The Pros and Cons of Studio Apartment Investments in 2025

In recent years, interest in studio condominium investment has been growing. In particular, as of 2025, the Japanese real estate investment market is showing steady growth, and many investors are considering studio apartment investment as a means of asset building.

However, many people have questions such as "Is studio apartment investment really profitable?", "Can even beginners succeed?", and "What kind of risks are involved?

In this article, based on my many years of experience in the real estate industry as the representative director of INA & Associates K.K., I will explain the basics of studio apartment investment, key points for success, and risks to be aware of, in an easy-to-understand manner even for beginners.

The latest market data for 2025 and specific examples of successes and failures will also be included to help you make informed investment decisions. We hope you will be able to realize sustainable asset building through real estate investment.

Basic Knowledge of One-Room Condominium Investment

What is studio apartment investment?

A studio apartment investment is a real estate investment method in which you purchase an apartment with only one room (1R, 1K, 1DK) and rent it out to earn rental income. It is in demand mainly as housing for singles, and is popular as an introduction to real estate investment because it can be started with a relatively small amount of money.

The investment mechanism is very simple. After purchasing a property, you earn monthly rental income (income gain) by renting it out to tenants. When you sell the property in the future, you can expect to make a capital gain from the difference between the purchase price and the rental income.

Differences from Other Real Estate Investments

Compared to other real estate investments, an investment in a studio apartment has the following characteristics.

In terms of differences from single building apartment/condominium investments, the scale of investment differs greatly. While single building investments require funds in the tens to hundreds of millions of yen, studio apartment investments can be started at several million yen to the 10 million yen range. In addition, the time and effort required for management is greatly reduced.

One difference from investing in detached houses is that there is a wide choice of locations. One-room condominiums are often built in good locations near train stations and can be expected to have stable rental demand. On the other hand, detached house investments target families and have different market characteristics.

Market Environment in 2025

As of 2025, the studio apartment investment market is generally firm. According to data from the Ministry of Land, Infrastructure, Transport and Tourism, land prices have been rising for three consecutive years in all categories, and real estate prices continue to rise, especially in urban areas.

Looking at investor trends, domestic investors are leading the market, with real estate investment in 2024 reaching a higher level than the previous year. A survey of 300 studio apartment investors shows that the average number of units owned is 6.76 and the median is 2, indicating that small investors are the mainstream.

In terms of yields, surface yields for newly built studio condominiums are in the 2-3% range (in central Tokyo), while those for existing properties are in the 4-7% range, depending on the age of the building. Despite the rising interest rates, the investment environment remains relatively favorable due to rising rents and improved vacancy rates.

Five Advantages of Investing in One-Room Condominiums

1. You can start with a small amount of money.

The biggest advantage of investing in studio apartments is that you can start real estate investment with a relatively small amount of money. While investing in a single apartment or commercial building requires tens to hundreds of millions of yen, you can start investing in a studio condominium with a down payment of only a few million yen.

This simplicity allows even salaried workers and civil servants to start real estate investment as a side business, expanding their asset-building options. It is also effective from the viewpoint of risk management, as diversified investments can be made in stages by purchasing multiple units.

2. Ease of Management

Management of a studio condominium investment is much less time-consuming. In many cases, you can outsource the entire process from tenant recruitment to rent collection and facility maintenance to a management company.

Compared to managing a single apartment building, the risk of unexpected problems and repair costs is reduced because the number of facilities and common areas to be managed is limited. In addition, since the management company handles interactions with tenants on your behalf, you can continue investing without interrupting your core business.

Although the market rate for management fees is about 5% of the rent, the time benefits gained from paying these fees are significant, and are especially important for busy businesspeople.

3. Stable rental demand

Stable rental demand can be expected for studio apartments in urban areas. Social trends such as the increase in the number of single-person households, late marriages, and the concentration of population in urban areas are supporting the demand for studio apartments.

Especially in the 23 wards of Tokyo, there are stable demand groups such as university students, newcomers to the workforce, and transferees, and if the property is appropriately located and equipped, occupancy rates can be maintained over the long term.

4. Tax Saving Effect

Investing in studio apartments has certain tax-saving effects. Expenses incurred in real estate investment, such as depreciation, management fees, repair expenses, and loan interest, can be deducted from employment income.

Especially in the first year of purchase, initial expenses such as registration and license tax and real estate acquisition tax can also be included as expenses, which can be expected to reduce income and inhabitant taxes.

