# Two bedroom with 2 ensuite bathrooms vs Three bedroom and 1 non-ensuite bathroom



## Underworld (Aug 26, 2009)

Hi guys, Bit of an open-ended question for you.
I'm looking at buying a Condo Townhouse and there are 2 nice places I'm looking at.
One is 2 large bedrooms each with its own ensuite and is an end unit.
The other is 3 bedroom, with one shared bathroom.

Any suggestions as to which is the better pick for my first rental? I tried looking for stats that might back up an approach. Like number of families renting vs ...

Thanks!


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## Ag Driver (Dec 13, 2012)

What is the going rate for a one bedroom + en suite vs. a bedroom and shared bathroom? 
What is the target tenant? Students? Family? Short Term? Long Term?


Sit down and do the basic math. For my case, my target tenant is a roommate. I am in university town, so the odds are it will be a student. Students typically don't care about sharing a bathroom ... but instead are looking for the cheapest and closest to school. Personally, I would choose the 3 bedroom if you do not plan to live in the place. I will never share a bathroom with tenant, but that is just me -- so I have my en suite, and the other two rooms share a bathroom.

Bedroom 1 w/ En suite - $550
Bedroom 1 w/ En suite - $550
*Total*: $700
*@50% Vacancy Rate*: $350


Bedroom 1 - $500
Bedroom 2 - $500
Bedroom 3 - $500
*Total*: $1500
*@ 50% Vacancy Rate*: $750

It is clear which one will produce more income, given my scenario (ie students)


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## Underworld (Aug 26, 2009)

The two bedrooms with ensuites are going for ~1700 and the three bedrooms are going for ~1800.

Based on the area target tenants will be young professionals or families. There are no colleges/universities/students in the area.
There are a lot of retail (home depot/best buy etc) nearby as well as a hospital 9 mins drive away. I could imagine two medical students/professionals teaming up to rent.

We would probably go for 1 year leases and hold the property forever.

My only concern is buying a 2 bedroom place and having the majority of people looking for a 3 bedroom place because they are a family. Or buying a 3 bedroom place and having the majority of people looking for 2 bedroom with ensuite  I'm not sure how to validate one choice over the other.

Or I could just be in the analysis paralysis stage.


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## Just a Guy (Mar 27, 2012)

Are the prices the same for both?

If so, go for more bedrooms. When rents are high, more people can share a place making it cheaper to rent for the individuals. When rents are lower, people always want an extra room. So, one person generally wants one bedroom and an "office". A young family want one bedroom for them, one for the kid, one office.

Of course, you haven't mentioned purchase price, and that should always be the first thing to consider...if I can pick up a bachelor suite for $25k-35k I would In a heartbeat, even though I don't like them, and they are more difficult, the cash flow it'll generate would be worth it.

My general rule of thumb though is to always pick more bedrooms if the prices are good.


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## Underworld (Aug 26, 2009)

Thanks Just a Guy, I seem to remember you have real estate - its good to see people with real life experience weigh in.

Yes the prices are the same for both. Purchase price are around 315-320k.


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## Just a Guy (Mar 27, 2012)

Okay, at those prices, I'd pass. They'll be hard pressed to cash flow at that price.


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## Underworld (Aug 26, 2009)

I'll give you my full analysis on one of the properties. Let me know whether I did anything stupid 

Age: 2011
Square Feet: 1134
Price: $319,500
3% Discounted Price of offer: $309,915
20% Downpayment: $61,983

Incoming: *1800*

Outgoing: *1761.24*

Condo Fees: 170
25 Year Mortgage @ 2.69%: 1134.29
Property Tax: 153.83
Insurance: 20
Saving 1 Month Rent: 145.83
Saving some money for maintenance: 133.13

Net Operating Income: *38.76*


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## nobleea (Oct 11, 2013)

Underworld said:


> Incoming: *1800*
> 
> Outgoing: *1761.24*
> 
> ...


You have to include something for income taxes. The 25 yr mortgage will have principal payments of 7065 in the first year, rising after that. You have to pay taxes on that even though its not free cash flow. That results in ~$185/mo of income taxes. That eats in to your vacancy and repairs/maintenance funds. Given the year of construction, who knows if those condo fees are accurate. Have they completed their first reserve fund study yet?
Ideally, a rental property should cash flow at 100% financing. As well as running scenarios for interest rates at 4, 5, 6%.


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## Underworld (Aug 26, 2009)

Thats a good point nobleea, I hadn't thought of that point of income tax.
We'll do due diligence on the reserve fund. The other condo board we are looking at has similar fees and built in 2007, so sounds the correct ball-park figure.


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## Just a Guy (Mar 27, 2012)

You are also forgetting that you are not earning anything on the $61k downpayment. Also, your property taxes will increase, real estate prices could correct, you didn't account for vacancy, or for major repairs if you get a bad tenant.

I didn't need to see your breakdown, I could tell from the starting price it was a bad deal in the long term.

With $1800 rent I wouldn't suggest you pay more than about $200k (which is higher than I'd go) in this interest rate range.


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## Underworld (Aug 26, 2009)

Wow 1800 rent and 200k purchase? I've never seen anything like that.
Is that a bunch of individual rooms rented out in a really run down house?


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## nobleea (Oct 11, 2013)

Underworld said:


> Wow 1800 rent and 200k purchase? I've never seen anything like that.
> Is that a bunch of individual rooms rented out in a really run down house?


I think he's saying that one can get $900 rent for a 100,000 condo/apt, so if you think you can rent out for 1800, then the most he'd pay is 200K.

It's doable. You wouldn't be buying new and not in the nicest neighbourhoods. But not the hoods either. Single tenant.


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## Ag Driver (Dec 13, 2012)

Unless you are living in it -- it is not a great investment as you can make better and/easier money in the markets. These investment properties that people own have a strict criteria in order to be a profitable adventure. Just A Guy has touched on a few of those points, but that is just the tip of the iceberg! There is a bit more to the eye....


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## Just a Guy (Mar 27, 2012)

Yes, to ensure you make money here are a lot of criteria to consider, much more than is covered in a posting. There is a big difference between buying an "investment" and being a successful investor. 

You can easily lose your shirt in real estate, especially as you are dealing with leverage. In this market, people are being set up for failure because people are so desperate to get into the market at any cost. 

The true investor has to have the patience to wait for the right deal to come up.


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## JoshuaPierceq (Jun 5, 2015)

Finding a great place with a nice price is hard.


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## Just a Guy (Mar 27, 2012)

Don't let the current market fool you, it won't stay this way forever. Real estate has cycles just like every market but, because it involves leverage and high prices as well as illiquid assets, those cycles tend to be slower and longer than say the stock market.

Another big difference is that, in real estate, there is no "set price" like in stocks. You can find a deal, though they may be few and far between, in every market.

To be a good investor, you need to have patience. It doesn't matter what you invest in.


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