How do you feel about 2/1s?

[Ron K.]

Hi,

I'm finding that 2/1 units seem to have better CAP rates that "nicer" places with 2/2s or 3/2s. Do you think demand for lower end properties (2/1s) will decrease over time, or be just fine.

thanks,

[Joel Owens]

Ron 1 units do have more turnover. Times for all 1 beds might be student housing or the elderly who do not move much and need less space for a cheaper rent.

All 1 beds are hard to get financed and refinanced down the road. They are also harder to sell off. 1 beds have there place but I like the mix to be 25% or less of the overall development. So if you had 100 units no more than 25% 1 beds.

You can do things like take 50 1 beds and take out walls and change unit mix that way if you buy cheap enough to meet market demand. You have to figure in costs on the buy side to make the deal work and know what the county or city will require with updated codes to change. Sometimes they require fire sprinklers and other things which can get very expensive on rehab.