Finding tenants to pay for 3+ bedroom unit vs 2: how much harder?

Question

Right now I am interested in purchasing my first duplex or triplex and lately, I have been doing a bunch of analysis.

Obviously 6+ bedroom duplexes are much more desirable to me than 4 bedrooms because you can rent them out for more. However, although having 3,4, or even 5 bedrooms per unit makes these properties look great cashflow-wise when I am doing my analysis, I want to know how practical it is to actually find tenants that are in need of say a four-bedroom unit.

I can imagine that the tenant pool in need of 2 bedroom units is much larger than the tenant pool in need of 4+ bedroom units. That being said, I am concerned that if I purchased a duplex with 4 bedrooms per unit it would take a looooong time before I could find tenants that would be willing to pay for what a 4+ bedroom should theoretically rent for in my area. Of course, covid only makes me more concerned that I wont be able to find tenants at all.

Account Closed · Answer

It depends on your tenant base.  Here in CA, if I had a rental for 5 or 6 bedrooms, I'd anticipate that the small family I rented it to would then rent out the extra rooms to friends or boarders.  And, they may even add showers and toilets without permission or permits.  This is really common here.

Whereas, if I had a 2 bedroom unit without a garage, I probably wouldn't deal with these types of problems, because those types of tenants would move on.

You have to know your tenant base.  But, I think it's really rare in today's world that a normal family would need 5 or 6 bedrooms.

Now, if you wanted to rent those types of properties out to college students, for instance, that might work.  Just know your tenant base.  If you end up with tenants who put in unpermitted showers and toilets, etc., they can cost you a lot more than their security deposit.

Maurice Selva · Answer

I carry an inventory of about 200 plus homes, of those about a third or less of those are 4 bedroom with a good majority of them being 3 bedroom units. The thing I like about a 4 bedroom house is that if you get a relatively young family in them they'll grow into to it and will tend to stay longer, especially if it's in a good school district and they move in when their kids are still in elementary. The key is to keep your tenants for as long as you can without having to fill a vacancy every few years. The thing about having the larger size 3-4 bedroom house is that about a third of the people make more money so the larger homes tend to be a stepping stone for them buying their own home. The key is find a tenant that is a blue collar worker that makes enough to quaify but not so much that they can afford to buy a home anytime soon.

Account Closed · Answer

I've never rented out anything with more than one bath, whether it was a SFH I owned or the apartments I managed.  But, I do know that there are different tenant bases, and that is the point I'm trying to make.

If you are in a low-income Spanish speaking neighborhood in CA, and you have a home with multiple bedrooms and whether or not it has one or more bathrooms, it's more likely that they will have extended family or friends or even boarders move into the unit, and they may just put in more toilets or showers, etc., to meet the needs of all of the people they move into the property.

Now, if your rental is in an upscale neighborhood in, say, Walnut Creek or Santa Rosa, as another poster mentioned, and your rents are higher and in a neighborhood in a desirable school district, then you won't have those issues.

You need to know your tenant base.  You need to know the cultures involved, the income levels involved, who would be likely to rent your unit and what they would do with it and how likely they are to stay and not cause problems.

There is no mathematical formula that figures that into the equation, so to speak.  There is no easy, simple way to determine, using a formula, that will guarantee a profit.

In other words, you need to educate yourself.  There's no easy, turn-key property solution.  If you don't do your homework yourself, you will be ripe for the picking for people who will rip you off, or you will lose money because you will not be able to anticipate problems.

Kenneth Garrett · Answer

@Ethan McRae

Two and three bedrooms are the most desirable.  It is based on your particular market.  I agree with Account Closed additional bedrooms do not necessary equate to income at the same ratio per bedroom.  It could cause difficulty in who is renting.  Stick with 2 and 3 bedrooms.

Ethan McRae · Answer

Account Closed Oof, yeah I wouldn't want random bathrooms popping up all of a sudden in my units. Thank you

Kenneth Garrett · Answer

@Ethan McRae

That is correct.  Each market is different and increasing from three bedroom to four might not be as lucrative as increasing from two bedrooms to three.  Look at your rental market and compare the rents based on number of bedrooms.  You can also use FMR tables from the housing authority (section 8) as a guide.

Ethan McRae · Answer

@Kenneth Garrett just to clarify- when you say "additional bedrooms do not necessarily equate to income at the same ratio per bedroom" do you mean that if there is a difference of 600 dollars in rent between a two and three-bedroom, then there might not necessarily be a difference of 600 dollars between what a three and four-bedroom unit rents for? Like it could perhaps just be 300 dollar difference?

Kirk R. · Answer

Sue What's your experience with 1 bath vs 2 bath?

Maybe it's cause i think everyone should have same as what i like.  but 3 people & 1 bathroom seems inadequate.  & if the only one bathroom has a leak/needs a remodel...

Ethan McRae · Answer

@Maurice Selva I see. Sounds like young families that wouldn't want to move out given financial circumstances is the sweet spot. Thanks for the tip

Ethan McRae · Answer

@Craig Sloan Thanks of the advice Craig

Finding tenants to pay for 3+ bedroom unit vs 2: how much harder?

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