Does adding a bedroom increase Rent?

13 Replies

I have a 1200 SF unit in Jersey City, NJ. I am trying to maximize rent for this unit. It currently has a 3 BR & 1 BA layout. It has the potential to become a 4 BR and 2 BA unit. Does taking space away from the unit's common area to create an additional bathroom and bedroom increase rental income? I thought that creating a 4th bedroom would increase rent but I can't find evidence of this in the market. I also assume that a second bathroom would increase rent but I'm not sure if it is worth the headache of going through the permit and approval process. Any feedback would be appreciated.

@Michael Lettieri

Sounds like you have looked into your area to see if it would make a difference. Another thing you could look into is renting out room by room to try and get more rent, another bedroom would probably help you there, but would it be worth the hassle of more regular turnover?

It would help to find how much extra you would need to make in order to make building an extra room financially viable. Could you use that money to put towards a down payment on another rental?

Hope this helps.

@Michael Lettieri

If your going to section 8 the unit in NJ then it matters for sure. 4 bedrooms get more money and are in more demand. So depending on what part of JC your buying in it depends. The additional bathroom in the good sections will fetch more rent. 2 baths are nice for roommate situations.

Good luck on your 1st purchase

@Michael Lettieri , I would also ask yourself, who is your target renter "avatar" with a 4th bedroom and possibly 2nd bathroom vs what you have now?  And how would that affect the long-term maintenance and cap ex costs given additional wear and tear?

Then, I would look at rental comps in your area to compare average rents for 3/1 vs 4/2 to see what the expected increase in rent would be and how many years it would take you to pay back the cost of adding those extra rooms.  Generally, I think there are diminishing returns once you go above 3 bedrooms.  But a 2nd bathroom (or at least a half bath) may be a good idea, depending on how much it will cost you to add it.

It is really just a financial calculation. Look at comparable properties and if you see a net difference of $500 per month (or $6,000 per year - which I suspect) while only expending perhaps $18,000 to make the require modifications (or less) then that would be a 33% return on your capital. That's a deal you do all day!

However, if the difference is paltry (let's say $150 or $1,800 per year) and the renovation budget comes in higher you are looking at below 10% which gets less interesting but still worth considering. 

Where I am 4 bedrooms rent for more and rent quicker.  A lot of renters looking have kids so they appreciate the extra rooms.  I also think there is going to be a continued shift of working from home and I don’t think the pandemic subsiding is going to stop it.  That extra bedroom can also be used as an office that may be more attractive.  I also don’t like anything with one bathroom if something happens there is no spare and it is uninhabited.  If there is another they can use that while I’m looking for a contractor and it isn’t as urgent.  The big question though is what will the cost be and does it increase your bottom line.  Even if it doesn’t it may add value to the property where you can refinance with a low rate and get some of the cash back out.  

Lot of good points here. My first reaction was the rent-by-room strategy, but that would depend on exact location in the diverse JC market and current renter demographic. It also requires the proper systems in place to manage effectively. Also thinking that 1200SF might get tight for 4BR depending on layout. 

Other possibilities:

  • Are cosmetic renovations/updates an option to increase rents if the market supports it?
  • As @Joe Edwards said, section 8 can be a great option if you are familiar with process.
  • conversely- any options to lower expenses? tax appeal, tenant assumed costs, mortgage refi, etc.

@Michael Lettieri I can tell you from my experience, a small 4 bedroom is harder to rent and doesn’t yield more than a spacious 3 bedroom unless your doing something like rbtr. The extra bath is nice though and will fetch you more rent. I would keep it a 3br and add a full bath personally. Could vary based on marketplace though.

Originally posted by @Catherine Emert :

@Michael Lettieri sometimes if you are looking at a 1 vs a 3 you will see a difference but with the same square footage I think you are better leaving it a 3 bedroom. 

Thank you for the help. I also have an option to add a second level to the apartment and create a duplex. Would I be able to double the rent if I am doubling the the square footage? Go from 1200 SF to 2400 SF.