Thoughts about purchasing multifamily with all 1 bedroom units

Member since 2021 · 82 posts · 13 votes

Good morning BP family. I hope everyone is realizing your RE investing goals. We are considering purchasing a 9 unit multifamily. All of the units are 1 bedroom. Historically we were discouraged from purchasing properties that contain one-bedroom units due to the tenant turnover. Has anyone had good experience with these type investments. We were thinking about using it to help homeless or near homeless Military Veterans.

0 Reply

128 views

Most Popular Reply

Jeff CopelandBusiness Member

Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes

As an experienced property manager, I have no qualms about one-bedroom units. Steering clear of them is outdated advice in my opinion.

One bedroom units are very popular and easy to keep rented to single people and/or couples, because they are usually a relatively low cost housing option. They experience much less vacancy that a 3/2 home, for example.

I do, however, have qualms about leasing to homeless or near homeless individuals (veterans or otherwise). Let me be clear: I am a retired military veteran myself with 22 years of service, and I do think it's a noble and honorable idea for you to want to help homeless veterans with housing.

But I am also an experienced property manager with experience with the VA's VASH program, as well as similar programs for non-veterans. As such, I have grown jaded over the years and can tell you that in my personal experience 90% of these tenants don't work out. Often due to non-payment as soon as their benefits run out, and other times due to drug and alcohol abuse or mental health issues.

Just make sure you aren't looking at it through rose colored glasses, and understand what you are getting into. Managing tenants on these programs requires 2-3 times as much staff time and energy as managing a normal class B to C rental, and these units will very often experience much higher vacancy, collection, and eviction-related losses.

That doesn't mean you shouldn't do it. These are just the cold hard facts.

Copeland Morgan LLC4.770 Reviews

Website View Page

4 Reply

See this reply in the discussion

26 Replies

Jump to latestLatest

Sort by

Nathan Harden
Real Estate Agent · Puyallup, WA · Member since 2022 · 551 posts · 378 votes
3y
This is a question that a lot of investors ask themselves. My first questions would be, how much is the purchase price and what do the units rent for? Turnover is going to be more on a 1 bedroom, no doubt so take that vacancy into consideration when running your numbers.
Also, while it is nice to help out the homeless (I love the fact you want to help vets), your units could take a beating and require serious rehab after. Not all homeless will trash your place, just like not all section 8 tenants will but there is a higher possibility then if you were renting to A-B renters.
0 Reply
Jeff CopelandBusiness Member
Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes
3y
As an experienced property manager, I have no qualms about one-bedroom units. Steering clear of them is outdated advice in my opinion.

One bedroom units are very popular and easy to keep rented to single people and/or couples, because they are usually a relatively low cost housing option. They experience much less vacancy that a 3/2 home, for example.

I do, however, have qualms about leasing to homeless or near homeless individuals (veterans or otherwise). Let me be clear: I am a retired military veteran myself with 22 years of service, and I do think it's a noble and honorable idea for you to want to help homeless veterans with housing.

But I am also an experienced property manager with experience with the VA's VASH program, as well as similar programs for non-veterans. As such, I have grown jaded over the years and can tell you that in my personal experience 90% of these tenants don't work out. Often due to non-payment as soon as their benefits run out, and other times due to drug and alcohol abuse or mental health issues.

Just make sure you aren't looking at it through rose colored glasses, and understand what you are getting into. Managing tenants on these programs requires 2-3 times as much staff time and energy as managing a normal class B to C rental, and these units will very often experience much higher vacancy, collection, and eviction-related losses.

That doesn't mean you shouldn't do it. These are just the cold hard facts.
Copeland Morgan LLC4.770 Reviews
Website View Page
4 Reply
Nicole Heasley Beitenman
Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes
3y
Our niche is 1-2 bedroom properties, and I prefer them over 3-bedrooms. I find the turnover is less because anyone looking for a smaller space has very few options, so they don't want to move. They typically don't have a ton of kids or pets, so there's less wear and tear on the unit. They're easier to purchase and rehab because there's less competition and less SF to fix up. The ONLY inconvenience I've found is financing them. They're inexpensive, and the values almost always fall below lenders' minimums.
2 Reply
Charles Carillo
Rental Property Investor · North Palm Beach, FL · Member since 2018 · 2k+ posts · 1k+ votes
3y
@Veronica Giggers

