I bought a 4-bed near UNM six months ago and I keep going back and forth between holding it five years or converting the layout before year two

Your math is clean and the two paths are real. Let me add some texture to each one before getting to the thing worth confirming before you spend anything.

Holding as-is and repricing in August

You're negative $278 now on a $1,618 payment against $1,340 in rent. The senior rolling off in May complicates this because you can't fill that one room mid-lease without the other three agreeing, unless your lease language gives you that right. Check the actual lease language on subletting and room reassignment before May arrives. If you can backfill one bed at $400 to $420, you close most of that gap without touching the building.

When everyone rolls off in August, you get a clean slate on a whole-unit relisting. The question is whether $1,650 to $1,750 on a four-bed whole-unit lease is achievable near UNM right now. I genuinely don't know what the comparable rents are running in that zip code today, and you should check Zillow, Rentometer, and a local property manager's current comps before assuming the number.

The conversion path

Your renovation math is correct. At $14,000 to $18,000 in and a $462 to $542 monthly improvement, you're looking at 32 to 39 months to recover the cost, not counting any financing on the reno itself. That assumes all four beds stay filled. One vacancy at $540 drops your monthly by that amount immediately, and a 25% vacancy rate is not unusual in student housing during transition months.

The enrollment concern you raised about UNM is worth taking seriously. The strategy guide for student housing flags that choppy enrollment at smaller or less-selective institutions is a genuine demand risk, and UNM has had some recent headwinds. Before committing $16,000 to a by-the-bed conversion, I'd want to know what occupancy rates look like on individually-leased student rooms in that specific corridor right now, ideally from a local PM who works that market.

One thing worth getting clarity on: a licensed contractor should confirm whether the fourth entrance and third bath require a permit and inspection in Bernalillo County, because that affects both your timeline and your legal rental status per bed. That's a question for the contractor and possibly a local real estate attorney, not something to assume.

What does your current lease actually say about replacing a departing roommate mid-term?

The assumption doing the most work in your reno math is that you fill all four beds at $520 to $560 immediately after conversion, with no lease-up gap and no months sitting at three beds while you work. If you carry even six weeks of a vacancy on one bed post-reno, that recovery period stretches closer to five years, not three and a half.

The by-the-bed structure does shift credit risk in your favor. Four individual leases means one default does not blow up the full rent roll, and parental guarantees are common in this market. That is real. But the conversion to individual lease structure does not require the physical reno. You can restructure to by-the-bed on the existing three tenants when the senior rolls off in May, get one new roommate under a separate agreement for that room, and test the market's willingness to pay individual rates before you commit $14,000 to $18,000 to a contractor. That gives you six months of real data on what UNM students in that zip code will actually sign for, rather than what a proforma says they will.

The risk you have not named is the lease subordination problem. When the senior leaves in May, you have three tenants on a single lease through August. Adding a fourth on a separate by-the-bed agreement while the original lease is still in force creates a layered tenancy structure with potential conflicts over shared space, liability, and what happens if the original three refuse the new arrangement. A landlord-tenant attorney in New Mexico needs to look at how you transition that, not because it is impossible, but because doing it wrong exposes you to a wrongful eviction claim or a lease dispute that costs more than the reno. That is a licensed professional question; get that answer in writing before May.

On UNM specifically, the enrollment concern from the guide is real. UNM is not a flagship with the demand floor of a Big Ten school. It has had choppy enrollment. That should factor into how much capital you sink before you have confirmed per-bed demand at your target numbers.

What is your contractor's scope for the third bath and fourth entrance, and is the $14,000 to $18,000 range contingent on anything you haven't permitted yet?