How Small is Too Small

16 Replies

There is a 676 sq ft, 2br 1 ba SFR a few blocks from a major university on the market in my area, but my realtor says he is concerned about the small size. Since I'm new to real estate investing I want to take his concern under advisement, but at 19k with A/C I'm thinking I can get a 30% Cap rate.

What are your thoughts/suggestions BP?

I would certainly not try to flip something that small, but as a rental, if the market is strong, I would consider it (we own one house that's 360 sq. ft... it came along with another house, which is about 600 just so you know). I would think a university student would be interested in that, so if you can get it for a good price and are looking to hold in the long term, I would consider it.

@Stanley E.

I've rented a 450 sq ft 1 br single detached house.  One tenant stayed for 21 years!  But in general I prefer 3-4 bedroom houses, but I've had 1,2 and 5 bedroom properties that I have rented.  But as @Andrew Syrios said, there is less resale interest in smaller units. 

Thanks gentlemen for the words of wisdom. If I decide to make an offer, I am going to ask for between a 20 and 30% discount on the price. It's a hud home so I've got to wait a few more days anyway.

Thanks again.

I live in a college town. For such a small place, try to rent it out to a doctorate candidate or a post-doc researcher. They will be more stable, more easy to pay, and appreciate having one place to stay for a term that might be 6 months or 6 years.

Hey @Stanley E. ,

We own a small 1 bd 1 ba 638 sq ft house that is behind our front unit which is a 2 bd house.  The units are separated by a fence. The small house is perfect for a single person, young couple getting started or in your case a college student.  If the property is desirable I would not let the size stop me from purchashng it especially at that price!  

@Stanley E.

I wouldn't worry as much about the Cap Rate as I would the CoC ROI. From my experience it is used on larger multi-plexs to assist with comparative analysis. If it cash flows and has a favorable ROI compared to other opportunities, then go for it. Good luck, Stanley!

Stanley - Aer you planning on all cash offer or you going to use financing ? Most banks it would be hard to get a residential loan that small.

Just for comparison, in Paris they sell apartments (Studettes) that start at around 80 sq. ft.  And you probably can't find one for under $100,000.