Does anyone have any experience with efficiency units?

Question

I’m looking at investing in 12 efficiency units. They range in size from 400-700 sq ft. ROI is 6% at current asking price. Not sure how much more rent I can get over the next 5,10,15 years. I have 8 single family homes and do well. I’m not sure if efficiency units would be parallel to the homes in terms of ROI. Appreciate any other input / information anyone else may have.

Joshua Tessier · Answer

I have 4 units in one property that are maybe 200 SQ/FT each.  They have a very small but efficient kitchen layout. with everything you need and space for a bed. They all have a small bathroom and after that there's not much else.  These are by far my most profitable units.  I use one as a shorter term rentals and its often generated over $2,000 a month.  These units typically rent to visiting professionals, students and everything in between.  It's crazy as often times we will get a cancelation and then it books again and Airbnb charges everyone so you get paid twice.  I do not agree with there policies but it's how Airbnb works.  They require more work than traditional and are a giant pain in the ass as it seems all short term rentals are but the money it generates has allowed me to outsource a lot off my plate.  In the end I am adding more with the goal of turning all four into short term rentals by spring.

Sean Sloop · Answer

Hey Neil, one thing to consider is efficiency units likely have increased turnover while Single Family homes do not have as much. I think if you underwrite a little higher vacancy cost and maybe a little more difficult to re-sell as most people prefer more of a mix.

If the number work and you are happy with the return, I don't see an issue with it.