If you can only add 1 bathroom or 1 bedroom to a 2BR 1BA SFR for a buy and hold strategy, which would you choose? What are your reasons?
Thanks for the reply @Jason DiClemente
For my market 3BR 1BA rents higher as well. My concern is if I were to do the BRRRR strategy, during the refinancing phase, would the bank appraiser also consider adding a bed room a higher value add than adding a bathroom in a residential RE sector, since SFRs will not be appraised based on NOI. What are you thoughts?
There is more value in adding a bedroom from both a rent and appraisal standpoint. Most appraisers should adjust higher for an extra bed then they will for an extra bath. Here in NYC an extra bedroom could be adjusted +100k, and extra full bath +40K (these are numbers from an actual appraisal report).
@Jason Lee Thank you for your info, very helpful. I hear a lot on the podcast and forums about value add via converting 2BR to 3Br and wanted to confirm those assumptions. Do you see a point where this strategy of adding functional space reduces its value factor? If so, where is that tipping point? (Ie is converting a 2BR to a 3BR more bang for the buck than converting 4BR to 5BR?)
3 bed 1 bath seems like a no brainer to me. A third bed is typically more of a need than a want (2nd full bath). Beyond that, it depends on your market. I can't see a 5 bed 1 bath doing well with a family, but it might work fine near a college. I definitely think there's a point of diminishing returns. It's important to look at your comps. You don't want to be an outlier.