Duplex or triplex: rent per bedroom or unit?

[Ralph Noack]

Greetings BP. I have recently purchased a legal duplex with the following set up:  One unit is a self-contained 1 bedroom unit and the other is a 7 bedroom/2 bathroom unit.  Total of 8 bedrooms.

Firstly, in the city where the building is,  they frown upon the 7 bedroom unit. They call it a  lodging house or rooming house, and it falls under different rules & regulations than an apt. with 4 or less bedrooms. 

The house is 5 blocks from 2 universities & a community college. Combined they are planning to bring in an additional 10,000 students to their schools within the next 5 yrs.

We are considering making it a legal triplex, to fall in line with the city's desires.  If we do this we would still have the 1 bedroom unit, and then make the 7 bedroom unit into a 2 bedroom & a 4 bedroom, losing 1 bedroom to make a kitchen/living room. This gives us a total of 7 bedrooms.

However that ends up, our more important question is: should we rent by the unit (3 units if we triplex) or by the bedroom (7)?

We take possession of the house in early July.  Currently the bedrooms rent out for $450 a month. The house is in a pretty dumpy condition & will need lots of clean up at the very least.  Even if we just clean it up we should be able to get more than the $450/month. If we make it a bit nice, I could see getting perhaps $550/month/bedroom.  

There is a significant rental shortage in this city & rents are rising. Nice for me. Not uncommon to see $1500/month + utilities for a 3 bedroom.

Anyone able to offer insight?