, more so property for owner-occupier|
|Detached house with self-contained annex||The tenant of the self-contained annex pays part of the monthly installment through their rent||A relatively small circle of potential tenants | Possible limited privacy due to shared use of garden or similar|
|Duplex||Tenants pay part of the loan installment through their rent.||Often, a residential unit is self-occupied. Thus, you're "always on the spot" as a landlord -> possible restriction of privacy|
|Semi-detached house||Mostly long tenancies with families who have a secure income||Also, not so much a capital investment but for personal use | The price is comparable to that of a single-family house|
|Commercial space||opportunities – depending on the sector | possibility to convert the commercial space into residential property -> a look at the declaration of partition is worthwhile there||Higher vacancy risk -> Possibly only part of the space can be rented out temporarily|
Of course, depending on which floor the apartment is, there are one or two other items you should consider.
In a basement apartment, the lack of a view and the rather dark rooms can somewhat limit the tenants – not everyone likes to live in a small, cozy den.
In a ground-floor apartment, the inflow of light is usually not that great either. However, the heating costs are the most significant potential knockout criterion. If the apartment has a basement or the facade is not well-insulated, tenants have to turn up the heating and dig deep into their pockets. If the stated service charges are too high, it'll scare off potential tenants.
When you own a penthouse, your tenant options are more limited than with 2- or 3-room apartments. The reason is obvious: not everyone can afford the high rent.