Does size really matter?

Question

For those of you who invest in SFH's, does the size of the home influence your decision at all?  For instance, I have found a couple of little bayfront towns near where I live. These towns are filled with little 1-2 bed room 700-800sq ft bungalows.  I kind of like the idea of starting out with these smaller units because I feel like less can go wrong and when things do go wrong it will be less costly.  What do you think about this? And what size houses do you generally deal with?

Jon Holdman · Answer

Some things, like carpets, paint, and roofs, are size dependent.  Unfortunately, some of the more expensive items, like electrical, plumbing, and sewer lines, are not.  I don't really think maintenance expenses are much of a factor, one way or another.  If the numbers work, and these appear they would, and there is demand (drive around, look for empty houses and for rent signs), then these will be OK.

Kel S · Answer

Of our 3 homes, all of them are under 1,000 sq ft. One is 817sq ft, another is 870 sq ft and the third is 850 sq ft. All are 2 bed/1 bath. We have 2 of the 3 rented with no problem and they rented quickly. The 3rd one we close on next week.

I think like Mark said just study the market and try and get a feel for if there is a demand for rental homes that size in that area. Check out the local newspaper and see how many in that area are for rent and what they are renting for. Learn more about the area as well. Is it mostly owner-occupied? How big is the town? Is there conveniences there such as easy freeway access to those who might be commuting to work? What industry is nearby? Is there a hospital, grocery, schools nearby, etc.,

Here where we are there is a darling lake front town not far from me. The houses are adorable. However, I don't think there would be a big enough demand for rentals there because it's just not conveniently located. So you really have to research a bit before taking the plunge.

Timothy W. · Answer

Depends on your market (and your climate).  I can see why Josh wouldn't even look at houses like that in Florida where you don't have to pay to heat a house.

I do plenty of 700 +/- s.f. 2 bedroom houses to young couples/small families here.  Up here in North Indiana it gets cold and a small house is much more cost effective when heating the living space.  This is why a lot of the smarter folks who have the money up here for McMansions still have a smaller house and a huge garage.  No need to heat stuff that doesn't need heating.  Sure you may have to cool some rooms in Florida but you don't need to keep the whole house cool to keep the pipes from bursting - whereas I must do the opposite with heat for the cold.

Jon Klaus · Answer

Think about your customer--the tenant.  Find out what the demand is for various sized homes.  Are those small ones renting quickly and staying occupied?

Initially, I wanted to stay away from bigger homes because of the same reasons you cite.  However, I bought two 5 bedroom homes recently because they were good deals in the areas I liked.  The first one, I leased before I even closed on it!   In that area, there were very few bigger homes for rent, yet the schools are popular.

My new tenant is a family of 5, plus 2 parents/in-laws.  Two families combining, really.  Actually, this is a common occurrence in a recession.  Not only am I getting good rent, but it is secured by FOUR incomes!

I haven't begun the rehab on the second 5 bed room yet, but I know I won't have much competition.  Gauge supply and demand, then act accordingly.

Mike D. · Answer

It is an old bayfront town so most homes in the town are this small.  They used to just be summer homes but are now occupied year round.  The town has had growth in recent years and there doesn't seem to be a shortage of renters.  I'm thinking that if there is demand there and the numbers work there should be no problem.  
          
          Theoretically these units should be easier and less costly to maintain right?  
          For example, I know that a 2 bed room house has a rent range of $1,000-$1,300.  These houses are listed on the MLS starting at around 50k-70k. So by doing the proper leg work, I think I will be able to find deals that make sense according to the numbers.
          
          I wouldn't do one of these deals if the numbers weren't right, this was more of a theoretical question.  Comparatively, if you had 2 deals that worked according to the numbers and one was considerably smaller, that one should come with less headaches, correct?
          
          To me it just seems that the capital imrovements would cost much less.  These houses are pretty simple houses that still command decent rents and should cashflow if everything is done properly. 
          
          Sorry if this is a little incoherent. I'm kind of rambling, but im just trying to get all my thoughts out there for critique.  I'm a complete newb who hasn't done any deals or even have any money to do deals yet.  Right now I'm just trying to learn what markets I should follow.

Mark N.A · Answer

Mike, study your market first.  Let the market/cash flow dictate what you buy.

Josh Green · Answer

i dont even look at a house if its under around 1000 sqft. i can only imagine the size of the bedrooms in a 700 sqft home. i think that u would limit ur renters list with a home that small.

Does size really matter?

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