It all depends on the market. Small units thrive in some markets. Broadly speaking (as you mentioned), you have more turnover. Smaller units are much easier to rent though since there are fewer options. If you are in an expensive market, these will be in great demand.
I have found that the larger the units, the less turnover there is; which is really the goal of multifamily investing (tenants stay 24+ months). It seems, however, that you have a unique plan for this property. How are you planning on testing the tenant demand?
1 Reply
Veronica Giggers
OP
Member since 2021 · 82 posts · 13 votes
3y
Quote from @Charles Carillo:

@Veronica Giggers

It all depends on the market. Small units thrive in some markets. Broadly speaking (as you mentioned), you have more turnover. Smaller units are much easier to rent though since there are fewer options. If you are in an expensive market, these will be in great demand.
I have found that the larger the units, the less turnover there is; which is really the goal of multifamily investing (tenants stay 24+ months). It seems, however, that you have a unique plan for this property. How are you planning on testing the tenant demand?

0 Reply
Veronica Giggers
OP
Member since 2021 · 82 posts · 13 votes
3y
Thank you, Charles. I spoke with one of the social workers who work with the homeless veterans, there is a big demand for housing. I am aware of two other investors who own property, and they lease some of their units to veterans. I plan to contact them to see what is working. Of course, I would want to have a good property manager who understands the how to work with the tenants.
0 Reply
Veronica Giggers
OP
Member since 2021 · 82 posts · 13 votes
3y
Quote from @Nathan Harden:

This is a question that a lot of investors ask themselves. My first questions would be, how much is the purchase price and what do the units rent for? Turnover is going to be more on a 1 bedroom, no doubt so take that vacancy into consideration when running your numbers.
Also, while it is nice to help out the homeless (I love the fact you want to help vets), your units could take a beating and require serious rehab after. Not all homeless will trash your place, just like not all section 8 tenants will but there is a higher possibility then if you were renting to A-B renters.

Good morning, Nathan. Currently the purchase price is more that I would offer. I am working the numbers to see what makes sense for us. Typically, we use the 5% vacancy rate on our calculations but I'm sure we need to increase that %. what would you recommend on calculating vacancy, cap ex, property management etc.?
Thank you.
0 Reply
Veronica Giggers
OP
Member since 2021 · 82 posts · 13 votes
3y
Quote from @Jeff Copeland:

As an experienced property manager, I have no qualms about one-bedroom units. Steering clear of them is outdated advice in my opinion.

One bedroom units are very popular and easy to keep rented to single people and/or couples, because they are usually a relatively low cost housing option. They experience much less vacancy that a 3/2 home, for example.

I do, however, have qualms about leasing to homeless or near homeless individuals (veterans or otherwise). Let me be clear: I am a retired military veteran myself with 22 years of service, and I do think it's a noble and honorable idea for you to want to help homeless veterans with housing.

But I am also an experienced property manager with experience with the VA's VASH program, as well as similar programs for non-veterans. As such, I have grown jaded over the years and can tell you that in my personal experience 90% of these tenants don't work out. Often due to non-payment as soon as their benefits run out, and other times due to drug and alcohol abuse or mental health issues.

Just make sure you aren't looking at it through rose colored glasses, and understand what you are getting into. Managing tenants on these programs requires 2-3 times as much staff time and energy as managing a normal class B to C rental, and these units will very often experience much higher vacancy, collection, and eviction-related losses.

That doesn't mean you shouldn't do it. These are just the cold hard facts.

Good morning, Jeff. It is the VA/HUD Vash program that I have been considering. Based on my experience as a Registered Nurse, I know there are issues with mental health and substance abuse, but I have not had experience from a landlord perspective. I considered purchasing the property and using it solely for VA veterans, but like you pointed out that may not be the best idea. I wonder if it would make more sense to purchase a smaller multifamily to use for this purpose or would the property management part eat up any profit. Thank you.
0 Reply
Jill F.
Investor · Akron, OH · Member since 2016 · 2k+ posts · 4k+ votes
3y
I have a lot of one bedroom units and I love them. Tenants usually stay for a good while and the units have low wear and tear. The fasting growing demographic in the us right now is single person households.
Regarding working with the homeless population, I did accept a formerly homeless tenant through a program here and it did not work out. She still had too many problems that prevented her from being successful living on her own. At this point in my life I have so much demand from tenants without so many problems and I am so looking forward to finally being able to be more passive in my business that it is not something I'm able/willing to do again right now.
1 Reply
Matthew Kwan
Lender · Seattle, WA · Member since 2022 · 482 posts · 768 votes
3y
As it depends the location and demand of the area. As some places as higher demands for 1B1B due to the high stats of singles or a state that only attracts for job opportunities. However, at OK due to the land availability and population being 3.987 million...I personally would lean towards more bedrooms as it's being ranked 18th highest marriage rate in the country = more family members in the single household.

