Real Estate Broker · Dallas · Member since 2013 · 116 posts · 10 votes
I finally got a chance to see inside the multi-family that I am purchasing in the DFW area. What I thought were 5 one bedroom units are actually 5 three bedroom units (around 900 sq. feet each) with one fairly large bedroom downstairs and two really small bedrooms upstairs (narrow staircase and no bathroom up). I think the upstairs is pretty useless unless I can convert them into a single bedroom or a loft area for an office.
Good news is that all 9 of the units are in pretty good shape. Just need some cosmetic updating (carpet, tile, paint). All are on separate electric meters (thank goodness) and have individual laundry facilities. Water is separate though. Will need to figure that out.
What would you do with the small three bedroom units? Convert to one bedroom plus a loft (if possible) or leave as is with two small bedroom upstairs?
Investor · PA · Member since 2013 · 1k+ posts · 602 votes
12y
I would keep it as a 3/1 and rent it at a small discount over other 3/1's maybe because of the small rooms. Less bathrooms means less things to fix. Some people might prefer small spaces because they are cheaper to heat and cool and keep organized.
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
12y
If you can tolerate Section 8, you may have hit the gold mine. 3 BR rates are considerably higher than 1 BR rates in most areas. As long as they have an egress and a closet, they count as a BR even if they are small.
Real Estate Broker · Dallas · Member since 2013 · 116 posts · 10 votes
12y
They have windows and closets (9 X 16 rooms, but with an a frame pitched ceiling, so less walking space in the room). However, I don't really want to deal with section 8. The prices will be in the $900 to $950 per month range for all of the units once they are updated inside. The 5 smaller units are attached townhomes and there are 4 others unattached (actually four SFRs on same property) with small yards. The city has already approved having 3 other SFRs on the property... probably won't do this though.
Investor · PA · Member since 2013 · 1k+ posts · 602 votes
12y
In order to count the square footage towards the minimum it must have a flat ceiling over 7?-0? or you can count the area under a sloped ceiling from the point it hits 5?-0? and over.
Real Estate Broker · Dallas · Member since 2013 · 116 posts · 10 votes
12y
The staircase is really narrow and turns a corner. I don't know if anyone could move furniture upstairs. Currently all of the residents use the upstairs for storage (although they are all elderly couples so no need to climb the stairs).
Investor · PA · Member since 2013 · 1k+ posts · 602 votes
12y
I have a house like this and people will find a way to get mattresses and furnuture up there. If the house is old then the codes department will probably let it be grandfathered in even if it doesn't meet current code requirements.
Real Estate Broker · Dallas · Member since 2013 · 116 posts · 10 votes
12y
What about having only one bathroom downstairs? I wouldn't personally rent something like this... but I have three boys and and husband... I need my own space.
Investor · PA · Member since 2013 · 1k+ posts · 602 votes
12y
I would keep it as a 3/1 and rent it at a small discount over other 3/1's maybe because of the small rooms. Less bathrooms means less things to fix. Some people might prefer small spaces because they are cheaper to heat and cool and keep organized.
Dallas, TX · Member since 2011 · 308 posts · 59 votes
12y
It's difficult to say without seeing the place, but my first reaction would be to leave it as is, or perhaps convert to a 2br if upstairs bedrooms are truly non-functional. Do you think you will get more rent converting to a 1br/loft as opposed to the way it is now?
Taking a quick look at lease comps I think your estimate of 900-950 may be a bit aggressive. Do you have copies of the leases to verify this? There are some townhomes very close by that are much newer, bigger sqft, 2 car garage, not on main road, leasing for ~1200.
Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
12y
Leave it as is and see what the market will bear or convert the top to a single second bedroom. Remember not everyone is you and there are lots of houses with one bathroom. It used to be the norm. If you can get a single matress up the stairs you are good. I would caution against changing the second floor to loft. Bedrooms mean more rent so retain at least two. Since you have a number of units if you see one or two that would quickly be spiffed up you might see what kind of turnout you get as is. You then have rent coming in when you decide to reno some of the more tired units. sounds really interesting.
Real Estate Broker · Dallas · Member since 2013 · 116 posts · 10 votes
12y
I would prefer not to spend the extra cost adding an upstairs bath, unless I really have to. Walls are easy, but plumbing gets expensive. Although it would be directly over the downstairs bath....
Current leases are $0. The owner is a non profit and current tenants are not paying. All will be moved out before I take possession. I plan to do a major overhaul on the exterior and add front porches, shutters, different paint colors and new windows and make them look completely new. The city has funding for residential exterior updates in old town, assuming I get approval. They really want this property to start paying taxes after 20+ years of being exempt. So I feel like the odds are in my favor. I am meeting with the city designers next week.
Wholesaler · Holiday, FL · Member since 2013 · 571 posts · 221 votes
12y
It it were me I would rent them all but one as-is - starting with the one in the best shape right now. In the unit that is in the worse shape right now I would take out the wall as you suggest and create a 2/1. And that would be my test case for your market. Then if the 2/1 was the darling of the lot - then I would gradually convert every future 3/1 vacancy into a 2/1. If the 2/1 was the dog for your area I would put the wall back up.
stephen
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Originally posted by Kim H.:
I finally got a chance to see inside the multi-family that I am purchasing in the DFW area. What I thought were 5 one bedroom units are actually 5 three bedroom units (around 900 sq. feet each) with one fairly large bedroom downstairs and two really small bedrooms upstairs (narrow staircase and no bathroom up). I think the upstairs is pretty useless unless I can convert them into a single bedroom or a loft area for an office.
