I've noticed lately that in my town a 2 bed house are advertised for only $50-$100 less per month vs. a 3 bed house with similar characteristics (location, age, amenities, schools). $600 seems to be the top end of the 2-bed range unless you get into swanky loft apartments. I invest in Class C hoods and keep my places clean,safe, and functional. Nothing fancy.

Seen anything similar in your area? Do you consider price points like this as part of your strategy?

Sid,

Great post here but I need clarification. "Do you consider price points as part of your strategy?' Strategy for what?

In Class C hoods, a tenant's rental value system (mindset) seems to revolve around '# of bedrooms'. This may have something to do with HUD/Section 8 since their valuation system seems to revolve around bedroom number too.

Hi Roy,

Strategy in terms of what kinds of houses you want to buy. I know some investors prefer 3-bed houses even if the rent to purchase price ratio is worse. I specifically target 2-bed houses that I think should rent between $525 - $600. Maybe instead of price point we could call it a "sweet spot"...I can charge these rents and still keep vacancies low / turn around times fast. Based on your past posts, I think you know the price point of what you can get in your neighborhoods without going overboard.

Okay Sid,...thanks for the clarification.

I look for small houses,..usually 1,000 square feet or less. They maybe 2 or 3 bedrooms. The key thing for me is: will this house rent for a min. of $600.00 or more?

Hi Sid,.

It's all in the numbers. If it makes more sense to have less bedrooms, then that is what I'd do.

I think Roy makes a good point about amenities. Is it what my prospects in this area want? For instance, in ours they just want cheap. So rents dont increase much regardless.

In the future, I think we will be looking more at 2/2's or 2/1.5's. We are seeing a lot of singles or couples with no children, so it's great for an extra room and it's great for expanding the family. ( Only an observation , not excluding other family types) We used to look only at 3br, because most applicants had lots of family- not so much anymore.

Will that extra $600-1200 a year cover your expenses of the larger place? Is more time spent managing the larger places?

In my area, when I started, my 1-beds were around $3xx, my 2-beds were around $4xx, and my 3-beds were around $5xx. Adjust up for amenities-- location, dishwasher, 2-car garage, sheds, big closets, etc. Adjust down for negatives-- bad neighbors, no covered parking, small closets.

I raise my rents at turnover, so my houses that turn over more frequently are a little inflated, in comparison to what I think they ought to be. So a humble house that started off at $300, but turns over twice a year, will be creeping up on 2-bedroom territory soon enough, even if rental rates theoretically stay pretty flat.

It's a sale vs. rent mindset. A person BUYING a house cares about the number of bedrooms, because maybe they are planning on or do have a family and need the space.

The people I rent to are either very young - not ready for a house for many many reasons - or older down-sizers who don't want all that space to clean and care for. I have several who have said to me, "I don't want the room for the kids to move back home!"

But they want clean and updated and a washer and a dryer, AC even it's only a window unit, all appliances provided.

I get the same price for my small places as I could for a three-bedroom.

In fact, we have two large townhome complexes near us. One rents a 3-bedroom for $950 - pretty sure they are Section 8 or at least do take it. The other rents them for $1500 - they are new but not considered "luxury" - they are advertised as "affordable" but not with a capital A.