A room rental case: buying under ask by pulling room comps, then adding a third bathroom

Here is a case worth studying in room rentals. A seller has a 5 bed 2 bath, about 2,300 square feet, ten minutes from a commuter rail stop in a mid size metro, listed at $287k. The seller's pitch is a one page sheet showing five rooms at $850, or $4,250 a month gross, with a cap rate built off that number. A disciplined buyer pulls every filled room listing within three miles before trusting that sheet. Rooms sharing a hall bath were going for $700 to $780 in this scenario, while the $850 listings were the ones with a private or ensuite bath, and those were sitting unrented. Building a file of screenshots and dates and offering at $262k, with a close around $268k, is a realistic outcome when a competing buyer who took the $850 sheet at face value loses financing over an appraisal gap. The part that nearly breaks a deal like this: five rooms on two bathrooms is a hard sell. Converting an oversized laundry room into a third full bath might run $11,400 all in, and permitting delays of a few weeks beyond the contractor's estimate mean carrying costs with no rent, easily $1,900 including utilities on an empty property. Lease-up numbers in a strong case: five rooms filled within a month, averaging $748, so $3,740 gross. Cleaning biweekly around $220, utilities near $415, lawn $90, self managed. Net can run around $1,650 a month on roughly $66k invested. The lesson worth keeping: pull filled room comps directly rather than trusting a rent roll pitch, and cap rooms at two per bathroom.

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brandonlee36 SP1BPRO 15

The bathroom is the whole post. What happens if the laundry room had not been big enough, or the plumbing stack sat on the wrong wall and the bid came back at $28k? You are at five rooms on two baths, and the usual result there is that you keep the rent and lose the tenure. People stay eight months instead of eighteen and you pay for it in turns. Which is the number worth pushing on. You had 31 days to fill five rooms in a market you clearly read well, but you are one year in. Take a four room house as the reference case: 2.7 turns a year is a normal average, and each turn runs about $340 in cleaning and paint touch up plus 12 to 20 days empty. At your rents that works out to roughly $2,900 a year of the $19,800 you net. Your $1,650 a month is probably closer to $1,400 once a normal turn year lands on it. Still a good buy. Year three is the point at which the third bath can fairly be called the reason.

brandonlee36 SP1BPRO 15

A room rental case: buying under ask by pulling room comps, then adding a third bathroom

1 reply