Does size matter? 2 bedroom vs 3 bedroom

26 Replies

Hi guys,

Wondering what landlords out there are seeing demand wise for 2 vs 3 bedroom homes/apartments.

I’m sure it depends on the market, but do you have any preferences?

I’m looking into the Philadelphia suburbs at the moment. Around the Marlton area. If any locals have any insights into twos vs threes that’d be helpful too.

Let me know what you guys think! Thanks!

Not local to you but generally there will be demand for either, however if you are also looking at appreciation resale value and value over time for 3 bedrooms tends to be better at least if it is an SFR or condo or something like that.

3 bedrooms tend to attract families that tend to stay longer. 2 bedrooms will have less tenants inhabiting them and therefor maybe less wear and tear (but maybe more if it attracts a couple younger guys.)

In my experience couples like to have one empty bedroom for office/arts,crafts/visitors/whatever. So once they have 1 kid the 2 bedroom doesn’t work. They do the math and see they can get an extra bedroom for nothing or almost nothing. 

You are working with two different buyer sets for 2 & 3 bedroom single-family homes, but both can be done well. You will almost always make more and spend more with a 3 bedroom, and the biggest mistake some investors make is forcing a small third bedroom into a home that doesn't need one. A 2-bedroom condo alternative single-family is perfect for a single person or a couple who has one kid or will have one kid and then grow out of it. It's a perfect quick stop before getting a bigger home and often comes with less maintenance and exposure. A 3-bedroom will be for existing families most of the time or expectant families in the near future who want to grow into it and maybe out of it, but many 3-bedroom home buyers think they will stay there for longer than they will.

You do have to be very careful with 2 BR purchases because they are very market and local dependent. I am Under Contract on a 2 BR single-family now at 350k, but 3 BR single-family homes in the area would be at 500k in similar upkeep. I am flipping it as that condo alternative, but I can't go too big because there is a ceiling for 2 BR flipped sales. I hope that helps.

Thanks for the responses everyone. Appreciate the input!

@Jonathan Greene the best of luck with the flip project and thanks for the insights.

I’m seeing a huge variance in the three bed market. House sizes, prices and comparable rents all vary much more between the three beds relative to the 2 bed apartment units.

I was leaning towards 3 bed thinking tenant turnover will be less. But as was mentioned, perhaps people grow out of the 3 bed homes quicker than you’d expect.

@Killian Ankers

I think both work.  The majority of my properties are 3/1 and 3/2.  They are the most in demand.  Gives you a better exit strategy if you want to sell versus a two bedroom.  Higher rents, more family driven, more stability, longer term tenants and just a better investment in my opinion.  If I can find a two bedroom over 1000 square feet I would find a way to convert to a three bedroom instant equity.

I will also add this: size matters.  It is not uncommon to see tiny bedrooms to squeeze in the extra bedroom.  Make sure the rooms are a good size-I don't mean a palace, but something you can put a double bed and dresser in and still be able to walk into the room.

@Killian Ankers , In my area of Brooklyn which is full of young professionals, I find it much easier to fill 2 bedroom units than 3 bedroom units. More people have one roommate they are looking with rather than two roomates. It is really location/population specific. If your area attracts families then this will be completely different. You need to research the area and determine the typical renter profile for the neighborhood. In the end it might be harder to rent a 3 bedroom, but the rent amounts are greater.

Best of Luck

Alex Furini, RA

We have 2/1, 3/1, 3/2, 4/1 and they're all rented all the time. I think the ideal unit is a 3/2 as that meets the needs of the largest group but anything else has a demand too. The last 5 doors we've purchased are 2/1s (3 sfr and 1 duplex)

You need to consider your exit when making this purchase. I am not particularly knowledgeable of Marlton and believe others can shed additional light on the market conditions in this particular area However generally speaking I believe the location of the property is critical as well as whether you are acquiring a single family house or multi-family building.  Focusing first on SF homes,  3 bedroom homes regardless of the neighborhood are more likely to provide for an exit to a home owner whereas a 2 BR home in most neighborhood will likely attract an investor. As for a multi-family building, unless you are near a school and anticipate student tenants, 2 BR units are more marketable. The one exception would be a building that has an eventual exit as condos. Then 3 BR units might make more sense.

As a professional property management company we clearly see a huge benefit in 3 bedrooms over 2. The demand and the rents make a significant jump, the vacancy and turn-over goes way down. The turn over on one bedroom places is considerable!

@Killian Ankers This is something that just came up yesterday with a place I'm purchasing as a primary residence. right now its a 3 bedroom but we wanted to remove a wall on one bedroom to make it an open space office. My financer and real estate agent told me I should rethink that option because of resale/rental value for the future. We don't plan on being there more than 3-4 years (our little one will be starting school and we'd move to the burbs).

