3/2 or 2/1 which one?

Question

I'm looking into purchasing a multi family, my question is ,I'm sure it varies by location, but  which would be a better investment 3/2 or 2/1 or 3/1?

I'm guessing 2/1 would have less vacancy but  3/2 would interest higher quality tenants, is this assumption right?

Mindy Jensen · Answer

3/2 is generally easier to rent than 2/1. It rents for more money as well. If prices are similar, I would go 3/2 every day.

The quality of the tenant is influenced by the area, but comes from you and your screening process. Read the landlording of the blog and the landlord & tenant section of the forums for the proper way to screen. A little extra work in the beginning will save you hours of hassle during the rental and at the end.

If you don't do thorough screening, you will need the article How to Evict a Tenant.

Lisa Lavine · Answer

@John Yanko. How did the M.F turn out. I am considering doing that now. I would love to hear the experiences you had. Thanks

Lisa

David Brim · Answer

I have owned two duplexes and all four units were two bedroom and two bath.One of my duplexes was built in 2006 and commands high rents, but the walk in shower in one unit had a leaking shower pan below the tile that resulted in us having to completely re-do the shower (via insurance). It took longer than expected.

If we only had a 2/1 in that unit it would have been a lot more painful / stressful. We also likely would have had to put the tenants up in a hotel because there would have been no way for them to shower.

I didn't think about this as much when we first bought the duplexes, but now after my experiences when considering multi-family deals it definitely crosses my mind.

Jesse Waters · Answer

Personally, I haven't had much issue renting my 2/1 apartments.  For SFR I would go with 3/2, since it has the broadest appeal.  I try to stay away from 1/1 properties, but I do have one apartment in a building of mine that is a 1/1 and have had no problems renting it.

It really comes down to your market, what is in demand and if the extra cost of 3/2 vs a 2/1 is worth the returns and ease or difficulty of renting.

John Yanko · Answer

@Stephanie  Minor awesome tip thank you!

Stephanie Minor · Answer

I'm trying to figure this out for my area before I buy as well. What I'm currently doing is going through demographic information - if you're in a college area, 3 bed would be better. If you're in an area where there are more families with kids, 3 may be better depending on average family size. I try to pay attention when looking at photos of houses with tenants that are on the market. If I see lots of kids toys in a majority of these photos (which I have been seeing), I'm under the impression that there is the possibility of longer-term, family tenants in the area.

Average age for the area I'm looking is 36, so depending on where you are, those people could have no kids or 7 kids by that age haha

John Yanko · Answer

@Jesse T.

Yes it would be apartments, thank you!

John Yanko · Answer

@Mindy Jensen

Good advice, thank you!

Jesse T. · Answer

I think it depends on the type of properties.  If you are talking about apartments - 2 bedrooms is probably the best option.  For a SFH or TH/rowhouse the 3rd bedroom can be a huge factor in appreciation.

For apartments it will vary by market, but in general you can charge more for a 3 bedroom, but I would guess that vacancies would tend to longer.  However the tenants may tend to stay longer also.

I would think apartment rents will generally justify a significant premium for 2 bedrooms vs. 1 bedroom - but the 3rd bedroom will justify a lot smaller premium.  I think bathrooms is going to be even more market dependent than bedrooms.  You probably can charge a premium for 2 baths vs. 1 bath - but it will also increase any repair/renovation costs.

Starting out I would look for what is typical in your market and start with that type of property.  If it is 2/1 and you find a lot of your tenants leaving for slightly bigger places, it might be a good idea to get some 3 bedrooms in your next property.  If you are getting a lot of negotiating on rent and singles, you might look for some 1 bedrooms.

3/2 or 2/1 which one?

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