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.
Real Estate Broker · Dallas · Member since 2013 · 116 posts · 10 votes
12y
Carlos, yes, this is my first MF. My other investment is a SFR in Flower Mound and it rents for $1700 per month with a tenant who pays on time and takes really good care of the property. I added new carpet, tile and carpet to this one. My only other investment was a SFR flip, also in Flower Mound that I purchased for $119k and completely gutted. Sold a week after it was on the market with seller financing for $175k with $50k down.
My problem (mental block) is renting as is. Even though the units are in decent shape, they are a hodgepodge of fixtures, nothing particularly appealing. Some carpet, some tile, some vinyl, different cabinets, etc. In my mind want them to be nice and what I consider show-ready. I guess my realtor mentality is conflicting with the mentality required to be an investor.
Real Estate Broker · Dallas · Member since 2013 · 116 posts · 10 votes
12y
Oh, and I did have a lake house that we used for summer vacation rental that did pretty well until the neighbor pulled a gun on one of my tenants (lost money selling that deal) and a commercial building that I had an office in but is now leased (about to lose tenant on that one and desperately wan to sell it). Those were accidental investments never intended for that purpose.
Specialist · Pelham, NH · Member since 2013 · 544 posts · 269 votes
12y
I'd leave the units as 3/1 and upgrade the fixtures and paint. You'll have the lowest priced 3 bedroom rentals, or like someone mentioned, list them as a 2 bed with a den or office. Call the upstairs rooms the beds and the downstairs, the den. Bedrooms can be small, most people only sleep in them and do their living in the "living room".
Pretty them up and get em listed. Run an ad as a 2+den/office and another as 3/1 and see what you get more calls on.
Price them competitively, don't worry about the size of the beds in the price. It's a 3 bedroom, rent it as such!
On the 2 + office, rent those at the same price as the 3 beds. They may be more then the 2 bed comps, but it has an office/den, increasing the value over the comps.
I'd start at $1000 and see what response you get. you can always lower it.
And I wouldn't convert anything, just update it all to current standards.
Real Estate Investor, Flipper, PM, vacation rental, Wholesaler · Athens, GA · Member since 2013 · 260 posts · 210 votes
12y
@ Kim H.
Depending on your market, you might have an opportunity to rent out each bedroom under a separate lease. This works awesome for us, but we are in a market that has very few affordable 1 bedroom units and high demand.
For example, maybe your 3 bedroom would normally rent for just $750. However, renting out each bedroom as a $300 1-bedroom lease substantially bumps your net rent up to $900. The benefit to the tenants is that they don't need to find roommates. We essentially bring these tenants together based on their needs. Another benefit to them that if one of the 3 roomies couldn't pay the rent, the other 2 wouldn't be on the hook for the deadbeat, thus limiting the individual's risk of defaulting. If they take care of their rent, they have a place to stay. You can legally evict 1 bedroom if thats the space described on their lease (at least in our location). We provide each bedroom with their own keyed knob in addition to a shared key for the front/back common door to the full unit.
We do this strategy all the time and get way more than most managers in our town. It's more effort to find 3 tenants, but you get a premium for your efforts.
If you want to try this, contact me and I can share all of the special stipulations that we have developed over time that seem to be effective to put into the lease to make sure we keep the peace in this unique situation.
Another option to consider? So now, you have a 3/1, 2/1 with a den or three 1-bedroom units. In my experience, the one bedroom units bring the most in the end if you are willing to place 3 tenants.
Real Estate Broker · Dallas · Member since 2013 · 116 posts · 10 votes
12y
Jack Tucker that would be a great idea if I were 20 miles north near the University of North Texas but I don't think it would work well in my current area. There is a MF available near the university. Maybe I should look into that one.
Real Estate Investor, Flipper, PM, vacation rental, Wholesaler · Athens, GA · Member since 2013 · 260 posts · 210 votes
12y
You’d be surprised how well this strategy has worked for us. I’m also surprised how dew property managers are willing to put in the extra work to make this strategy a success due to a higher net number of leases.
You may also be underestimating the demand for 1-bedroom units. Keep in mind that independent 1-bedroom units typically have a premium, so price your single non-independent single bedrooms under those to find your biggest response. As some of the other posters have suggested, throw up a Craigslist ad for a single bedroom and see what kind of response you get. You might be pleasantly surprised.
Using this approach, you could even have a lease for a 1-bedroom and a 2-bedroom, if that’s what you find. This plan allows for maximum flexibility for your product in the market.
Wethersfield, CT · Member since 2013 · 2 posts · 0 votes
12y
DEpends on how much you would like to spend. you can make the upstairs the master by taking the wall down and putting in a nice walk in closet or upstairs bath. Dual masters should rent well
Real Estate Broker · Dallas · Member since 2013 · 116 posts · 10 votes
12y
@Sylvia B. thanks for checking. I haven't closed on the property yet and still haven't decided exactly what I am going to do with them. I am leaning toward the option of converting one of the units to a 2/2 and making a really nice finish out to see what happens. If I could get the rent on a one bedroom, I would close off the upstairs and rent it that way.
Rental Property Investor · Douglas County, MO · Member since 2014 · 1k+ posts · 1k+ votes
12y
Originally posted by @Kim H.:
@Sylvia B. thanks for checking. I haven't closed on the property yet and still haven't decided exactly what I am going to do with them. I am leaning toward the option of converting one of the units to a 2/2 and making a really nice finish out to see what happens. If I could get the rent on a one bedroom, I would close off the upstairs and rent it that way.
You mentioned that the stairs were very narrow & had a turn. How would combining the two rooms upstairs into one alleviate that problem?
Real Estate Broker · Dallas · Member since 2013 · 116 posts · 10 votes
12y
@Sylvia B. you are correct, the stairs are narrow and have sharp turn. That's the other part of my dilemma. I am considering opening up the walls on one side of the stairs and adding railing. At least then they wouldn't feel so narrow and tenants could lift furniture over the rails if necessary.
To be honest, it's been a month or so since I have been in the units and I am having a hard time picturing in my mind what my options are. I am hoping that one will be vacant in the next week or so and I can get in with a few contractors for ideas ... and most importantly costs!
I have a pretty strict budget for all 9 units so it may be that it is cost prohibitive to do anything but slap some new carpet down on the stairs and in the upstairs bedrooms and wait a few years before I change the layout. I have spoken with one contractor on the phone who really put me in my place about 9 units (around 8100 sq ft total) probably costing $200K to rehab "correctly" (obviously he is not on my short list). But, I am not holding my breath that I will do anything more than paint, floors and fixtures and repair the deferred maintenance items to start getting tenants in place.