Pros and Cons of MultiFamily with Only 1BA/1 BD

Multi-Family and Apartment Investing
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Pros and Cons of MultiFamily with Only 1BA/1 BD

Harold Felder
Investor · Charlotte, NC · Member since 2015 · 22 posts · 3 votes

Hello BP Community,

I am a new investor looking to become more active in the multifamily space.  I recently purchased a fourplex and I am looking to move into something with more units.

I recently saw a 20+ unit apartment building.  All the units are 1 bedroom/1 bath.  What are the pros and cons of owning an apartment building with only 1 bedroom apartments?

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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
10y

Just a forewarning on converting from 1 bed to 2's. If your building is older and you want to convert say 40 1 beds out of 50 units into 2 beds and then have 10 1 beds you could be made to bring things up to code.

People just think of demo costs and a little restructuring. Some muni's require electrical upgrades, fire suppression systems with sprinklers, etc. This stuff can add huge additional costs to a makeover.

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    10y

    Harold typically all 1 beds you stay away from unless senior housing or student housing. Regular 1 bed units otherwise typically turn over very fast and you have a lot of lost rent and constant repair costs. They are harder to refinance versus a mixed building of 2 beds to 1 beds.

    General mix that most like is 75% to 70% 2 beds and 25% to 30% 1 beds for a complex. 

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  • James Syed
    Real Estate Broker · Mount Olive, IL · Member since 2013 · 1k+ posts · 310 votes
    10y

    Welcome to BP.

    Agree 100% with @Joel Owens . 

    All 1 bedrooms will have a very high turn over. I don't one bedrooms for that reason. Go for either all two bedrooms or larger. 

    Hope it helps.

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  • Mike Wood
    Developer · New Orleans, LA · Member since 2015 · 1k+ posts · 898 votes
    10y

    I have one (1) unit that is a 1 bedroom condo that I rent out. All of my other units are 2bed or 3 bed units (7 units total).  I would also agree with others, that the 1 bedroom units will have higher turn over.  I think repairs depend of the areas and the quality of tenants, but turnover costs and vacancies will be higher.

    I wish I could get rid of my one bedroom unit, but the market its in just will not support a sale.

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  • Aaron Montague
    Rental Property Investor · Brookline, MA · Member since 2013 · 1k+ posts · 777 votes
    10y

    @Harold Felder

    A pro of 1/1s is the rent rolls.  You make quite a bit more in the same building footprint.

    The cons are mentioned above.

    If the building is cheap enough could you convert it into a series of 2/2s?  1 bathroom per bedroom is a premium space here in Boston.

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  • Crystal H.
    Flipper/Rehabber · IA · Member since 2015 · 157 posts · 35 votes
    10y

    Have three 1/1 units and all rent great. Hardly any repairs after tenants move out. Rent has gone up, one tenant has been there for 10+ years and has stayed with the property and new owners. I don't know about a building that large with all 1/1, how has it performed in the past? Can you join any of them into 2/2 units?

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  • William Hochstedler
    Broker · Logan, UT · Member since 2013 · 1k+ posts · 1k+ votes
    10y

    We're in a college town and love 1/1's.

    Another thing about our market is that there is no new construction in this sector because the marginal cost of a 3/1 makes more sense for builders.

    Therefore in our market these units are becoming a smaller and smaller percentage of the rental inventory.

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    10y

    Just a forewarning on converting from 1 bed to 2's. If your building is older and you want to convert say 40 1 beds out of 50 units into 2 beds and then have 10 1 beds you could be made to bring things up to code.

    People just think of demo costs and a little restructuring. Some muni's require electrical upgrades, fire suppression systems with sprinklers, etc. This stuff can add huge additional costs to a makeover.

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  • Scott C.
    Real Estate Investor · Hallstead, PA · Member since 2013 · 45 posts · 24 votes
    10y

    My experience with 1/1's has been different. I've owned a 19 unit complex for 9 years. The complex has 17 units being 1/1 and 2 units being 2/1. Of that 4 tenants have been with us since the beginning, 2 are 6+ years and the average for the remaining 1/1 units is 3 years. The average for the 2/2 is 2.5 years. My vacancy rate is just under 3% and I have a waiting list. I would have difficulty with these same units in the next town. I believe you need to analyze your deal in your market and see if it works for you.

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  • John Cohen
    Rental Property Investor · Mineola, NY · Member since 2014 · 838 posts · 212 votes
    10y

    @Harold Felder

    Pros - college towns for students and older age tenants

    Cons - they run a little more expensive to run based on income they bring in (compared to larger units.)

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  • Douglas Snook
    Attorney · Attleboro, MA · Member since 2015 · 412 posts · 165 votes
    10y

    You really have to see what the market for 1 bedrooms is like in your area. As mentioned in Boston it is pretty good. I had duplex, one side was a 1 bedroom the other three bedrooms. Most tenants seemed to stay about a year on the one bedroom and never any issue finding a new one. Three bedroom was always an issue. Took longer to find tenants, had to be deleaded because of the with the extra bedrooms could have kids under 6. Now more people and more wear and tear. Also took longer to find tenants that could afford the rent.

