What's the problem with 1/1's in mutlifamily properties?

[Jon Huber]

So, I am trolling around for property #4. Being that this will be my fourth mortgage (and final mortgage before the guidelines change), I would like it to be an investment property because the guideline restrictions wouldn't apply to my primary. That being said... I am looking at some multiplexes ranging from 3 units to 10 units. I came across an under-performing multiplex, but they were all 1/1's. I understand from an investment standpoint, it is less ideal than 2/1 or 3/1, etc. All of my investor friends and family tell me the quality of tenant is dramatically different and I should not pursue the deal. I agree on the tenant comment, and understand there MAY be high turnover... however... if my aggressive property management company has high standards for the quality of tenant, why do I care if it is a 2/2 or 1/1? If the income generated from the 1/1's make the numbers work (and work well, I might add!), and my PMs assure me that the tenants they place have good credit and great rental history (which they have found me phenomenal tenants for my other properties, so far)... why not pursue it??

I'll open it up to the forum.

[Kyle Penland]

I don't think there is any issue. I went after a 6-plex all 1/1s and all rented for 475 a month, the owner just wouldn't play ball in my court. The numbers were good but not good enough for their asking. I will follow the moolah!

[Steve L.]

The tenants are more transient.   These are usually entry level units and price points, so the best tenants usually move up faster too.

I don't have hard stats but I would guess tenants move 30-40% faster from 1/1s versus 2/1s.  

[Jonathan Wilks]

In my own experience it has always been more difficult to rent out and keep a tenant in a 1/1. Usually though the individuals in a 1/1 will stay in the units i have rented for a long time. however out of 18 units i had 2, 1/1 units. I have friends though that have had success with 1/1's by the beach.  I personally if purchased a multiplex with a singular unit. i would prefer 2/2. They are easy to fill and are attractive to a diverse tenant base. In addition a multi-plex with varied units. I find the best to curate and manage the tenants. 

Ultimately if the numbers work and you believe your PM can manage it. why not go for it. Id be interested to see if any of the units could be combined to make 2/2's just to create diversity. However in the ned you have to go with what makes sense the most for you and your strategy. 

[Sonya Stovall]

I think with anything, location & amenities are key.  Our 4-plex is all 1/1 'sand even though some of the tenants do not stay long (over 2 years) we never have an issue getting it rented out.  It is near a Hospital, and we attract graduate Law students or those doing their residency at the Hospital.  What makes our 4-plex unique in the market, it is a nice size (800 sqft, W/D, etc).  We have tenants all the time that would choose our place over a 2/1 due to the size.

[Andrew Syrios]

We have plenty of 1/1 units and they work fine. I would avoid them if the rents are really low (like under $400), those tend to have a hard time covering expenses. You'll probably have to deal with a bit more turnover, people in 1/1's don't tend to stay as long. But if the property makes sense it makes sense. 1/1's can certainly work, at least in our experience.

[Radhika M.]

@Jon Huber

 I think this mostly depends on the market the property is in and who your clients are. If closer to a University for example I think 1 bedrooms are not a problem. If you are in a family neighborhood with good schools then a 2 bedroom or more would do well as the tenants would most likely have kids. In California the rents are so high I know so many well paid engineers renting 1 bedroom when they start working or newly married. 

[Steve Olafson]

I don't find the 1 br's to be any more transient than 2's.  In fact, I prefer them for the dense parts of the city that I like to buy in.