Micro-MDUs: The Next (Not So) “Big” Thing?

Posted by Michael Miller on January 31, 2017

You’ve undoubtedly heard of tiny homes: sub-500-square-foot stand-alone dwellings that encourage a simple, sustainable lifestyle for the home’s residents. Of course, New York City has long been known for shoebox-sized apartments in prime locations, but the tiny trend now stretches into other urban areas, including Washington, D.C. and San Francisco. What’s more, the latest micro multiple dwelling units (also known as MDUs) are shamelessly small—and proud of it.

Savvy investors can create a pool of rentals that combine choices in single-family rentals with MDUs and micro-MDUs to attract a wider demographic of tenants. Before we look at the advantages of this property mix, let’s explore the new trend of micro-MDUs.

What Makes Micro-Apartments Different?

Small apartments in big cities are hardly anything new. Manhattanites have creatively crammed three or four roommates into a one- or two-bedroom apartment for decades. But new micro-apartments are being built for those who want affordable rent—and the luxury of living alone.

To be considered an apartment, a New York City dwelling must have at least one room of 150 square feet, as well as a kitchenette and bathroom. The apartments in New York’s first prefab micro-apartment buildings fit these parameters, ranging from 260 to 360 square feet of total living space. Micro-units in D.C. tend to range from 250 to 500 square feet, and the smallest apartment on record in San Francisco is a mere 216 square feet.

Today’s newly built micro-units are not the studios you might remember from your college days. Rather than a simple “studio” with a kitchenette and living room that doubles as a sleeping area, newer micro-apartments may house a full, yet compact kitchen and even space to host dinner parties. The layouts and the furniture set these micro-MDUs apart. Apartments in New York’s Carmel Place prefab micro-MDU, for instance, can seat eight thanks to a table that folds out from the wall. These small spaces make the most of every square foot through careful design.

The Benefits of a Diversified Portfolio

Investing in micro-MDUs could be a smart choice for big-city investors, especially if you use them to create a balanced portfolio that also includes single-family rentals. As the next generation graduates high school and college, they will be seeking affordable housing in walkable urban communities.

Millennials and members of Generation Z tend to be as eco-conscious as they are cost-conscious, which makes micro-apartments the perfect solution for today’s trend of minimalist living—and a tremendous opportunity for investors.

What’s more, when you cash in on this trend, you’re building a loyal customer base who might also come to you when they’re looking to rent—or even buy—their first single family home.

The Downside of Going Small

Micro-MDUs have more spaces to fill, which means more renters to interview, and, ultimately, more rent checks to collect each month, resulting in more administrative activities and bookkeeping. A single-family home has fewer associated administrative costs.

Building a Stronger Network with Something for Everyone

When you expand your portfolio to include micro-MDUs, you’re not just hedging your bets with multiple tenants. You’re expanding your own profile as a business owner within the community.

There’s something to be said for having an apartment for every tenant who comes your way, and also being able to stick with your tenants and meet their housing needs through every stage of life

Small Apartments, Big Profits

Perhaps the most desirable aspect of micro-MDUs for investors is that the rent per unit might be the same as a full-size apartment in another area. By honing in on the hottest communities and closing the deal fast, you can earn big profits from tiny apartments and grow your business with a diversified portfolio of rentals.

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