Studio Apartments

Did you know a Studio Apartment can be Cash Flow Positive?

Buying a Studio apartment as your owner home, investment or a holiday retreat is easy when you know how. Because, lending for these style of apartments may be difficult from a select range of lenders, some buyers tend to steer clear from these types of properties however, for those that are purchasing their first home to get a foot in the property ladder or the property investor who know that Studio Apartments are able to generate good rental returns, higher rental than the conventional one or two bedroom apartments in resort areas of Australia.

What is a Studio Apartment?

A studio apartment is basically, a unit or apartment with 2 rooms, the main living area typically comprises a kitchen, dining, living and sleeping area as an open plan room with the bathroom as the second room. The size of studio apartment may start from assmall as 15 square metres (sqm), the size of a car bay, to a 50 sqm security.

Other names for these type of apartments are,

  1. Studio Flats,
  2. Student Accommodation,
  3. Bachelor Apartments, or
  4. Bedsitter.

Lenders consider these smaller sized units or apartments as studio apartment up to the size of 40 sqm, and lend (loan amount) based on the size of the property and on the financial strength of the applicants purchasing a property of this style.

Studio Apartments Loans

Lenders base the loan amounts on the size of the Studio internal unit or apartment size and exclude the balconies and car spaces.

Lenders require the securities to have a kitchenette and laundry facilities within the apartment, which are not shared with other apartments or units in the building complex.

Preferably the unit must be self-contained with a dividing wall between the living area and the bedroom.

How much can I borrow on a Studio Apartment?

As indicated above Studio Apartments sizes average between 15 sqm to 50 sqm and the below list provides an indication as to the borrow capacity majority of lenders may allow. For high density apartment complexes with more than 35 apartments the mortgage insurers may not approve the loan, therefore it’s up to the lenders own credit policies to approve a loan amount of 80% borrowing against the property value.

Apartment Size Guide Lending:

  1. 18 to 40 sqm size = Lending from 60% to 80% against the value. (limited lenders)
  2. 40 to 45 sqm size = Lending from 80% to 95% against the value (more lenders)
  3. 45 to 50 sqm size = Lending from 80% to 95% against the value (many lenders)
  4. 50 sqm & above 80 % to 95% (many lender available at this size apartments

The key, is to find a Studio Apartment with at least 50 sqm in living area, excluding the balconies and car space. The better quality properties located in a desirable and high demand capital city metropolitan location, the minimum living area is 40 sqm would allow you to use a smaller deposit on the purchase which may be as small as a 5% for an owner occupied or 10% to 20% deposit for an investor.

How can I borrow 100% for a Studio Apartment?

There are two ways to borrow 100% for a Studio Apartment.

1.You may consider to cross securities two properties to purchase the security.
The loan may be structured at 100% loan value against the unit with equity drawn from the equity in the other home or investment property.

2.If the lender requires more deposit which you are unable to provide, you may which to consider a Guarantor Loan.
A Guarantor loan may be set up as a limited guarantee loan for the deposit required on the available equity in a home or other investment property.

Lenders prefer a cross security or guarantor loan as the overall exposure for the lender is minimised.
With this style of loan structure you are able to have a 100% loan on the apartment or unit.

Can I buy a Studio Apartment on a Low Doc Loan?

Low Doc or Low Documentation loans are restricted to an internal size of 40sqm and above for a unit or apartment size with a borrowing capacity of 60% to 70% loan amount to the value of the secured property.

What type of Apartments won't a Residential Lender consider?

Even though these styles of apartments are becoming more and more popular as time moves forward due to our complex lifestyles, Lenders and Mortgage Insures limit their exposure to the below list of properties. Even though Residential lenders will not consider these style of properties as securities, Commercial lenders may. Contact Us , if you need finance for any of these properties, we may be able to use one of our Commercial lenders .

We list below the securities that may be unsuitable to Residential lending institutions;

+ Boarding house, hostels style units
+ Company Share title (VIC)
+ Company title
+ Crown Land (other than the ACT)
+ Leasehold properties (other than Crown Land in the ACT)
+ Limited Title (any defects)
+ Properties subject to ‘mines subsidence’
+ Properties subject to the Western Lands Act
+ Properties with “lease of life” covenants on title
+ Purple title (WA), or Moiety title (SA)
+ Strata title home unit less than 40 sqm
+ Units under a “time share” arrangement
+ Units with Serviced apartment agreements
+ Serviced Units on a Lenders Unacceptable Security Register.

What type of Studio Apartment should I consider?

Investors are keen to purchase as many Studio Style Apartment as possible due to the potential for positive gearing these unit provide, therefore, we list a few points to consider;

Lenders tend to lend less funds on these styles of apartments as some lenders only consider a 60% loan amount to the value of the security.

Lender Mortgage Insures may not lend on properties less than 50 sqm with a minimum living area of 40 sqm internally excluding balconies and car space.

These style of apartments may have extra costs and levies due to onsite amenities in the apartment complex.

Slow to sell outside of a CBD area.

You need to check with us, to see if the proposed Studio Apartment is not on the lenders Unacceptable Security Register which in turn, means, no lender will accept the security.