However, we do not recommend investing solely for the purpose of tax reduction. It is important to focus solely on profitability and view the tax reduction effect as a secondary benefit. Since there is a possibility that preferential measures may be changed due to tax system revisions, it is recommended to consult a tax accountant or other specialist.

5. High liquidity

Compared to other real estate investments, studio apartments are characterized by high liquidity. Compared to a single apartment or commercial building, there is a larger pool of potential buyers, making it easier to find buyers when selling.

In particular, properties in good locations near train stations or in popular areas have high marketability and can be sold in a relatively short period of time if necessary. This allows for flexible asset management in response to lifestyle changes and capital needs.

Compared to REITs and real estate crowdfunding, the security of owning the property directly and the freedom to decide when to buy or sell at your own discretion are also major advantages.

Demerits and risks of studio apartment investment

Vacancy Risk

The biggest risk of investing in a studio apartment is vacancy risk: if you invest in only one unit, your rental income will be zero when the tenant moves out. In the case of a single apartment, even if one unit out of several units becomes vacant, the income from other units can cover the vacancy, but such a diversification effect cannot be expected with studio apartments.

During the vacancy period, loan repayments, management fees, and reserve funds for repairs will continue to be paid, which may worsen cash flow. The risk of prolonged vacancy periods is particularly high for properties in poor locations or with outdated facilities.

To reduce vacancy risk, it is important to select properties in areas with high rental demand, set appropriate rents, and maintain property values through regular maintenance. Diversified investment in multiple units is also an effective measure.

2. Risk of Rent Decline

Declining rents are an unavoidable risk with the passage of time. It is difficult to maintain the rent at the time of new construction for a long period of time. In general, a rent decline of 10-15% is expected after 10 years of construction, and 20-30% after 20 years.

Factors that may cause rents to decline include the aging of the property, obsolescence of facilities, changes in the surrounding environment, and competition from newly built properties. In particular, in areas where there is an oversupply of properties, intensifying competition tends to intensify the downward pressure on rents.

Countermeasures against the risk of falling rents include selecting a property in a good location, regularly remodeling or renovating the property, and setting rents appropriately according to the market rate. It is also important to conduct conservative income/expense simulations that factor in future rent declines when calculating yields at the time of purchase.

3. Repair and maintenance costs

Owners of studio apartments are required to pay monthly repair and maintenance fees. These costs tend to rise with the age of the property, and upfront fees may be collected, especially during periods of major repairs.

The owner is also responsible for the cost of breaking down and replacing indoor equipment. Equipment such as air conditioners, water heaters, washstands, and flooring need to be replaced every 10-15 years, which can cost several hundred thousand yen each time.

In order to reduce repair costs, it is effective to select a relatively new property that meets the new earthquake-proof standard, select an apartment building with good management conditions, and perform preventive maintenance on a regular basis. It is also important to check the status of the repair reserve fund and the implementation history of major repairs before purchasing the property.

4. Risk of Rising Interest Rates

If you have a real estate investment loan, a rise in interest rates will directly affect your profitability. 2025 is the current year, and long-term interest rates are on an upward trend due to the normalization of the Bank of Japan's monetary policy, and there is a possibility that interest rates will rise further in the future.

If you have a loan with a variable interest rate, there is a risk that a rise in interest rates will increase your monthly repayment amount and worsen your cash flow. For example, a 1% increase in interest rates on a 20 million yen loan will increase the annual repayment burden by approximately 200,000 yen.

Countermeasures against the risk of rising interest rates include selecting a fixed interest rate, controlling the borrowing ratio, simulating income and expenditures that factor in rising interest rates, and reducing principal through early repayment. It is also important to regularly monitor interest rate trends and consider refinancing if necessary.

5. Disaster Risk

Natural disasters such as earthquakes, fires, and floods are important risk factors in real estate investment. Japan is an earthquake-prone country, and the risk of building damage due to a large-scale earthquake is always present. In recent years, flooding caused by typhoons and torrential rains has also become more frequent, and depending on the location, the risk of flooding must also be considered.

Property damage due to disasters not only incurs repair costs, but can also lead to prolonged vacancy periods and a decline in asset value. In particular, properties with old earthquake-proof standards are at high risk of collapse due to earthquakes, and insurance premiums tend to be high.

As countermeasures against disaster risk, it is essential to select properties that meet the new earthquake-proof standard, confirm location risk using hazard maps, and purchase appropriate fire and earthquake insurance. It is also effective to mitigate regional risk by diversifying investments in multiple areas.

