A few big Units or More Smaller Units?

2 Replies

I have a duplex that's quite big...4000 square feet.  One unit occupies 2 floors + unfinished basement.  It's a 5 bedroom 2 bath.  I have been debating whether it would be worth it to convert to a triplex.  Each floor becoming a 2/1 apartment.  By doing so I project I can increase my cashflow by about $100-200 per month.

I have been temporarily living in the smaller unit while I rent out the 5 bedroom (house hack).  As someone who enjoys a clean quiet apartment complex, I find that having a bigger unit is not always a good thing.  

1.  More maintenance.  More people living in the unit causes more wear and tear.

2.  Bigger units are likely to invite more kids which has implications of wear and tear and noise levels.

3.  Clean out is a bigger pain for large units between tenants.  

I intentionally marketed my the unit for lease as a 3 bedroom to reduce the tenant pool to smaller families.  

What are your thoughts on having Fewer Large Units vs More Smaller Units in a MultiUnit Property?  Do you think it's worth the renovation to split the 5/2 unit into two 2/1 units?

Looking forward to your thoughts.

Thanks!

Andrew

I’d rely mostly on the numbers. Will the 2x2/1 cash flow and appreciate better than the 5/2.

Everything else is subjective and based on what renters show up.
2/1 might be easier to rent, but 5/2 will attract a family who may stay longer. 2 renters is more work, but if one goes vacant, you’re only losing half your income.

Is the cost to convert plus the additional rent worth it?

Oh, and don’t forget about checking your local zoning laws to be sure you can convert.

@Andrew A. Well there are a couple of things going on here.  Converting to a triplex might not be simple, legal, or cheap.  Zoning, in this case, is Step 1 in the process.  There no sense trying to run numbers on a plan that just doesn't work.  And if you do go down that road you can end up with some funky issues that aren't cheap to resolve if you want to finish out a basement to convert it into a rental unit.  

As for bigger units, kids, etc. you can end up with a mixed bag there.  On one hand, sure, they are going to do more wear-and-tear to an apartment.  So will two college dudes.  So will a single guy who likes to throw parties.  There are 100 of those scenarios that are really a challenge to figure out before you have someone living there.  The advantage to larger units and families is that they're less likely to up-and-move when they do settle.  

Where I invest, my apartments turn over annually for the most part.  They're nice but they're smaller and people do move for work, I have a few college kids as tenants, etc.  It's not a big deal and life goes on.  But I seldom have someone that's living there for 3+ years.  Now the SFRs in the same market that are 1500 sq ft+ do have families and those families tend to stay long.  So, sure, you end up with bigger costs and unit turnover but it might be every 24 months instead of every 12.

And if a tenant is going to thrash a place, they're going to thrash a place.  The size of the unit won't matter, kids won't matter, irresponsible knows no bounds.  The advantage of a large unit is that it should command more rent.  So you should have tenants with better income that qualify for those units.  

So it's all a mixed bag :-)

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