More Bedrooms or 2 Suites to Maximize STR Income?

Question

I'm relatively new to the short term rental game.  And I just purchased an off-the-market house from a motivated seller.  It's a very large home on a large lot. It needs a lot of work but the main level has 2 bedrooms.  Each bedroom has it's own bathroom.  So I guess these would be called 2 suites.  Also, there is a bonus room which can be an office or a small bedroom.  In addition, there is a large dining area and living room.  My plan is to demo and update everything. My question is about the number of bedrooms.  Of course, I'm interested in maximizing my income.  My contractor, says that he can easily create 4 bedrooms.  But there would probably only be 1 suite unit (bedroom with it's own bathroom) and 3 bedrooms with a shared non-connected bathroom.  Which is more profitable for STR:  2 suites or more bedrooms (4 bedrooms/2bathrooms)?  More info:  The neighborhood is a solid "B" in transition.  It is rapidly gentrifying.  It is in heart of the city and very urban.  There is a main street with restaurants within 2 blocks. Rental prices are relatively high and availability low. Multiple houses in the neighborhood have been renovated and some subdivided and rented out. Permits shouldn't be a problem. It's a very large lot and house and the previous owner already had architectural drawings but didn't pursue anything.  Please let me know your thoughts . . .

John Underwood · Answer

The more beds and people that your house can sleep will generate the most money as a VRBO.

William Leahy · Answer

@Rob Denn some good insights here but I think the key to your decision is in analyzing your market. The STR space is very diverse and rapidly evolving. I would imagine that Airbnb is dominant to homeaway in your market. Check out the competition, paying specific attention to superhosts. Who seems to be dominating and with what type of accommodation?  Do some searches for whole homes with map function, set the filters for number of bedrooms and guests. If there seem to be some people killing it with 3 bedrooms then maybe setting up two masters would give you a competitive edge for which you can charge a premium.

I have a 3 bdrm, 4 bdrm and a 5 within a mile of each other. The 4 bedroom has two masters and it definitely gives me an advantage. Yet the 3 bedroom grosses the same because its closer to the beach. I'm in a seasonal beach town, my rules will different but I think the techniques of figuring out how to meet the needs of the market apply. Do the detective work on your market and the answer will reveal itself.

Julie McCoy · Answer

@Rob Denn you've gotten some solid advice here.  I'm definitely in the camp of "make it a multi-unit" - usual caveat of permits etc. but you'll find far more demand for 1BR or 2BR units than for a 5BR house (unless your demographic is going to cater to families/groups year-round, which - not knowing Oakland - does not sound like the case here).

This gives you multiple options - you're ideally set up for standard STRs or corporate rentals, you can rent multiple units out to larger groups, and you can make one or more of them LTRs if you ever want/need to.

The only downside I see is that multiple units will mean more reservations to manage, so it'll be a little more day-to-day work for you on the email front, managing cleaners, etc. However, smaller parties are less likely to make a mess than a big group, so overall you're probably looking at slightly less wear and tear.  Your occupancy rate will definitely be overall higher, as @Paul Sandhu mentioned, and even though the individual units will rent for less, if they're all rented simultaneously you'll probably be getting more combined than you would from renting the one big house.

So, my thought is, create as many units as is sensible and legally possible (your neighbor was wise to expend their parking), and create them in such a way that they would make sense for LTR as well as STR.  Good luck!

Tyler Work · Answer

Agree with @John Underwood but it also "depends".  Of my 20 property portfolio my top performing property was a 2 BR house that slept 4 guests.  It performed better than a 5 BR 3 BA monster house that was very nice but not unique.  The top performer had much more attention to design, detail, and uniqueness and people were willing to pay for that.  Just something to think about as you're doing your renovation.  My market was Denver so it also depends on that as well.

Paul Sandhu · Answer

At the end of the accounting year, it won't make a difference.  I have more 2 BR STRs than I can count on both hands.  I have a 3 story house with 4 baths that sleeps 8.  I have several 2 story houses with 2 baths that sleep 6.  I have several more 3 BR houses that sleep 4.

At the end of the accounting year they all make about the same amount of money.  The smaller the house, the smaller the rent, but it's rented out more often.  The bigger the house, the bigger the rent, but the bigger it is the frequency it gets rented diminishes.

My market is a little different than yours.  I rent to travelling male contractors.  Welders, electricians, boilermakers, pipefitters, etc.  The guys you see working on the large upright structures of steel at a petrochemical refinery.

Rhonda Blue · Answer

I agree with @Jon Crosby. If your already going to renovate the whole home. It will definitely be potential for more profitability as a 2 or 3 unit. Rather then multi bedrooms There are more and more 2 to 3 person renters via airbnb then there are larger groups.

Rob Denn · Answer

This property is in Oakland, CA.  It's in an up and coming area. The main floor is just phase I.  Like I said, it's a huge house on a large lot.  The basement is already partially finished and has the potential for 4-5 bedrooms and 2 bathrooms.  The basement also has it's own separate entrance at the front of the house.  The next door neighbor has subdivided his house for rental, erected 2 rental units in the back yard and put in additional parking on his property. All done with permits. And his house and property are smaller than mine. I would say that the area skews toward the younger side.  Previously, it was more inner-city residential.  Now it's becoming a hipster haven.

Jon Crosby · Answer

Hi @Rob Denn, this is likely going to depend on the city and your target demographic.  If you are in the city (and exactly which city is probably going to be important) then 2 suites might bode well for corporate housing STR clients.  But if you are in the city next to a theme park let's say, then you are probably going to do better with 1 master with bath, a bedroom that can accommodate a queen/king and then a few bedrooms for kids.

If it's big enough and you can pull it off (since it sounds like you are going to the studs most likely), you should think also just making two separate residences for long term rentals.  You might have much higher cash flow with less operating expenses going that route in the end.

Just my 2 cents though, I'm a lake house STR owner so I know that best and urban STRs are not necessarily my wheelhouse.  :)

Best of luck!

More Bedrooms or 2 Suites to Maximize STR Income?

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