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    10y

    Yes out here 2 units are more in demand. It is unusual for 1 beds to stay occupied for a really long period of time.

    I have seen that with seniors and college areas. I have also seen it where if the rents for 1 beds are cheap for a complex and under market people do not move. Example 1 beds go for 700 in the area but a place has them for 550. If for instance 1 beds go for 700 but 2 beds can be had for only 150 to 200 more a month then people move to 2 beds when they can afford them.

    1 beds you grow out of quickly. Family moves in, or you get married, have kids, etc. With 2 beds you can do a lot with a space and stay in it for awhile. 3 beds are not as popular because people do not want to pay more for the space. If people need that much space over a 2 bed they tend to go for buying or renting a house instead. 

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  • Tom Lafferty
    Plano, TX · Member since 2013 · 226 posts · 156 votes
    10y

    I would also add that it depends on the area, demographic, and demand.  We have a 32 unit property in a DFW suburb that is mostly 1/1's.  They are full all the time and we have a waiting list of over 20 people.  We've had the property for almost 2 years, and there are 11 of the 32 units we haven't even been able to get in and rehab because the tenants just take the big renewal jump and remain in place.  

    I'd definitely prefer more 2bd units as all the others have said, but I'm all over anything that stays that full, and wouldn't dismiss it without further info.  I'm looking at a 167 unit property right now that has 127 1/1's.  Yuck.  But if the numbers work I'll probably go after it anyway. 

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  • Curtis BidwellPro Member
    Rental Property Investor · Olympia, WA · Member since 2014 · 781 posts · 744 votes
    10y

    I agree with @Scott C..  I've had a mixed-use building for 9 years now.  28 Studio and 10 1-bedrooms upstairs with some retail downstairs.  It's a downtown location.  My manager fits well and creates a good environment that keeps our turnover low.  I have about a 2% vacancy rate year-over-year. Several of our folks have been with us from the beginning.

    We have a mix of young single, young couples, retired and low income.  The older they are, the longer they stay.  Know who you are reaching and target them.  Then create a reason to stay. 

    My real dream for this property is to convert to Assisted Living. It is well suited for the purpose, I just need the experienced lead person to get us there!

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  • Harold Felder
    OP
    Investor · Charlotte, NC · Member since 2015 · 22 posts · 3 votes
    10y

    @Crystal H.

    Thanks. I've only seen it from the outside but it doesn't look like it would be easy to convert to 2 bedrooms.  I have not yet asked for the financials, but based on the comments here, I am not really sure I am interested enough to pursue much further.

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  • Harold Felder
    OP
    Investor · Charlotte, NC · Member since 2015 · 22 posts · 3 votes
    10y

    Thanks @Joel Owens,

    Just looking at the outside condition of the property and the neighborhood, I don't think it would be worth the effort to convert to 2 bedrooms.

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  • Harold Felder
    OP
    Investor · Charlotte, NC · Member since 2015 · 22 posts · 3 votes
    10y

    Thanks @Scott C. for a different perspective.  Since I am new to the multifamily space I am not sure I know enough about how to analyze my particular market to make a wise decision.

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  • Harold Felder
    OP
    Investor · Charlotte, NC · Member since 2015 · 22 posts · 3 votes
    10y

    Thanks @Douglas Snook, 

    I think I will reach out to my real estate agent and get her feel for what the market in my town is for 1 bedroom/ 1 baths.

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  • Harold Felder
    OP
    Investor · Charlotte, NC · Member since 2015 · 22 posts · 3 votes
    10y

    Thanks @Tom Lafferty, 

    I think I will inquire further, just to see what the numbers look like. 

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  • Harold Felder
    OP
    Investor · Charlotte, NC · Member since 2015 · 22 posts · 3 votes
    10y

    Thanks @Curtis Bidwell,

    I am going to have my real estate agent check out the area while I take a look at the financials to see if it is worth a closer look.

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  • Jeff Greenberg
    Real Estate Consultant · Camarillo, CA · Member since 2010 · 2k+ posts · 1k+ votes
    10y

    @Harold FelderYou have been given some good advice.  I just wanted to emphasize that is depends on the market.  I have seen markets where 1 bedroom properties are at 100% for long terms. 

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  • Max T.
    Investor · Philadelphia, PA · Member since 2015 · 3k+ posts · 3k+ votes
    10y
    How do we feel about an 11 unit, all studio/efficiencies? It's in a hip part of town. I could see it being popular with young artist/service industry types. I would utilize month to month leases instead of my usual annual. I already operate in this neighborhood with more traditional units and they always rent well.
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