Single Family Homes - How many bedrooms is the sweet spot?

[Nicholas TenBrink]

Greetings!

I'm new in the game of real estate investment and have been working on my strategy around single family homes and would like to pick the brains of a few of you.

Out side of the normal analysis of if a deal is a good deal or not, how many bedrooms do you feel are the max amount that you would want in a single family rental home?

I'm in the Minneapolis & St.Paul , MN market; from what I see typically is that if a family can afford to rent a 3 bedroom 1-2 bath house, they can buy one. 

That has left me thinking that 1-2 bedroom homes are where i should be targeting for single family homes.

What are your thoughts around the number of rooms in single family homes? Experiences? etc.

Thanks!

-Nick

[Travis Sperr]

3 beds or more. They rent better, faster and tenants stay longer.

[Rick P.]

3 beds is def the sweet spot.  

[Lisa Hoover]

3 Br 2Ba minimum SINGLE FAMILY HOME
any garage is a plus

I only buy 4 br 2.5 ba minimum
(even a single person CAN rent that... but you can't put a family of 4+into a 2br 1 ba condo and condos rarely appreciate unless they are in a hot uptown area like Charlotte NC and they are insanely priced here)

SFH guaranteed appreciation in nice family area near good schools

ahhhhh mostly trouble free

[Shital Thakkar]

Here is Best size combinations...

• House = 3 X 2 X 2 (3 Bed + 2 Bath + 2 Garage)
• Sq Feet: 1500 - 2500
• Backyard : Medium size (3000 Sq Feet in Texas)

[Rose Ryan]

I'm in Minneapolis and agree that 3 br is the sweet spot. Just because homes are relatively affordable here does not mean that there is not demand for 3 br homes. I recently bought a 3 br SFH in the Seward neighborhood of Minneapolis. There was a lot of interest when we advertised it for rent and it is rented to a roommate group of three young women. They are great tenants.

Remember that the city of Minneapolis does not allow more than 3 unrelated adults in rental units in most zoning districts. A good reason not to go larger than 3 br. I do not think this is strongly enforced by the city, but if you end up with a disgruntled tenant it is ammunition that the tenant could use against you.

There are lots of people who don't have the cash for a down payment or are not ready to commit to owning yet (such as our tenants). Our realtor advised us to focus on 3 br rentals because they work well for roommates or families and can me much more easily sold when you are ready to move on. There is just less demand from buyers for a 1/2 br SFH.

Good luck!

[Amber Gonion]

I also wanted to point out that many couples with kids are choosing to rent rather than buy. The days of people working at the same job for 20 years are over. Millennials also seem to not value home ownership as much as past generations, they value the flexibility of being able to move and change jobs. So even though they could buy a home they don't choose to.

[John Thedford]

I own 3BR and 4BR homes. Both rent well. Interesting though, I had an agent tell me she only buys 2BR units because she wants to limit the number of occupants. She stated most applicants are couples with no children. She also doesn't not buy houses with fenced back yard to avoid pet owners wanting to rent. I mentioned this in one of my classes recently and the teacher said he thought that was brilliant! Wasn't my idea but I felt it was worth noting. I will continue to buy larger units but will not deny the idea of buying a nice 2BR if it makes sense. 

[Jason V.]

Originally posted by @John Thedford:

 I had an agent tell me she only buys 2BR units because she wants to limit the number of occupants. She stated most applicants are couples with no children.

While I like the idea, I think it's pretty market specific. As a New Yorker, I'm well aware Florida is where I'm going to go to die, and if I'm a typical New Yorker (or Snowbird) I'd rather rent than buy. But it definitely makes sense in certain areas (Florida, Arizona.)

[Jason V.]

Originally posted by @Shital Thakkar:

Here is Best size combinations...

• House = 3 X 2 X 2 (3 Bed + 2 Bath + 2 Garage)
• Sq Feet: 1500 - 2500
• Backyard : Medium size (3000 Sq Feet in Texas)

 Ha, that's funny - I literally just posted about how typical these houses are in Texas. Meanwhile, they're much, much more rare in the Northeast and other 'older' areas. 3/2/2 didn't really happen in the heyday of home building around here....150 years ago. 

Very cool to see different market perspectives on this topic though! 

[Justin B.]