But as others have mentioned, the answer to your question is largely market dependent. In my case, my financer is looking at things very black and white - and the prevailing school of thought from that perspective is that 3 is better than 2.

If you buy right you could make the differentiation a non-factor and charge 2 rb rents for a 3 br unit which would make you much more competitive for folks looking for either or. Of course, this only if you're having a struggle getting a tenant in there.

@Franky Aikens The best of luck with the purchase. Yes, it seems like the demand is there for both, but turnover could potentially be a lot lower with a 3 bed as @Joe White pointed out.

Thanks for the insight Joe. I definitely appreciate input from property managers in the Philly area.

I'm seeing a lot of 2 beds listed on the MLS that are over 1,000 SF. Adding an extra bedroom might be the way to go.

I also wonder if people are having success with condo investing. Many 2 beds are condos. The HOA fees aren't too bad either. Although it may not be permissible to add an extra bedroom to a large 2bed townhouse that's under a HOA.

I may be a child at heart but this is the best title for a forums post I've seen. Well done @Killian Ankers . Now to answer your questions- for rentals yes, for flips- kinda. If you are looking into single-family rentals, three beds are almost always easier to rent out. For apartments, like @Zach Rucker was saying, two beds may be more desirable but all of the feedback I have received from my property managers and landlord investors is that they prefer 3 beds, as it seems @Joe White already hit up. For flips, specifically in South Philly, 2 large bedrooms almost always sell as much if not more than three smaller bedrooms. 

@Kevin M. would be a great person to weigh in on this. 

@Jimmy O'Connor haha gotta love a cheeky title, thanks! I really appreciate this great feedback. I’m thinking 2 bedroom apartments and 3bed single families should be on my radar. I’m planning a buy and hold with some rehab. I know - isn’t everyone Lol 

Next step is to find a local mortgage broker and realtor. Also, if anyone has suggestions for other towns around Marlton/outside of Philly that’d be great. I’m seeing some cheap properties in Clementon, but the population seems low which could kill demand. Might shy away from areas like this. Thanks guys!

@Joe White

@Jimmy O'Connor

Outside of student rentals don’t you think it’s way more difficult to rent 3 beds vs. 2s or 1s?

Certainly seems like the trend in Philly is 1 or 2 beds for new construction

@Mayer M.  Most of the rentals I work with aren't new construction A-B class neighborhoods, they are rental rehabs typically in areas where rentals are going to families who don't have great credit or enough money for a down payment. In these particular neighborhoods, it is not uncommon to fit 3-6 people into a 3-bed house. Most of these are in D-C class lower investment but cash flowing neighborhoods (Far West Philly, SW Philly not close to Baltimore, North Philly past Lehigh, I-95 Corridor past Port Richmond, etc). In these pockets, an investor does not need to make a new construction nor fit multiple units to cover the mortgage of the property like you do in your neck of the woods (Fairmount/Brewerytown/Sharswood if I'm not mistaken) where the acquisition and rehab is so high that you need to make as many 1-2 bed units per property as possible. NOW,  the demographics and socioeconomics change in these pockets where new construction is viable, meaning your investment has a valuable return. Whereas C-D class lends itself towards blue-collar families looking for affordable spacious 1400 sf 3-beds including the basements (where the rent is still above the mortgage), B-A class is often occupied by young professionals around my age (mid 20's to Early 30's) who pay up to be WHERE they want live not so concerned about WHAT they are living in, often a 500-700sf unit w/o a basement.

 I feel like two things are at play here, 

1) Coming from experience, finding 3 roommates that are not related and get along is a PAIN. Much easier with either yourself or one friend.

2) Space is less important to this rental pool since they are just looking for their own bedroom, ideally their own bath. Often they are willing to pay up for less space in order to be in an area where you can walk to bars and restaurants.

PLEASE NOTE- although most of my opinions are data-based, these last two points are STRICTLY from experience and therefore may have some subjective bias. Give me a day or two to come up with some relevant data to either prove or disprove this hypothesis and I'll continue on this forum

I've never encountered a 1 or even 2 bedroom new construction property. And the more bedrooms a place has, the far easier it is to rent.

@Killian Ankers ,

I stand by 2 statements:

1) Everyone needs a home!

2) This home is PERFECT for someone, I just haven't met them yet.

That being said, all things being equal, I'd take the 3bd quickly over a 2bd, but if the 2bd is a good deal, don't pass it up!   There are young couples, retires,  empty nesters, single people or single parents who would happily do a 2bd-- but rent will obviously be cheaper.    

 Hope this helps!