7 Key Points for Successful Property Selection

1. Importance of Location

In studio apartment investment, location is the most important factor that determines success. It is important to select a property with good access to a major station.

Specifically, the ideal location is along major train lines such as the JR Yamanote Line, Tokyo Metro, and Toei Subway, and near a station with access to multiple train lines. Also, if the station has express or rapid train stops, higher rental demand can be expected.

The surrounding environment is also an important factor to consider. Convenience facilities such as convenience stores, supermarkets, banks, and hospitals within walking distance will increase tenant satisfaction and lead to long-term occupancy. Public safety is also an important factor, and the availability of street lights and pedestrian traffic at night should also be checked.

2. Building age and building structure

The age of the building is closely related to the rent level. Newly built properties can offer higher rents, but the purchase price is also higher and the yield tends to be lower. On the other hand, properties that are too old increase the risk of repair costs.

Considering investment efficiency, used properties that are 10-15 years old are a good target. At this age, the price decline from the time of new construction has slowed down, and the property is still in a condition that does not require major repairs.

As for building structure, it is important to choose reinforced concrete (RC) or steel-framed reinforced concrete (SRC) construction. These structures are more durable and have excellent sound insulation, resulting in higher tenant satisfaction. They also make it easier to obtain financing from financial institutions.

3. Compliance with New Earthquake Resistance Standards

Properties that received building permits after June 1981 conform to the new earthquake-proof standards and are safer against earthquakes. Properties built under the old earthquake-proof standard may be inexpensive to purchase, but earthquake insurance premiums will be high and may be disadvantageous when selling the property in the future.

Choosing a property with the new earthquake-proof standard will improve tenants' sense of security and reduce vacancy risk. It is also often advantageous in loan screening by financial institutions.

4. Appropriateness of Yield

Surface yield is an important indicator for investment decisions, and a standard yield for a studio apartment in central Tokyo is around 5-8%. However, it is dangerous to judge only by the high yield.

What is more important is the real yield. Profitability should be judged based on the real yield, which takes into account management fees, reserve for repairs, property taxes, management fees, vacancy rate, etc.

Real Yield = (Annual Rental Income - Annual Expenses) / Property Price x 100

It is also important to conduct a long-term income/expense simulation that incorporates future rent declines and increases in repair expenses.

5. Confirmation of Management Status

The management status of a condominium directly affects the maintenance of the property's asset value. It is necessary to confirm in detail the performance of the management company, the status of resident management staff, the cleaning status, and the status of the reserve fund for repairs.

In particular, it is important to confirm that an appropriate amount of money has been set aside in the repair reserve fund, and to check the history and future schedule of large-scale repairs. If the repair reserve fund is insufficient, there is a possibility that a one-time fee will be collected in the future.

The management status of the management association is also an important factor. The minutes of the general meeting should be checked to ascertain whether appropriate decisions are being made and whether any problems are occurring.

6. Appropriateness of the floor plan and facilities

The floor plan of a studio apartment should be appropriate for the target tenants: it should be about 20-25 m2 in size and have basic facilities such as separate bathroom and toilet, independent wash stand, and air conditioning.

Recently, tenants tend to place more importance on facilities such as delivery boxes, auto locks, and free internet access. These facilities will help differentiate the property from competing properties and shorten the vacancy period.

However, excessively luxurious facilities can increase management costs, so it is important to select facilities with cost performance in mind.

7. Consideration of Future Prospects

In selecting a property, it is necessary to consider not only the current situation but also its future potential. It is important to predict future changes in rental demand by gathering information on redevelopment plans for the surrounding area, plans to open new stations, and relocation plans of universities and companies.

On the other hand, areas where population is expected to decline or where student demand may decrease due to relocation of universities should be avoided.

In addition, caution should be exercised when a large supply of new condominiums is scheduled to be built in the same area, as intensified competition may increase downward pressure on rents.

Cautions from Failure Cases

Failure case 1: Easy investment in a newly built property

Example of Mr. A (30s, company employee)

Mr. A purchased a newly built studio apartment in central Tokyo for 28 million yen after being advised by a sales representative of a real estate company that the property was newly built, so tenants would move in quickly and there would be no repair costs for the time being. The surface yield was 3.2%.

However, the following problems occurred immediately after the purchase

• The purchase price was relatively high due to the new construction premium.
• Rent setting was too high compared to other existing properties in the neighborhood, and tenants were not finding it easy to move in.
• Vacancy period of 3 months occurred, and eventually the rent had to be lowered by 30,000 yen per month.
• The actual yield dropped to the 2% range, and loan repayments put pressure on cash flow.