This is something I spent a LOT of time looking into.  I have stats I ran and analysis I did back when I first started and determined that 3BD/2BA is the optimal size.

Some key things I noticed are:
-- Less than 3 bedrooms and the vast majority of people with kids (or that want to start a family) are out.
-- More than 3 bedrooms and the rent doesn't really increase much.  I find it's not usually worth the price difference.  People who are looking for 4 or more bedrooms are more likely to be buyers than renters.
-- People are usually searching for a minimum of 3/2.  It's the same logic behind why someone prices a house at $199,999 as opposed to a flat $200k.  You want to show up in as many searches as possible.  The opposite also holds true.  A lot of people put their max at 3/2.
-- No one wants to share a bathroom with kids or guests so less than 2 bathrooms is usually ruled out of searches.

I found in the area that I rent, 3/2 with one of the bathrooms being attached to the master bedroom is the best case.  A garage or a carport can add a lot of value to those types of houses if already there.  I wouldn't build one if there isn't already though.

What all that boils down to is the 3/2 seems to be rentable to single individuals up through families.  It's just going to have the widest range of renters available to it.

[Greg Rutkowski]

Well being from Hawaii, where everyone is now priced out of the market. I would think enough to cover multiple generations. I have started with my own home here in California, which is 4 bedrooms 2 1/2 baths, 2045 sqd/ft living space. As well as enough property to add an equal size home, or some combination, should the need arise.

[John Woodrich]

It really depends on your area and demand.  I invest in MN and if I had a choice, I would rather have a 4br/2ba but 3br/2ba I put in the same category.  In my area there are a lot of pet owners so I prefer to have a fenced in yard, it also helps with kids and increases general demand for my rental.  My target client is a family with school aged children, they typically look for houses like this.

I have rented 2br/1ba houses and still haven't had any issues.  These renters are typically young couples or friends and they do not tend to be tenants who rent for 7 years at a time.  

At the end of the day it comes down to purchasing a house for the right price.  If I can purchase a 2br/1ba for an all in cost of $65,000 and collect rent of $1,000 per month I am in a better position than if I purchased a 4rb/2ba for $120,000 and collected rent of $1,300 per month.

[Shane Hedeen]

Hey Nicholas, 

I would say I would agree with most that 3/2/2 seems to be a pretty good home for maximizing cash flow and return in most areas. That said, I wouldn't necessarily limit yourself to only searching for that specific home. A lot of investors on BP and other places focus on homes that may have a "value add" in terms of a bedroom or bathroom that could be added somewhere in the home to maximize rental opportunity. Just depends on personal preference and what you're looking for in a rental as you begin. 

The other thing I would say to consider is to look up rental restrictions and rules in the municipalities where you are looking to rent. I used to live in Winona, MN and they have a city restriction to any rental to not allow any home that wasn't 'grandfathered' in around the college campus to be rented to more than 3 unrelated occupants. 

Buying a 4 bedroom home in an area where legally you can only rent to 3 unrelated people will slightly limit your pool of applicants. Certainly doesn't make it a bad deal necessarily, just something to consider. You wouldn't want to own a rental near a college campus that was 6 beds, when city rules regulated you to rent to only 3 unrelated tenants, would you? It would make it tough to do that legally. Just all depends on the area and typical rental client. If the norm is a married couple with kids, not quite ready to buy, then may not be as big of factor. 

Hope that helps give an extra two cents to your question! Good luck as you start to learn, this is a fantastic place! 

[David Dachtera]

@Nicholas TenBrink,

What folks (think they) can afford is often a bit different from their ability to borrow.

Lending guidelines are starting to loosen, yet are still fairly stringent. Banks only make money when they lend. So, there is considerable pressure to loosen lending guidelines. Banks are flush with cash because qualified borrowers are so few and far between. They need income, not cash "sitting their vaults".

[Jay Lohn]

3 Bedroom+, more families that stay longer netting you more money with less turnover costs.

[Gabe G.]

In Indianapolis. I find most 3/2's are too expensive to make good rentals. I have 3/2 , that I bought for 82k and I struggle to get 1k in a good area.

I find the sweet spot is 3/1 here in Indy. You get the extra bedroom, but not the extra bath. I think the extra bed is more important than the extra bath.

You can get some 3/1's in ok areas. for 50-60k. That rent for 800+