Good news is that all 9 of the units are in pretty good shape. Just need some cosmetic updating (carpet, tile, paint). All are on separate electric meters (thank goodness) and have individual laundry facilities. Water is separate though. Will need to figure that out.
What would you do with the small three bedroom units? Convert to one bedroom plus a loft (if possible) or leave as is with two small bedroom upstairs?
Real Estate Broker · Dallas · Member since 2013 · 116 posts · 10 votes
12y
I just pulled comps for the two city zip codes.
Two bedroom leases average $914 for 900 to 1200 sq. ft for the last two years (this eliminates all of the newer units). There is a mix of 2/1 and 2/2.
Three bedroom leases, also eliminating newer units, average $1074 per month for the last two years. If I add in newer units, the average jumps to $1100 per month, but only adds about 3 additional units because the average age is 1972 for the entire area. The mix here is more 3/2 than 3/1.
Average listing time is just under one month for all properties. Currently there is only one property listed under $1000 for both zip codes.
This does not factor in apartments rates. Apartments range from $500 to over $1400 in the second zip code. There are not really any apartments in the property's zip code. One older garden style complex about 2 miles away that rents for $750 (all bills paid) for a 600 sq. ft 2 bedroom.
Mine will be listed in MLS.
Rentometer.com says $900 is reasonable for 2 bedroom and a good deal for 3 bedroom... however I don't really put a lot of stock in that analysis.
Bryce, you said $900 is aggressive. Would you recommend lowering to 750 to 800?
Dallas, TX · Member since 2011 · 308 posts · 59 votes
12y
The comps I saw were on Legends Dr. That subdivision it seems was built in 05-06. A typical 3/2.5/2 rents for around $1250. Yours being a small 3/1/0 or 2/1/0 on a main road, I would use 750-800 for analysis purposes. If you can get more, great, but there aren't (m)any like comps so I'd be conservative.
I would place an ad on craigslist or stick a 'for rent' sign in the yard to get a better feel. I don't know that area well. Perhaps @Carlos Flores can give a better perspective.
Real Estate Broker · Dallas · Member since 2013 · 116 posts · 10 votes
12y
I will probably just advertise in MLS. That way it will be all over the Internet. And luckily the main road is Main Street in old town and one black from the new transit center for commuters.
Investor · Tucson, AZ · Member since 2009 · 171 posts · 27 votes
12y
I'd like to suggest that before you make a final decision, consider checking out some of the TINY HOUSE websites just because. Here's one: http://www.designboom.com/contemporary/tiny_houses.html.
Perhaps with some out of the box think and marketing, you can go over the top with your situation! Best wishes!
I liked the idea where you convert one of the units and see what happens. Personally before I made any changes I would rent it out. Once they are all rented out you can always do renovations as they come up. @Kim H.
Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
12y
Advertise them as both , a 3 bedroom , and a 2 bedroom with a den , see where you get the most responses .
I have a small 2 bedroom , I always list it as a 1 bedroom with a den , Its has a very small second bed bedroom , I would get couples with 3 kids looking at the place . ( house cant handle 5 people ) When I put up as a 1 bedroom , I would get single parents or young couples just starting out .
Commercial Real Estate Lender / Syndicator · Dallas, TX · Member since 2011 · 888 posts · 309 votes
12y
I didn't run the rent comps. Kim is a realtor so she should have a decent handle on that. Start high within reason. It's easier to come down than go up.
Although the property is on a main road, from what I remember (been a while), it's shielded from the road and the units are setback quite a bit. Only thing open to the road is the driveway to the parking lot. This can help ease that main road feel.
I'd try to lease as they sit today (or as close as I could get away with), stabilize, and get a feel for the market. Despite being near the A train station, the immediate adjacent area is not experiencing any growth and has not in a very, very long time. I don't believe it will look or feel anything like the recent high density growth near the Dart stations in Carrollton or Farmers Branch, at least not in the next couple of years (probably more, a lot more). I mentioned to Kim, in a previous PM, that she should check with city planners. If new projects are planned, then she should look at what it would take to also gain control of the vacant land next door (still for sale? it was recently), and the vacant land across the street which I think extends down to the hard corner. If growth is coming, I'd want to be in a position of strength ... cash flowing as much as possible without having rehabbed and in control of several acres on both sides of the main drag.
If nothing is coming soon, and it supports it, then rehab may be in order. You can test the market with proposed design boards and pics. You'll know real quick if people are willing to pay for your vision.
Real Estate Broker · Dallas · Member since 2013 · 116 posts · 10 votes
12y
Thanks everyone. I think you all have great ideas. I have a lot to do in my feasibility period. And it may be too overwhelming and all I do is walk away but I am glad I found this forum to post questions and ideas. I don't want to learn the hard way.
Commercial Real Estate Lender / Syndicator · Dallas, TX · Member since 2011 · 888 posts · 309 votes
12y
The beauty of this site can also be a determent. You'll get lots of ideas and opinions, some more appropriate to particular levels of expertise or situations than others. Don't be discouraged! I think you said this is your first MF. Forget what I said about all the land, etc. Get back to the fundamentals. I don't expect you to answer these questions here: Does the project match your goal(s), your criteria, your desired return, etc. If the numbers work doing nothing or very little, then you can fill it (month-to-month or 6-mo leases), catch your breath, and develop a plan to force appreciation if it will support it. Start with the exteriors and curb appeal, then raise rents a bit. Hopefully you'll get some coin back from the city as well. Now consider interior rehabs as people move out or send one of the m-to-m packing.