Should I buy small apartment 20 1-bed Units?

17 Replies

I have an opportunity to buy a 20 unit apartment in the St. Louis area.  My primary concern is that its all small 460 square feet 1 bedroom units.  Looking for the forums thoughts concerning small one bedroom units.  The apartment currently has 14 of the 20 units occupied.  although this is a foreclosure it appears that the vacancy was high the 2 previous years as well.  Thoughts?

Hello Tony what area in St Louis are you looking at? As you know it is generally harder to fill one room places especially in "rougher" areas. I would want to see the P and L sheets from the previous 2 years, but from what you've stated sounds like you may already have. If I was looking at it I would definitely want a property management company to keep tenants in check. 

Ryan Dossey, Real Estate Agent in IN (#RB15001099)

I'd guess there are renters for small one bedrooms in most markets.  Students, young people just starting out, anyone who can't afford more... You'll definitely be looking at more turnover and lower incomes though, so you would have to factor that in as higher ongoing costs. Make sure you check what else is renting in that area and for what price. If it's in an area that young single people want to be then you're better off than if you're in an area that's more family oriented, for example.

Find out what the average vacancy rate for the area is  (call some property managers, do an informal survey of craigslist, etc). This place might have been low occupancy because it was sliding into foreclosure... or it might have been sliding into foreclosure because of the low occupancy. 

I have a property that is all one bds and demand is pretty strong even though they are only 400+ sq ft (but these do also have basements). 

I have a building with 38 units in an historic downtown location. 30 studios and 8 1-bedrooms, 160-440 sf. We have experienced very low vacancy (2-3%) primarily due to excellent on site management.  Yes, we deal with lower income folks, fixed income, some elderly, even a few employed folk ;)  What we know is there is a market at every socio-economic level.  The question is, can you price your units to make them attractive and still make money?

This looks like one of those 'it depends' kind of situations. Your due diligence should deal with the the finances, the market, the structure, the management, and most of all your exit strategy. Having the opportunity is good, but if you can get it on terms and conditions that would make it attractive to other investors as well, then go for it.

Location is always important, but especially in St. Louis. Where are the units located? If you're near one or more of the universities and/or hospitals in town then 1-BR units might do well. If you're in the south city area, especially east of Kingshighway, I can't imagine 1-BR units renting for very much or attracting good tenants.

I know of couple people in the city that make a ton of money with tiny 1 bd and efficiency rooms they get a live-in manager and they rent for $110 for a the efficiencies and $135 for the 1 bd per week. They are not the nicest places to look at but they are always full. I run an outreach to the homeless downtown and have help many people that are on their way up get into a couple of them. Good luck

@Tony B

What kind of acquisition price?  How much are the rents?  Any repairs required?  Is there documentation on vacancies?  

I wouldn't be opposed to something like this if the #'s worked.

@Tony B. sounds like what is missing in this post are the numbers.   While demographics and everything play a key role it is pointless if the numbers do not work.

Check out the rental analysis calculator at biggerpockets.com/calc

@Bill Morillo ,

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Raymond

Wow.  some very useful advice!  The numbers work, but my primary concern was the relationship between 1 bedrooms and turnover.  thanks for all of the good information --

Ask for  a copy of their tax returns at least schedule e for those apartments for 2012 and 2013. Profit and loss statements are easily doctored.  

 @Raymond B.

 Raymond,  

By pressing quote by your name brought it up with the highlight..  thanks for the information!  Do you happen to know how to do this from your mobile phone?  No shift key to press.

I'm with Cal on this one. I would look to substantiate any claims of the current owner(s) with actual documentation that passes the smell test, too. 

Also, I like to walk neighborhoods and strike up conversations with people that are most likely experienced in my niche in that particular neighborhood. Just today I went to look at a smaller building with 10 one-beds two blocks from a good university in Cincinnati. On paper, it looked really great, but I walked the neighborhood and saw a few more vacancy signs in lawns than I would hope for. I decided to walk into the nicest of the buildings and have a conversation with the leasing office. The daughter of a father/daughter outfit told me that had bought the building a year ago and had a solid year of NO renters. (Sounds like the previous landlord had been playing fast and loose with the pro-forma numbers and not been forthright in other ways.) Just hearing that they'd been through that made me feel like I'd been kicked in the stomach. And the overhead with radiator heat (i.e. no way to regulate zones in a 4,000 sq ft converted mansion of 12-14 units) would be enough to ruin most people after a winter like the one we just had. 

If you can walk the neighborhood and make friends/strike up a conversation, you'd get a lot more information than you'd expect. I've made some great friends with other landlords on my street that way. My experience is that most people are incredibly friendly and generous with information, especially if they've had to grapple with hard-learned lessons. 

How are you as a property manager? Are you good at vetting your tenants? Do you have a list of reliable contractors ready to respond to work orders? Or do you have a property manager that you can trust and afford?

I have a 14-unit complex of 1 bedrooms and I love it.  Love love love it. The complex is in semi-rural northwest GA, all 1 bedroom and roughly 575 sqft, located about 6 miles from "downtown". 

When I bought it under foreclosure, the units weren't in good shape, the vacancy rate was high, repair costs were high, and eviction rates were ridiculous.  I rehabbed each unit adding manufactured hardwood floors, new fixtures, new countertops, new bathrooms, and fresh paint.  I raised rent.  Within a month of completely the rehab, I was at full occupancy and on a waiting list. My tenants are mostly single.  About 1/3 are retired on fixed incomes; they've been with me years and don't foresee moving any time soon. About 1/4 are young newlyweds who only stay a year or so with me. The remaining half are average working folks who love the community I've built. Three have told me they intend to stay for life. Two tenants have not renewed their lease in the past year, but their units were filled in less than 24 hours. 

Multi-family properties in lower rent ranges are not for the faint of heart.  But I love what I do and my rent roll is more than worth it to me. 

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