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Are you thinking of investing in rental properties in London? With a 9.6 million local population and 38 million annual visitors in 2023, it’s easy to see the huge demand for accommodations in the city.
When choosing a rental property to invest in, one of the decisions you have to make is what type of property to buy. Whether it’s a studio, 1-bedroom or 2-bedroom unit, you have to understand their appeal to both short-term guests and long-term residents. The property type will influence the rental income and occupancy rates – thereby affecting its overall investment success.
In this article, we’ll explore the 3 common rental property types in London. You’ll discover the pros and cons of each property and how you can choose the best one as it aligns with your portfolio goals.
Affordable Studio Units
The first of the rental property types is a studio unit. This is considered the simplest type and consists of a single room that serves as the bedroom and living space (living room, dining room and kitchen) – but with a separate bathroom. Usually, this is the smallest type of rental property – but you’ll find some studio units more spacious than other 1-bedroom flats.
Due to the minimalist layout, this rental property is more affordable compared to other types. It’s ideal for three types of people.
The first is young professionals who are just starting their careers and need cost-efficient accommodations. This also includes business travellers who are only staying for a couple of months or less than a year.
The second is students. They have basic needs like a place to sleep, study and maybe cook a meal or two. If the studio is near universities, studios can be an attractive option for those who prefer living alone without paying a huge rental fee.
The third is short-term guests or digital nomads. These people only stay for a couple of days or weeks – the longest being 3 months. These people don’t need a lot of space because they have come to explore London anyway. They’ll be spending most of their time outside.
Pros and cons of studio units
Due to the minimalistic layout and smaller size, studio units are more affordable to purchase. This means your upfront investment will be lower – allowing you to use your funds to purchase quality furniture and other features to increase the value of the property.
The size of studio units also makes them cheaper to maintain. The repairs and upkeep are usually lower in cost so you can expect a higher profit margin. Of course, this would still depend on the actual layout – but generally, it won’t cost as much as a 2-bedroom apartment.
It’s also in demand in densely populated areas where there’s limited space and high rental prices. Studio units offer an affordable option for guests so you can expect a high occupancy rate.
While the smaller space brings several benefits, there are also some drawbacks. The size limits the rental fee so you can’t ask the same rental price as a 2-bedroom apartment – unless you have a very luxurious studio layout with incredible views of the city. But if it’s just the size, it’ll be cheaper in comparison.
The size also means you’ll have a limited market. Your unit can only accommodate up to 2 people at the most. That means you can’t accommodate families or groups of people in your rental property.
Versatile 1-Bedroom Flats
A 1-bedroom flat is like the sweet spot. The size is not too big or too small. It’s also affordable – if you choose the right size. This property type has a separate bedroom and bathroom from the rest of the flat (living room, dining area and kitchen). This makes it more appealing to a wider range of guests.
This is ideal for young couples who would prefer the privacy of having a bedroom. It could even accommodate a small family – especially those with small children. If the living room has a sofa bed, it can be used as a bedroom at night.
Single professionals who prefer to stay for more than a few weeks would also choose a 1-bedroom flat over a studio unit. This will give them more room to move comfortably and do their work.
This might also be good for retirees who want to downsize from a house to a smaller dwelling place. The 1 bedroom would be perfect to make the property feel like a home – especially if it’s located within suburban areas.
Pros and cons of 1-bedroom flats
Having a separate bedroom makes this property type ideal for a larger market of renters – whether it’s single professionals, small families, etc. This means the property enjoys a higher occupancy rate and a steady stream of income.
1-bedroom flats are also versatile. It can attract both short-term guests and long-term residents. This increases the demand and the earning potential of the property.
You can also expect a higher rental income compared to studio units. The separate bedroom makes it more valuable and holds a higher appeal. That means people would be willing to pay more to have that privacy from the rest of the property.
Of course, there are drawbacks to this property type. The size and layout mean it’ll need a higher upfront payment for the initial investment. You’ll also have to pay more in terms of the upkeep. The bigger size would mean higher utility bills.
You can offset this by implementing dynamic pricing strategies to get higher returns.
Spacious 2-Bedroom Apartments
If you want to have spacious rental properties with the highest rental income potential, get multiple-bedroom apartments. While there are 3 to 4-bedroom rentals, the ideal is 2-bedroom apartments. It’s big enough to accommodate 4 or more people without being too expensive.
This type of rental property is appealing to families with one or two children. Of course, a childless couple can also rent it if they are planning to start a family. This will give them enough room to grow without feeling too constricted.
Roommates like students or professionals can also benefit from 2-bedroom apartments. It’ll be cheaper compared to renting a house and they’ll get the privacy they need because they get their room.
This is also ideal for remote workers who need a space for a home office. The second bedroom can be used for work purposes. This will keep the main bedroom a safe space to relax and unwind.
Pros and cons of 2-bedroom apartments
The bigger the rental property, the higher the rental income potential. People would be willing to pay higher fees for the space that 2-bedroom apartments provide. This type of property also appeals to a wider range of occupants – including long-term tenants. That means you’ll enjoy a steady rental income stream and higher occupancy rates.
All these ensure you’ll get a higher rental yield and in turn, would make your return on investment faster.
For the drawbacks, you have to be ready to man a bigger initial investment because this would cost more than a studio unit or 1-bedroom flat. If you plan to use it as a short-term rental, you’ll have to spend more on furnishings.
You should also be ready to pay more for the upkeep and maintenance. After all, having more than one bedroom means more bathrooms and more areas to heat during the cold season. The energy consumption will be greater and that means the utility bills will be higher as well.
How to Choose the Best Rental Property Type?
Now that you know more about the different rental properties you can invest in, how will you know which one to choose?
Understanding the strengths and weaknesses of each property type would make you realise that they cater to a specific market. Studio units are ideal for single occupancy and short-term rentals. Rental properties with 1 or more bedrooms can attract long-term residents, not just short-term guests.
Another thing is the location. If the property is in the middle of the city, your chances of getting a spacious property will be lower as smaller units are more in demand here. Not to mention it’ll be quite expensive. But if you’re looking for rental properties in the suburbs, getting a 1 or 2-bedroom apartment is ideal.
Your budget is also an important consideration. How much can you afford to buy? As mentioned, the bigger the property and the more bedrooms there are, the more expensive it’ll cost you.
But even if you can afford to buy a 2-bedroom apartment, you still have to consider if it fits your target market. If you want to attract short-term guests, you can invest in studio units. But if you want long-term residents, you’ll have to get at least a 1-bedroom flat.
Finally, check the market conditions. You have to look at the fast-moving market and the preferences of guests and residents. Think about how you can meet their demand so you can maintain a high occupancy rate.
All these considerations should be aligned with your investment and financial goals. Be proactive in creating strategies to help you get a quick ROI (return on investment).
What’s Your Ideal Rental Property Type?
Choosing the ideal rental property type for your portfolio will depend on factors like the target occupants, budget and investment strategy. Studios are perfect for being affordable while those with separate bedrooms offer versatility and spacious accommodations. Consider the pros and cons of each property so you can pick the one that’ll give you the most portfolio growth.
Regardless of what type of rental property you decide to invest in, you need the right property management solutions to maximise occupancy rates and earning potential.
City Relay is a well-known property management company in London. We specialise in flexible letting that combines the peak income potential of shortlets and steady revenue from long-term letting. We can help you improve the premium quality of your rental property to maximise rental returns.
Get in touch with us so we can discuss how you can grow your rental property portfolio.
