Small 2 bedroom houses

[Account Closed]

Who else likes to invest in small single family homes? So far I have 2 out of state properties. Both of them 2 bedroom 1 bath. One is 800 sq ft, and the other is a tiny 680 sq ft. I’ve always heard to stay away from these types of properties, because they are undesirable to tenants. But with the market being the way it is I decided to look into properties that didn’t exactly fit the bread and butter 3/2 that other investors were focusing on, and maybe eliminate some competition that way.

These types of houses are plentiful in the Midwest, don’t seem to get the attention from investors, and especially not from home buyers. In my amateur research I’ve found that many of these properties are in solid blue collar areas with a 50/50 or better home owner to renter ratio. They sit on the market longer, and obviously sell for less money. But the rental demand is still strong. 1% rule or better is not hard to find at all.

Long story short I now own two of them. Both of them rented to qualified tenants at market rates within 2 weeks of turning them over to a PM. There was plenty of interest, because these are the most affordable option for people that don’t want to live in an apartment, or in a bad neighborhood. You can live in a tiny 2 bedroom in a B area for the same price as a bigger place in a C area. Quality tenants care where they live. I know which one I’d pick given the choice.

Less square footage means less Cap Ex. The cost to replace a roof, floors, paint, windows etc is all less. I’ve owned one for a year, and the other for 4 months. The year tenant just signed another one year lease. Both tenants have been paying through the pandemic. It’s early to tell but in the short term they are performing great. I think this might be what I target from now on. Any other investors focus on these types of properties? I’m curious to hear your experiences.

[Jonathan Greene]

I love 2-bedroom homes and am in the middle of renovating one now that will sell for about $550k in my market. 2-bedroom houses often get almost the same rent as small 3-bedrooms because if you look at who is renting them you can understand. Families usually rent 3-bedroom homes. Families rarely rent 2-bedroom homes. So for the single person, couple, or roommates a 2-bedroom is a luxury versus a 2-bedroom apartment that may have amenities, but has no yard or garage and doesn't feel like a test-run on buying a home. I am with you on this 100 percent. I target 2-bedroom homes to buy off-market all the time. I love them as rentals.