@Albert Bui @Carlos Valencia
2 Reply
Bud Gaffney
Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
3y
@Veronica Giggers love this play Veronica. Buy it!
0 Reply
Bud Gaffney
Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
3y
@Veronica Giggers if the #’s work buy it
0 Reply
Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
3y
@Veronica Giggers depends on local market demand
[email protected]248-209-6824
Logical Property Management4.9451 Reviews
Website View Page
0 Reply
Veronica Giggers
OP
Member since 2021 · 82 posts · 13 votes
3y
Quote from @Matthew Kwan:

As it depends the location and demand of the area. As some places as higher demands for 1B1B due to the high stats of singles or a state that only attracts for job opportunities. However, at OK due to the land availability and population being 3.987 million...I personally would lean towards more bedrooms as it's being ranked 18th highest marriage rate in the country = more family members in the single household.

@Albert Bui @Carlos Valencia

Thank you. where did you locate the information on marriage rates, etc?
1 Reply
Anny Tay
Member since 2021 · 2 posts · 1 vote
3y
I personally like 2BR the cap rate is better in my area for 2BR. I agree that using 5% vacancy to calculate cap rate. My 2BR's rents for 8+ years and still no turn over yet. But you have to make sure you are diligent on raising the rent yearly according to inflation rate. I am not sure which state you are in, I am in CA and the rental law is very strict. If you don't raise rent, your property is going to be hard to sell/exchange in the future and you can't raise rent more than 5% a year to catch up later (you can, but at a limit per year).
You mention renting to near homeless or Vet, have you look into Section 8 renters? I have a lot of success with them. The government pays most of their rents and they pays their portion and keep the place in good order because they don't want get into trouble with section8. My experience is - If you are buying in C class area I think Section 8 is a good option. In A and B+ class area, there is no need to go section 8. Good luck on you investment!
1 Reply
Jane S.
Flipper/Rehabber · Colorado Springs, CO · Member since 2016 · 499 posts · 167 votes
3y
buy a distressed motel in decent location and update it to studio apts
0 Reply
Darlene Hinman
Vestal, NY · Member since 2016 · 8 posts · 3 votes
3y
SRO. single room occupancy. are in HIGH demand with populations who are getting served by DHS-dept of human services. think of domestic violence, homeless, exiting or enter jail, prison, rehabs -for physical or mental reasons -accidents, surgery, breakdowns etc.; divorced, teens exiting foster care (18-21 age). yes there is a need. you need to know where your clients will hail from. there you will find them at DHS/DSS/WIC/DV/ agencies. single rooms, shared kitchen, bath etc. all very commonly used for "temporary/shelter care" housing. for 30days to one year. pending --usual things like court hearings, sentencings, adjudications, or pending finding a larger unit to reunify with children taken by CPS. be ready for drama. but if you work it hard-the state/county/federal will pay. HUD pays. just expect to not be paid on time & deal with paperwork! it is my area of expertise--i suppose.
0 Reply
Will FraserPro Member
Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes
3y
Quote from @Jeff Copeland:

As an experienced property manager, I have no qualms about one-bedroom units. Steering clear of them is outdated advice in my opinion.

One bedroom units are very popular and easy to keep rented to single people and/or couples, because they are usually a relatively low cost housing option. They experience much less vacancy that a 3/2 home, for example.

I do, however, have qualms about leasing to homeless or near homeless individuals (veterans or otherwise). Let me be clear: I am a retired military veteran myself with 22 years of service, and I do think it's a noble and honorable idea for you to want to help homeless veterans with housing.

But I am also an experienced property manager with experience with the VA's VASH program, as well as similar programs for non-veterans. As such, I have grown jaded over the years and can tell you that in my personal experience 90% of these tenants don't work out. Often due to non-payment as soon as their benefits run out, and other times due to drug and alcohol abuse or mental health issues.

Just make sure you aren't looking at it through rose colored glasses, and understand what you are getting into. Managing tenants on these programs requires 2-3 times as much staff time and energy as managing a normal class B to C rental, and these units will very often experience much higher vacancy, collection, and eviction-related losses.

That doesn't mean you shouldn't do it. These are just the cold hard facts.