Lessons learned and countermeasures

Newly constructed properties tend to have high purchase prices and low yields. In addition, the new construction premium is temporary, and rents will decline as the property ages. Beginners are advised to start with used properties built 10-15 years ago, when prices are stable.

Failure Case 2: Selecting a property by disregarding the location

Example of Mr. B (40s, public employee)

Attracted by the high yield, Mr. B purchased a used studio apartment for 12 million yen (8.5% surface yield) in the suburbs, a 15-minute walk from a station.

After the purchase, the following problems became apparent

• Access to the city center is poor as the nearest station is only a local train stop
• Lack of convenient facilities such as convenience stores and supermarkets in the vicinity
• After the tenant moved out, it took 6 months to find another tenant.
• Even after lowering the rent, the tenant could not be found, and the final rent was reduced by 20,000 yen per month.
• The actual yield dropped to the 4% level.

Lessons Learned and Countermeasures

It is dangerous to select a property based solely on its high yield. Location is the most important factor directly related to rental demand. The key to success is to choose an area that is within a 10-minute walk from a station, along a major train line, and convenient to live in.

Failure 3: Insufficient Estimation of Repair Expenses

Example of Mr. C (50s, self-employed)

Mr. C purchased a 25-year-old budget studio apartment for 8 million yen. The surface yield of 10% was attractive, but after the purchase, unexpected repair costs were incurred.

• Replacement cost of 300,000 yen due to a broken water heater
• 150,000 yen to replace an aging air conditioner
• 400,000 yen for replacing the flooring
• 200,000 yen for water line plumbing repairs

A total of 1,050,000 yen in repair costs were incurred in one year, resulting in a significant deterioration of the real yield.

Lessons Learned and Countermeasures

While the purchase price of an old property is low, the risk of repair costs is high. It is important to check the condition of the facilities in detail before purchasing and make an income/expenditure plan that incorporates repair costs. It is also recommended to avoid properties that are too old, and to choose properties that are no older than 15-20 years old.

Example 4: Insufficient response to rising interest rates

Example of Mr. D (35s, company employee)

Mr. D took out a 20 million yen loan at a floating interest rate of 1.5% and started investing in a studio apartment. Initially, he had a positive cash flow of 20,000 yen per month, but the situation worsened due to rising interest rates.

• Interest rates rose from 1.5% to 3.0%.
• Monthly repayment amount increased by approximately 20,000 yen
• Positive cash flow turned negative
• Additional capital injection became necessary

Lessons Learned and Countermeasures

If you choose a variable interest rate, you must fully consider the risk of interest rate hikes. Simulations should be conducted to determine whether the company can make ends meet even if interest rates rise by 2-3%, and if necessary, consideration should be given to selecting a fixed rate or reducing the borrowing ratio.

Mistake #5: Lack of an exit strategy

Case Study of Mr. E (45s, company employee)

Mr. E purchased a studio apartment 10 years ago, but continued to invest without a clear exit strategy. He considered selling the property because he needed to pay for his child's education, but faced the following problems

• The purchase price was 20 million yen, but the appraised value was 14 million yen
• The remaining loan balance was 16 million yen, and even if they sold the property, they would have to take out 2 million yen.
• The property was illiquid, and it took 8 months to sell.

Lessons Learned and Countermeasures

Exit strategies are important in real estate investment. From the time of purchase, it is necessary to envision the timing and terms of sale and plan for loan repayment. It is also important to regularly monitor the property value and consider selling at the appropriate time.

Common Failure Factors and Countermeasures

The following common factors and countermeasures can be seen from these failure cases.

Main Failure Factors

1. Selection of properties focusing only on yields and low prices
2. Neglect of location conditions
3. Lack of long-term income/expense simulation
4. Lack of risk management
5. Lack of exit strategy

Effective measures

1. Comprehensive property evaluation: comprehensive assessment of not only yield but also location, age, and management conditions
2. Conservative income/expense planning: simulations that factor in falling rents, repair costs, and rising interest rates
3. Use of experts: Collaboration with real estate companies, tax accountants, and financial planners
4. Continuous learning: Understanding market trends and improving investment knowledge
5. Diversified investment: Diversify risk by investing in multiple units

Conclusion

Studio condominium investment can be a means of stable asset building if you have the appropriate knowledge and strategy. 2025 market conditions are generally firm as of today, and rental demand remains solid, especially in urban areas.

