Theodore Roosevelt said: ” Do what you can with what you have where you are.”
Was he talking to owners of multi-unit properties?
Maybe so. At the end of the day, the value of your building is going to be dependent on its income. This is going to come up with a sale or a refinance. It has been my experience that in most cases, a larger bedroom count will bring in more income than a few more square feet.
For example, could you get a higher rent for a 700 square foot 2 bedroom apartment or a 750 square foot one bedroom apartment?
OTHER FACTORS AFFECTING BEDROOM COUNT In California the “two plus one” approach, which is to say two people per bedroom and one in the additional space. Although this is not a hard and fast rule, and there are always exceptions, this usually works as a rule of thumb. In our example, this would put 5 people in the 2-bedroom unit and only 3 people in the 1-bedroom apartment.
CAN I MAKE A CHANGE?
A few years ago, I had a client who was a general contractor. He purchased several four-unit properties in Long Beach each building consisting of 5175 square feet of living space. The original unit mix (1) 3-bedroom unit and (3) 2-bedroom units. All units had (2) baths.
My client “reconfigured” the building WITHOUT ADDING ANY SQUARE FOOTAGE. By moving some walls, he was able to create buildings with (2) 4-bedroom units and (2) 3-bedroom units. This resulted in a substantial increase in the rental value of the building and the sales price. He was able to resell all four-unit buildings at a healthy profit.
SHOULD I MAKE CHANGES?
I am not suggesting that this will work for every building, but it may work for yours. If you can get the building department on board, this method may be much cheaper than building an ADU. If this seems like a possibility for you, check with a general contractor who is experienced in these types of renovations. It may be difficult in some areas to get the unit vacant, but what if you have vacancies coming up?
Since this will most likely involve a refinance, always check with your CPA and your real estate attorney before moving forward.
What we at PRS PROPERTIES CAN DO. We can discuss with you the current rents in your area and supply you with comparable rental prices for similar properties. Before you hire a manager, make sure the compensation is fair to you! We can also look at your building for changes that might allow you to get a higher value in order to create value without huge expenses for your building. We can help you to get the maximum value for your property, should you decide to sell, or the maximum return if you are planning to keep your building.
We always have many investors who are looking for “as-is” properties and are willing to purchase with low rents, a moratorium, or even with a problem tenant in place. We have put together numerous transactions over the years which involve properties that are not listed for sale. Many investors are in 1031 exchanges and need to identify a replacement property before their 45-day identification period runs out.
Should you decide to put your property on the market, we will put together an aggressive, targeted, and professional campaign to get your property sold fast. We have been doing this for over 40 years, and we will use all the tools available to bring you the most dollars at closing. If you are thinking of selling or are just curious about the value of your property, don’t hesitate to give us a call.
Remember – KNOWLEDGE IS POWER!
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