Expected Rent on a Buy and Hold Condo

[Kyle Kufeldt]

I'm a few investor and came across what initially looked like a good cash flowing condo for a relatively small investment. The condo is a 3 bedroom, 1 bath that rentometer says should rent for $900 a month.

After researching it further, I can't find any other condos in the same complex that are 3 bedroom. The rest of them are 2 bedroom 1 bath. Even the condos with the same square feet as the one I'm looking at, are 2 bedroom but have bigger bedrooms. Those condos, only rent for $600-$725 a month.

My question is whether anybody else has had experience with something similar and what rent is realistic? Should I expect to get what other 3 bed 1 bath rentals are getting? or is the fact that this has the same square feet as other 2 bedrooms in the complex going to cause me to find it hard to rent as a 3 bedroom?

Thanks in advance!

--Kyle

[Daniel Ringwald]

@Kyle Kufeldt

It is difficult to say without knowing the details of the area, the availability of comps and the property itself but the value is likely somewhere in between. You could plot a graph of $/SF and $/BR but at the end of the day there is no set formula because supply and demand plays a factor.

In general…

the 3rd BR will add value, but since the total square footage is the same, it won't capture ALL of the value and it depends on your market. ie. the 3rd BR would be a plus to families, college students, but a minus to childless working professionals.

You could triangulate rent prices from different angles and find an average. (ie. find the value of adding a 3rd BR and find the value of extra SF)

-You could estimate the rent premium of the 3rd BR. To do this compare rent prices of 3/1s to 2/1s (order of preference if available: both condos in same complex, condos in same area, SFRs).

-Then estimate the value of the additional square footage. Do this by comparing the prices of similar 3/1s of different size (again order of preference if available: both condos in same complex, condos in same area, SFRs).

From my experience as a renter, I have found that the square footage has less of an effect than you might think. It has more to do with your market - ie. if a prospective tenant does not value a large BR, offering a slight discount to competitor 3/1s could be very attractive. Therefore if say $675 and $900 are the 'true market prices' for 2/1s and 3/1s respectively, your condo would likely be in the $800-$875 range.

My 2 cents.

Best of luck.