Key Points for Success

1. Place the highest priority on location: Select a property within a 10-minute walk of a station or along a major train line.
2. Select the appropriate age of the building: 10-15 years old used properties are the most efficient investment.
3. Determine overall profitability: Evaluate not only the surface yield but also the real yield.
4. Thoroughly manage risk: Plan for vacancy, falling rents, and rising interest rate risk
5. Take a long-term view: Aim for sustainable income, not short-term profit

Failure patterns to avoid

• Easy investment in newly built properties
• Selecting properties based solely on high yields
• Investment decisions that disregard location conditions
• Neglecting repair costs and the risk of rising interest rates
• Investing without considering exit strategies

Next Action Steps

If you are considering investing in a studio apartment, we recommend that you proceed with the following steps.

1. Acquire basic knowledge: Deepen your knowledge through books and seminars on real estate investment
2. Conduct market research: Investigate rental market rates and property prices in the area you are considering investing in
3. Formulate a financial plan: Grasp your own funds, the amount you can borrow, and your ability to make monthly repayments
4. Select a reliable partner: Select a real estate or property management company with a proven track record
5. Detailed consideration of properties: Compare multiple properties and make a comprehensive decision

Real estate investment is a means of long-term asset building. The key to success is not to pursue short-term profits, but to work carefully and strategically to achieve sustainable returns.

INA&Associates K.K. offers optimal investment strategies based on each client's individual investment goals and risk tolerance. If you are interested in investing in studio apartments, please feel free to contact us. Our experienced and professional staff will support your asset building.

Frequently Asked Questions

Q1: How much are the initial costs for studio apartment investment?

A1: Initial costs are generally 20-30% of the property price. 15 million yen property requires 3-4.5 million yen as a down payment and 1-1.5 million yen for other expenses (registration fee, brokerage fee, fire insurance premium, etc.), for a total of 4-6 million yen.

However, some financial institutions may be able to provide a full loan (no down payment). Even in this case, you will need to prepare for other expenses in cash, so you will need at least 1-1.5 million yen in personal funds.

Q2. What is the approximate yield rate?

A2. As of 2025, the current market yields are as follows.

• Newly built studio apartments: Surface yields in the 2-3% range (central Tokyo)
• Used studio apartments:
  • Less than 10 years old: 4-4.5%.
  • Over 10 years old: 4.5-5%.
  • Over 20 years old: 6-7%.

However, it is important to judge not only by the surface yield, but also by the real yield, which takes into account management fees, reserve for repairs, and vacancy rate. In central Tokyo, a real yield of 3-5% is a realistic level.

Q3. How should I choose a management company?

A3. When selecting a management company, please focus on the following points.

Track record and reliability

• Number of units managed and number of years in business
• Whether or not the company is licensed as a building lot and building transaction business operator
• Whether or not the company is registered as a rental housing manager

Description of services

• Ability to recruit tenants (short vacancy period)
• Availability of 24-hour service
• Regular property inspections and reports
• Availability of rent guarantee system

Transparency of costs

• Management fees (5-10% of rent)
• Tenant Recruitment Fee
• Cost structure for repair work

We recommend that you receive proposals from multiple management companies and compare their services and costs.

Q4. When is the best time to sell?

A4. The timing of sale is determined by comprehensively considering the following factors.

Market environment

• Real estate price trends
• Interest rate level
• Supply-demand balance

Condition of the property

• Age of the building (around 20-25 years is one guideline)
• Time of major repairs
• Changes in the surrounding environment

Personal circumstances

• Lifestyle changes
• Demand for funds
• Other investment opportunities

In general, many investors consider selling before major repairs or before the property is more than 20 years old. However, if the property is in a good location and rental demand is stable, long-term holding can be an effective strategy.

Q5. How should I file tax returns?

A5. In a studio apartment investment, the following income and expenses are to be declared.

Income

• Rent income
• Key money and renewal fee (may be reported separately as one-time income)

Expenses

• Depreciation
• Loan interest
• Management fee and reserve for repairs
• Management consignment fee
• Property tax and city planning tax
• Fire insurance premiums
• Repair expenses

In the first year, registration and license tax and real estate acquisition tax can also be included as expenses.

If your real estate income is in the red, you may be able to receive an income tax refund by deducting your income from your employment income. However, the tax system is complex, and it is recommended that you consult with a tax accountant or other specialist.