Cash Flow Related Question - Hypothetical Situation with Co-living

[Christina Tom]

Hi there,

I was chatting with a fellow real estate investor recently and we were talking about co-living. The big thing with co-living is getting as many bedrooms as possible into a house, while keeping things like location, parking, etc. in mind as well. 

I gave a hypothetical situation - I could either (A) buy a house for $600,000 that happened to be 8 bedrooms, 4 bathrooms, 3000 sq ft or (B) Buy 2 $300,000 houses that were each 4 bedrooms, 2 bathrooms, 1500 sq ft. Both homes would be in the same neighborhood. Other than another set of appliances, I was pondering that it might make more sense to go with option B because if co-living went sideways, it be easier to rent out a 4/2 than an 8/4.

This other person was quick to say, no, option A was better because of cash flow. But if I have a $5000 mortgage on Option A and 2 $2500 mortgages on Option B and the tenants are paying the utilities, essentially, how is it that Option A would cash flow but Option B would not? Also keeping in mind that the rent charged would be the same between both per room.

[Michael K Gallagher]

option B is still the way to go, to your point its still flexible in use, but more flexible in exit strategy.  having more bedrooms to be has a point of diminishing returns, at a certain point i feel you'd start sacrificing the quality of life and "product" you are offering.