Another question came in from one of our Wealth School Students.
Question: “I have purchased another cash flow property (a single-family house), and am about to get started on the renovation. It’s a large house, and I could squeeze out an extra bedroom to make it a 5-bedroom house. Would it make more sense to keep it a 4-bedroom house, or squeeze out that extra bedroom and have 5 bedrooms?”
Answer: “It depends on how the house is laid out. The guiding principle in this case is to give the market what it wants. In a large house like this, you’ll naturally be looking to rent this house to a large family.
If you took part of the house that would otherwise be used for a living area and converted it to a bedroom, you may not have enough living area for a family that size. If, on the other hand, you converted a garage to get that extra bedroom, you’d be making a mistake because that family is going to need some type of outside storage for their mower, etc.
You might get a promise of a somewhat higher rent from section 8, but in most cases I would advise against trying to squeeze out an extra bedroom.
It’s much different that trying to choose between a 2 bed and 3 bed. In most cases, I’m going to take the 3 bed over the 2 bed every time. There is much more demand for 3 bed houses than for 2 beds.”
If you have to choose between a 2 bed and a 3 bed
December 22nd, 2009 at 11:38 am
This is essentially what I just instructed my rehab crew to do. Only difference is it is currently a 3 bed and I sprung for the fourth bed but not the fifth. This home has a huge dinning area and a second living area. My original plan was to take have of each of these rooms to get 5 beds. After doing a market rent analysis on gosection8.com I found there was only about a 20 dollar difference in rents that I could expect. So I left the extra living rm alone.
December 22nd, 2009 at 1:14 pm
Dan, I believe you made an excellent choice. For this particular house, it really does make sense to go from a 3 bed to a 4 bed. I think you’ll be looking at an extra $50 to $100 per month in cash flow as a result of that decision. It’s safe to call that an extra $1,000 per year in cash flow. Without knowing your rehab cost to make that conversion, I’d have to guess that the extra cash flow from that improvement will pay for itself in less than 1 year.
Just be careful to cover all of your bases with section 8. For example, your new bedroom will definitely have to have a closet. In addition, sometime section 8 has a problem with garage conversions being called a bedroom. I don’t know if that’s where you got your additional bedroom, but just keep that one in mind.
December 22nd, 2009 at 3:01 pm
This house has a 2 car garage that is being left alone. It also has a nice workshop in the back.