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Writing off one bedrooms

When many investors are looking for their next rental property they have a tendency to ignore a vast majority of the current inventory on the market. The trait that these properties share in common is that they are single bedroom units. Landlords tend to shy away from them for fear that they won’t be able to pull in the rents they desire. If you can relate to this standpoint, just as with avoiding duplexes, you could really be missing out on some great buys.

The most common complaints I hear about one bedroom units are related to the lower rents associated with the units. While there is certainly some validity to this point, it only considers part of the picture. In our current real estate environment, rental prices are up and vacancies are down. As this type of property becomes more and more affordable, it is impossible to ignore the terrific cash flow potentials they can offer. I would never have recommended buying a building with single bedroom, shotgun units at premium retail sales prices of 2006, but at todays prices they look mighty compelling.

I’ll use a 4-family I recently visited with a client as an example. This building has 4 single-bedroom units. The downstairs apartments are walk-through shotguns and the upper apartments are the same except the bedrooms are set up as private. Not a dream layout, but considering that all units have central HVAC, newer electric service, tight tuck pointing, decent bathrooms and kitchens and two units have nice hardwoods, my attention was piqued. Did I mention that the building was listed for $64,900 and with less than $10,000 worth of work this property can be up and running? Even with low rents of $400 a unit, the $1600 in gross income a month will offer a great cash flow for a building with $75,000 invested in it.

Of course, not all single bedroom units are worthwhile investments. Private bedrooms are obviously worth more and shotgun style units are worth less, but the key here is that there is plenty of money to be made if the price is right. So the next time you see a single bedroom apartment complex for sale, consider the positive things it can offer. Not just the negative.

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Matt Kastner

Matt Kastner is an Investment Real Estate Consultant at St. Louis Real Estate Society in St. Louis, Missouri. He is also develops properties on the side through Threshold Properties. When he isn’t representing investors in the purchase or sale of multifamily properties, rehabs, foreclosures and other income producing properties, he is often taking on rehab projects himself. He lives in South St. Louis and has been in the real estate business since 2004.

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