I second Jeff's advice on the 1 Bed advice. In fact the past 7-10 years have seen an evolving trend in our youth (who have now entered the rental or purchase markets) and many PREFER to live alone as opposed to 10-15 years ago when the preference may have skewed towards renting a 2 or 3 bedroom apartment and splitting rent with roommates.
With the various 1 bed units we manage in Oklahoma City I've seen that the well-maintained units thrive.
Do be aware, though, that there is no shortage of 1 bedroom units in the Urban Core and it makes a lot of sense to think wisely about where the property fits in the spectrum. Don't buy a deal that would require you to make a 100-year old building outshine the new construction apartments right down the road. It just won't happen, BUT many people will overlook the $1,400/month 1/1s in favor of a more modestly priced 1/1 and perhaps you can add value in that space!
1 Reply
Will FraserPro Member
Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes
3y
A little note about the charity concept . . . I think it would be equally loving for the community around the building if you treated it as if you were rezoning it. If you start operating the building as a charity instead of a market-asset, it WILL affect the community around the building. Out of consideration for the broader community it would be prudent to let them know and even give them the ability to weigh in (or add value in their own unique ways).
0 Reply
Taylor DaschBusiness Member
Real Estate Agent · Temple, TX · Member since 2022 · 1k+ posts · 700 votes
3y
Lots of great advice in this thread, personally I like them. If you have multiple units, the risk of the turnover hurting your cash flow are less. I just posted a studio apt in my market and it has had the most traction out of all of my rentals so far.
[email protected]254-718-4249
Taylor Dasch | EG Realty560 Reviews
Website View Page
0 Reply
Will FraserPro Member
Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes
3y
@Taylor Dasch good thoughts here!
Have you owned the studio apartment long enough to study the frequency of turnovers and physical vacancy stats yet?
0 Reply
Taylor DaschBusiness Member
Real Estate Agent · Temple, TX · Member since 2022 · 1k+ posts · 700 votes
3y
Quote from @Will Fraser:

@Taylor Dasch good thoughts here!
Have you owned the studio apartment long enough to study the frequency of turnovers and physical vacancy stats yet?
Not at all, I just finished the rehab on it, but I have found that just like in real estate sales, the lower priced properties tend to go quicker. Especially if they are updated.
So at least for my specific studio apt, Im not going to be too worried about vacancy since I know it will be rented within a week ( so long as the tenants that I get dont tear it up and I have to do major repairs).
[email protected]254-718-4249
Taylor Dasch | EG Realty560 Reviews
Website View Page
0 Reply
Will FraserPro Member
Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes
3y
Quote from @Taylor Dasch:

Quote from @Will Fraser:

@Taylor Dasch good thoughts here!
Have you owned the studio apartment long enough to study the frequency of turnovers and physical vacancy stats yet?
Not at all, I just finished the rehab on it, but I have found that just like in real estate sales, the lower priced properties tend to go quicker. Especially if they are updated.
So at least for my specific studio apt, Im not going to be too worried about vacancy since I know it will be rented within a week ( so long as the tenants that I get dont tear it up and I have to do major repairs).

Well said, Taylor!
0 Reply
Veronica Giggers
OP
Member since 2021 · 82 posts · 13 votes
3y
Quote from @Darlene Hinman:

SRO. single room occupancy. are in HIGH demand with populations who are getting served by DHS-dept of human services. think of domestic violence, homeless, exiting or enter jail, prison, rehabs -for physical or mental reasons -accidents, surgery, breakdowns etc.; divorced, teens exiting foster care (18-21 age). yes there is a need. you need to know where your clients will hail from. there you will find them at DHS/DSS/WIC/DV/ agencies. single rooms, shared kitchen, bath etc. all very commonly used for "temporary/shelter care" housing. for 30days to one year. pending --usual things like court hearings, sentencings, adjudications, or pending finding a larger unit to reunify with children taken by CPS. be ready for drama. but if you work it hard-the state/county/federal will pay. HUD pays. just expect to not be paid on time & deal with paperwork! it is my area of expertise--i suppose.

Great feedback and conversation flow on this subject. Thank you. I did not think about reaching out to the other at-risk groups you spoke about, but I can see there being a high need for housing. Whichever direction we choose, we will use a property manager, so I really have to consider the cost for that service.
0 Reply
Marcus Auerbach
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
3y
My issue with 1b is the capex vs rent ratio. You have to provide a kitchen and a bathroom plus HVAC and hot water just like you do for larger units, but your rent is based on bedroom count. Some day you have to replace all of it. I'd rather have a big box (the building) full of mostly bedrooms I can charge rent for than full of mostly kitchen and bathrooms that cost money.
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.