Price Per Bedroom - Another Tool for Analyzing Rental Properties

Yesterday, while analyzing some local houses to determine their potential value as rental properties, I noticed an interesting trend. Out of about ten houses that I crunched numbers on, only two seemed capable of producing any positive cash flow. What did they have in common? They were the only houses with four bedrooms. The rest had either two or three.

This got me to thinking that when determining rental prices, the price per bedroom is a pretty important number to know. The price per square foot does not matter nearly as much for a rental house. In fact, some of the three bedroom houses were actually larger than the four bedroom houses, but they couldn't command as much rent.

There are various places online where you can go to determine rent, and you can also check your local newspaper. I think you will find that this trend is generally true. The number of bedrooms has a large influence on rental rates. As investors then, we should remember to look at the price per bedroom as a quick way to compare properties and narrow down the number of potential deals before we crunch all the numbers.

Similarly, multiple units, like duplexes and triplexes, typically cash flow more easily than single-family homes. I personally prefer single-family homes because I believe that they are easier to keep good tenants in long-term. However, it is interesting to note that the more functional a property is, in terms of the number of bedrooms or the number of units, the better its value is to us as investors.

Until my next post,

James