For years, when agents asked me what my criteria was for buying investment property, one of my standard responses was that the property needed to be at least a 3 bed/ 2 bath. I know a lot of other investors in my area that have the same criteria. The thinking is you end up up narrowing your potential market to a very small segment that is willing to live in a 2 bed property.
By and large this is true … most people looking to rent or buy want a minimum of 3 bedrooms and a minimum of 2 bathrooms. Understandably, your average renter or homebuyer needs extra space for children, guests, an office, etc. A 2 bedroom typically doesn’t provide the space that your average consumer wants.
Why I Broke My Rule
So why did I break my own rule that I’ve held fast to for so many years?
Well, one reason is because inventory is tight and I’ve had to broaden my buying criteria (but that’s another topic for another day). The truth is, I’ve learned that buying real estate shouldn’t be about a strict formula applied to heterogeneous property types, neighborhoods, market factors, etc. There isn’t a “one-size-fits-all” formula for buying investment property because there is simply too much variation in the marketplace.
For instance, I’m sure there are people in New York City reading this article wondering what in the world is wrong with a 2 bed/ 1 bath property! This is because rental space in New York City is limited and therefore sold at a high premium. It’s not at all uncommon for someone to rent or own a 2 bed unit. However, in Atlanta, Georgia, most renters and buyers expect more square footage for the money.
So again, if the general sentiment in Atlanta is for more bedrooms and more square footage, why would I invest in a 2 bed / 1 bath? The simple answer is that even within an overall market, there are submarkets and neighborhoods that don’t conform to the general trends in the larger market.
In the case of the 2 bedroom property I purchased this week, it’s located just off of a main road in a high density area with a high rate of growth. In addition, the neighborhood that this property resides in is actually comprised of about 50% 2 bedroom houses. Looking through our local MLS, I can see that many of the 2 bedroom houses in this neighborhood have rented in recent months at rental rates that make sense compared to my investment. Additionally, the 2 beds that have sold in the neighborhood in the last few months have sold for a good bit more than what I paid for the property (ie. my potential profit margin fits within my normal buying models).
Interestingly, I bought this property at the courthouse steps yesterday. It’s interesting because I spent the entire day watching a handful of hedge funds bid other properties up to insanely high purchase prices. However, when this 2 bedroom came up for bidding, not one of them was interested in it. It’s as if they had marching orders from the higher-ups to steer clear of any 2 bed properties. Luckily for me, I wasn’t stuck in a box of what I could or couldn’t bid on.
At The End of the Day…
At the end of the day, the question you should ask yourself is whether or not a particular property will make you money. If the particular market you are buying in supports the demand for a 2 bedroom house, don’t limit yourself on principle alone. I did this for years and probably missed out on opportunities that could have been profitable.