Two 1bed/1bath or one 3bed/2bath ?

Question

Hi,

I'm renovating a house, it's legally zoned for up to 4 units.

The current mix is:

ground+basement = 4bed/3bath + garden

2nd floor: 3bed/2bath

3rd floor: Two 1bed/1bath

I can change the third floor to be a 3bed/2bath or potentially 3bed/3bath and possibly give it roof access.

I estimate rents to be around 1300-1400 for a 1bed and 2200-2400 for a 3-bed but maybe vacancy will be lower / other considerations I should take into account?

There are two large universities, and I aim to target students / researchers and maybe families for the larger units

Thoughts?

Richard F. · Answer

The last thing I want is to give any Tenants, let alone student Tenants, access to the roof. Liability is bad enough without it. You would need a very secure railing system, properly installed to all codes, and you will likely end up with either stored items or a night time noise issue for neighbors.

Why do you want to change floorplan? What is the quality of current finish? Do you have laundry facilities in/on the property? Perhaps investigate a coin/card-op system to generate a little more income, from usage and additional convenience for existing Tenants.

Larger families is more wear, tear, and noise. How will that be for the Tenants directly below?

Jim Johnson · Answer

Good question — this is really a strategy decision more than a rent comparison.

On paper, two 1-beds may slightly outperform:

• 1-bed: $1,300–$1,400 × 2 = ~$2,600–$2,800
• vs 3-bed: ~$2,200–$2,400

But the bigger difference is operational:

Two 1-beds:

• More tenant turnover (especially with students)
• More leasing, cleaning, and admin cycles
• Vacancy risk is spread (one unit vacant ≠ zero income)

One 3-bed:

• Typically longer stays (families or stable groups)
• Fewer turnovers and lower management load
• Higher impact if vacant (100% vs partial)

Since you’re near universities, 1-beds can be very liquid, but also more transient. A 3-bed can work well if you attract a stable group (grad students, researchers, small families).

It usually comes down to what you want to optimize:

• Max rent + flexibility → 1-beds
• Stability + lower management intensity → 3-bed

Also worth considering: utility setup, noise between units, and how easy each layout is to lease repeatedly — those operational details often matter more than the rent spread.

Colleen F. · Answer

@Ron S.  Also two 1 bedrooms above the other units is probably a better fit noise wise especially if you are talking students.   Students who rent one bedrooms are more likely to be your more serious group such as grad students in my experience. And you may get your share of young professionals.

David Krulac · Answer

@Ron S. Sprinklers are expensive also. One municipality also requires sprinklers in new single family houses.  In Philly do they require internal fire escapes?

David Krulac · Answer

Some municipalities require fire escapes for third floor units.  I one where we did much work they third floor did not need a fire escape if it was NOT a separate unit, such as part of the second floor unit.  But require fire escapes if a separate unit was on the third floor.  Metal fire escapes add $20,000 or more , as obviously they have to be metal, durable and fire resistant.

Ron S. · Answer

Thanks David, this is in Philly and the building will adhere to new fire safety standards, and will not require an external fire escape (but will require sprinklers)

Richard Billingsley · Answer

I'd just leave it as is. I think having a diversified property gives you more options and attracts more tenants.

Ian Howard · Answer

Ron, this is a classic optimization problem. In university hubs, 1-beds almost always pull a massive premium per square foot because students will pay up for privacy to avoid roommates.

I just ran your exact rent estimates through a custom financial modeling engine I built to see the 5-year cash flow delta between the two floor plans, factoring in vacancy risk.

Option 1 (Keep the Two 1-Beds): Assuming an average of $1,350/mo per unit, you gross $2,700/mo. Even if you heavily penalize this option with an 8% vacancy rate for student turnover, you still clear roughly $29,800 a year in net cash flow.

Option 2 (Convert to One 3-Bed): Assuming $2,300/mo, and giving it a much safer 4% vacancy rate (targeting families), you only clear about $26,400 a year.

The math shows that converting to the 3-bed costs you roughly $3,300 a year in lost rent. Over a 5-year hold, you are giving up over $16,500 in pure cash flow. And that doesn't even factor in the massive construction costs you'd have to pay upfront to tear down walls and combine the units!

Unless your city has strict zoning limits on the number of unrelated students per dwelling, keeping the two 1-beds is mathematically superior. I attached the 5-year cash flow comparison and AI risk analysis from the software below so you can see how the numbers stack up.

Ron S. · Answer

Hi Ian, thanks for the reply. I ran a similar analysis with the same underwriting as you. The other consideration I had was less financial (fewer headaches, same trusty tenant) and also potentially lower costs since I don't need to install two kitchens and two sets of appliances and washer/dryers etc so upfront costs are lower as well for potentially better cash-on-cash returns if I DSCR it.

Two 1bed/1bath or one 3bed/2bath ?

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