Are two bed homes a good idea?

Question

I am seeking rentals in the Hazel Park/Madison Heights Michigan area and so far I have only purchased three bed houses.  There are some good deals on two bed and I would like to know if any of you have had good fortune with two bed homes.  Thanks to all who help.

Ryan Moses · Answer

The success of either 2 bedrooms or 3 bedrooms depends on the demographics of a place.Single parents, college students and single people in general will go for 2 bedroom houses.

Account Closed · Answer

I have a 800 sf two bedroom that is very nice for the area it is in and each time it becomes vacant it takes me at least a couple of months to rent. It has been pretty bad this time around, most of the people I get have bad credit and no rental history or they do not make enough to qualify.

When it is rented I do make about the same percentage per dollar spent a month as a three bedroom but the bigger home rents faster, if the taxes mortgage and insurance is 350 per month then that house rents for 700 dollars. It's about double in my area until you get over about 110,000 dollar homes then profit goes down.

David Krulac · Answer

Section 8 rents are determined by market surveys of rents in the area.  The Section 8 rents are the median rent for the area, 50% of the rentals have higher rents and 50% have lower rents.

As an aside I have participated in the HUD rental surveys for many years giving them input for what I charge for rents in the area.

HUD publishes those rent surveys on their web site www.huduser.org and look under the "American Housing Survey."  It gives all the median rents for the entire country.

One purpose this can serve is to show you where your rents might be in relation to the median rent in your area.  In my area in 2011 and 2012 rents went down according to the HUD figures.  I call them and asked about that, becuase my rents were actually rising at the same time that the area rents were declining.  I was told that apartment complexes were offering specials to fill units and were lowering rents to capture occupancy.

For 2013, the HUD rents increased sharply and more than made up for the declines of the two previous years.  Good news for landlords.

All of that is way of background to the initial topic of this thread, 2 bedroom rents.  In the latest HUD rent surveys the difference between the 2 bedroom rent and the 3 bedroom rent is $271 or 30% higher rent for a 3 bedroom versus a 2 bedroom at the median price point.  To me that documents precisely the local difference between your average (median) 2 bedroom and 3 bedroom.

My personal experience of renting properties for many years is that 3 bedroom properties have more demand than 2 bedroom properties.  I've rented 3 bedroom properties to single people with no kids, a couple, a parent and a kid or a family with 2 adults and a couple of kids.  There is almost an universal appeal to 3 bedroom properties.

Can you make money with 2 bedroom properties, yes, for sure, and I own some 2 bedroom properties, but as the survey says, you can expect 30% more rent from a 3 bedroom property.

David Krulac

Kel S · Answer

We have four - 2 bedrooms and two - 3 bedrooms. We've had much more success in renting and keeping tenants in our two bedroom houses. They also rent quickly. One of the 3-bedrooms we've had 2 tenants so far over the past 2.5 years. The first tenant broke the lease, we sued, won and received full payment for what was owed plus attorney fee paid. The second tenant in that same 3 bedroom we are in the process of evicting for non-payment of rent. She's also been late several times but finally did not pay at all. Gave her a 3 day pay or quit and she's still sitting there so we have to file with the court (uhhg!) in order to get her out. So she'll sit there I'm sure until she's forced to leave.

So the point is, we've definitely had better luck with our 2 bedroom houses. Most tenants in our 2 bedrooms are either a single Mother with 1 child (a teenager) or a couple in their 50's with no children. So we've been pretty lucky with the 2 bedrooms and I wouldn't hesitate to buy them.

Rob K. · Answer

Usually in those small houses, the main stack will be in a wall between the kitchen and bathroom and everything drains into there and then goes into the floor and out to the street. In Madison Heights, most (if not all) of the sewers run to the back fence. The main sewers are under the back lot line. Most cities have them under the street. If you ever had to replace a sewer line in Madison Heights, you shouldn't have to bust up any concrete. You just need to hope the machinery can fit into the backyard.

Mark Forest · Answer

Rob that is a good find.  All the houses I have been through seem to have the pipes going down.  Did they even have the drains in the walls?

Mark Forest · Answer

Interesting.  Maybe I will rethink my methodology.

Geof Greeneisen · Answer

Steve Might, one nice thing about 2 bdrm houses is everything is cheaper. If plumbing goes bad, around here its usually due to freezing conditions. Even in a crawl, fixing, testing, fixing, testing can add up. I like getting the pipes up into the heated area so as to avoid the same failure in the future.

I'll run pex up the walls and along the ceilings, building a soffit around the piping where needed. I know Rob K will do this himself, for me paying the plumber still costs under $1k on a one bath house. So I wouldn't be scared off of a slab or small crawl because of plumbing.

Rob K. · Answer

Steve Might The first house I ever bought was in Madison Heights. It was a two bedroom on a crawl with no garage. I stay away from those type of houses now because they take a while to rent. Everyone has so many kids and step-kids these days. The three bedrooms are easier to rent, especially if there's a basement.

Having said all of that, I would buy a two bedroom if the price was right. I would pay $26K if it was in nice shape and just needed paint and carpet. You mentioned needing walls. Is this just drywall repair, or is it gutted? Does it need a kitchen or bathroom?

Keep in mind also that Madison Heights is insane about permits. I got busted replacing a driveway slab without a permit. The permit ended up costing as much as the cement. I had a furnace put in a house a couple years ago. Two permits required. One for the furnace and one for the electrical connection. When the electrical inspector came, he went on a fishing expedition looking for more violations.

As far as slabs go, I had a different house in Madison Heights on a slab. All of the plumbing was in the walls. There would be no need to tear out any concrete unless there was a sewer problem. Even with a basement, you would have the same problem.

Mark Forest · Answer

Thank you to all for your input.  It looks like I may go forward with the 2 beds IF I get the right price.

@Geof Greeneisen,  There is  a 2 bed house in Madison Heights that needs new walls and other work that is offered at $26K. I do think that is on the high side.

Are two bed homes a good idea?

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