Thoughts on 2 br 1 baths?

Question

The general consensus seems to be that the ideal specs for single family rental properties is: 3 bedrooms, 2 bathrooms, 900-1600 sq ft.

What are everyone's thoughts on 2 bedroom 1 bath SFRs? Is there really that compelling of a case to be made against buying these as long term rentals?

I'm looking at several possibilities right now and one option is a just over 1000 sq ft two bedroom one bath property. The price is right and it's basically move in ready.  And as small as it is the insurance and taxes should be really low in addition to being relatively easy to maintain.  The neighborhood is decent and I feel like it would make a good rental.  This property is really my plan "c" right now (assuming plans a and b don't work out).

What do you think? Should I hold out for a 3/2?

James H. · Answer

Nothing wrong with a 2/1. Relative to their 3/2 counterparts, they are bought cheaper, rented cheaper and sold cheaper.  The 3/2 is kind of like the gold standard of rental home type, just like Toyota is the gold standard for car reliability, but just like you don't have to own a Toyota to own a good car, you don't have to own a 3/2 to own a good rental property.

Jon Klaus · Answer

Begin with the end in mind. What will your exit look like whenever it is time?  In my area 2/1s don't sell to owner occupants. They sell to landlords who want to pay wholesale prices.  Maybe that's OK with you, but I like to have a shot at a retail exit.

Jake Kucheck · Answer

2/1s on large lots are a good opportunity for a value add... buy the underpriced spec and add on a bed and bath, now you have a 3/2 at a much lower all in cost in certain areas.

Maybe this makes more sense for flipping... never attempted it on a rental.

Kama Ward · Answer

The best rental area in my market is full of 2/1 1920's bungalows. The neighborhoods are mixed rental and owner occupant.  Most renters are young families. They sell to owner occupants all day long if fixed up right.  So far, it doesn't make sense to add on a bed and bath for either rental or resell.

Bienes Raices · Answer

I have one 2/1 that shows really well and is easy to rent. It also has the best numbers of my three rentals. The downside is potentially higher turnover, as others have mentioned, and the family turn-off factor, and you need to get the problem fixed ASAP if something goes wrong with the toilet or shower...

Personally I would much rather buy a 2/1 that's 850 SQF of living area then a 3/1 that's 900 SQF. In my two years of doing this I've found that small bedrooms and living rooms are huge turnoff for families, and probably for others as well.

Bienes Raices · Answer

That is a good point Jon, although if one is planning to hold it long term as a rental, does it matter that much?

Ben D. · Answer

Thanks Geof...What has me looking at this particular 2/1 is the selling price combined with the fact that it's move-in ready.  It will rent for $200-$300 less than the 3/2s but it's also about $15-$20K less in asking price.  It seems like it would be really easy to maintain and the taxes and insurance are lower.  I could see it out performing the 3/2s I've been looking at but I'm taking to heart the comments here about higher turnover, etc.

Geof Greeneisen · Answer

Ben,

Good question, I had to stop and look at the rentals we've purchased. We are 50/50, 2 bdrms to 3 bdrms. As it turns out, our best returns are on the 2 bdrms.

At sheriff sale my fix & flip competition goes hard after 3 bdrm homes and I'm able to pick up the 2 bdrms at a far lower price (30-50% cheaper). Purchasing on the open market (MLS), 3 bdrms are much more sought after: higher price, quicker sale.

The rent difference in our market doesn't appear to offset the higher price paid for the 3rd bdrm. I think 3 bdrms will probably have greater appreciation and a quicker sale than a comparable 2 bdrm, but if we're talking purely rentals, our 2 bdrms have out performed our 3 bdrms in ROI.

I haven't seen any appreciable difference in length of occupancy btwn our 2 & 3 bdrm units. But am curious to track this based on prior comments.

Ben D. · Answer

Thank you everyone for the replies.  This was very helpful.  The higher turnover rate makes alot of sense but I hadn't thought of that.  Many good points made here and things to consider.  College campuses were mentioned a couple of times and unfortunately this property is nowhere near one of those.  I think I'll keep this particular property towards the bottom of my list for now and see how my other prospects play out.  Thanks again.

James Vermillion · Answer

The 2/1s are very location specific in my market as well.  Like others have pointed out, they seem to be very popular near campus, fetching relatively high rents with low vacancies…in other parts of town, not so much.  There are a ton of older houses that have been renovated into duplexes with 2/1s on each side...really nice setups.

Thoughts on 2 br 1 baths?

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