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Bachelors Great Location VS. 1-bedrooms in Average Location?

Nir

Nir

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Hi All,

Assuming the same city, same building condition and same CAP Rates, which of the following would you prefer buying:

10-Plex ALL bachelor units in a GREAT location.

OR

10-Plex ALL 1-bedrooms in an average location.

THANKS.
 
QUOTE (investmart @ Jan 21 2010, 08:00 PM) Hi All,

Assuming the same city, same building condition and same CAP Rates, which of the following would you prefer buying:

10-Plex ALL bachelor units in a GREAT location.

OR

10-Plex ALL 1-bedrooms in an average location.

THANKS.

If everything is exactly the same, why would you go for an average rather than a great location. The answer based on your question would be `the GREAT location`. Unless there is something you`re not telling us


It is bachelor vs 1-bedroom he?

I would think overtime the great location will show more appreciation.
 
Thanks Godfried,

"why would you go for an average rather than a great location?"

Because in most cases bachelors are more difficult to manage than 1-bedrooms due to different tenants profile and higher vacancy rate.
on the other hand the location is better and that is the source of my dilemma. would be nice to get more feedback see what other experienced investors think..
 
I disagree
I would take 1 bedroom any day
Much better tenant profile. Turnover. Collected rent.
Do you want an easy or hard life?
 
QUOTE (investmart @ Jan 21 2010, 08:36 PM) Thanks Godfried,

"why would you go for an average rather than a great location?"

Because in most cases bachelors are more difficult to manage than 1-bedrooms due to different tenants profile and higher vacancy rate.
on the other hand the location is better and that is the source of my dilemma. would be nice to get more feedback see what other experienced investors think..


If the cap rates are the same, the vacancy rate should already be accounted for. However, I cannot argue with the pain factor of dealing with renters of bachelors vs those of 1 bedrooms. No experience there.
 
Hi Godfiied
Your right in theory
In practice the pro-forma cap rate`s are often BS and don`t properly account for true occupancy and collection rates.
Same with repairs - cleaning - pretty much everything - Generally the worse the product the worse the numbers play out - and as stated info in so many listings are future estimates, potential, or industry averages they can mislead.

QUOTE (gwasser @ Jan 21 2010, 10:50 PM) If the cap rates are the same, the vacancy rate should already be accounted for. However, I cannot argue with the pain factor of dealing with renters of bachelors vs those of 1 bedrooms. No experience there.
 
QUOTE (investmart @ Jan 21 2010, 09:00 PM)
Hi All,



Assuming the same city, same building condition and same CAP Rates, which of the following would you prefer buying:



10-Plex ALL bachelor units in a GREAT location.



OR



10-Plex ALL 1-bedrooms in an average location.



THANKS.


bachelors and 1BR have the same tenant turnover .. more or less ! thus: a wash !



1BR (or 2BRs or 3BRs) are preferred as there as condo conversion potential .. NOT with bachelors !



Why not 8 2BRs ?



If price and total rent is the same .. go for the BETTER LOCATION .. as it will reduce vacancies and improve joy of ownership !



CAP rates are always estimated on a "stable" vacancy .. and vacancies (AND its ugly under-appreciated sibling: non-collection !!) are usually higher in poorer locations !!



Thus: if two properties have similar price and total annual (pro-forma) rent: BUY THE ONE IN THE BETTER LOCATION !



However, what you will find is that the one in the better location is usually more expensive.



So: what is better: property A with rent roll X and price Y .. or property B with same rent roll X but price Z which is 20-30% higher than Y ???





It depends .. see more thoughts here:



Items to consider when buying an apartment building: http://myreinspace.com/public_forums/Real_Estate_Discussion/62-14548-Buy_vs_Build.html?PageIndex=1



Multi-Family Primer in May 2009 Issue of Canadian RE Magazine:

http://myreinspace.com/rein_members_only1/Members-Only_Discussion/81-10996-Multi-Family_Primer_-_May_2009_Issue.html
 
If the city is Hamilton - be particularly careful of bachelors, and of the PROFORMA (I completely agree with Adam).

However, if the bachelors are the only `affordable` option (for example on the West side of Vancouver) vs. 1bedrooms "in the same city" (ie East Vancouver) - then there is no question - go for the bachelors


Let us know what you decide...

Yevgeni
 
I`m surprised to see Thomas`s post
He`s normally bang on but I think he`s way off on this
After reading Yev`s post I wonder if that`s why - You guys on the west coast have an easier time with Bachelor`s than in Ontario?
Here, there the next step above renting rooms to drunks
 
Thanks everyone, some good points. However, please note:

- The fact that CAP Rates are the same does NOT mean vacancy rates are the same! more likely bachelor vacancy rates are higher but purchase price lower (due to the reasons mentioned above - more headaches etc.. which does help with the price though). so bottom line, same (or similar) CAP, not the same vacancy rates.

- Also, price and total rents are NOT the same. Yes, same CAP but 1-bedroom rents are higher than bachelor rents. purchase price is higher as well.

Regards,
Neil
 
Great input Adam! I was also a bit surprised to read Thomas response for another reason:
"in hindsight the ONE change I would make in my investment career is to buy more 2BRs" (Thomas Beyer):

http://myreinspace.com/search/public_forums/Real_Estate_Discussion/62-5382-24623-CAP_Rates_and_Your_Expectation_by_Property_Type.html#24623



For the same reason I thought Thomas would also prefer 1-bdrs on bachelors. However, I understad this is not the case(?)



The following table clearly shows bachelor vacancy rates are significantly higher than 1-bdr:



City



2005 Bachelor Vacancy Rate (%)



2006 Bachelor Vacancy Rate (%)



2005 1-Bdr Vacancy Rate (%)



2006 1-Bdr Vacancy Rate (%)



Kitchener



3.6



3.9



2.6



2.9



Barrie



8.8



-



1.8



1.6



Orillia



-



4.5



1.9



4



Hamilton



5.9



6.9



4.6



4.2



Brantford



3.6



5.1



1.2



1



Ottawa



3.4



2.4



3.1



2



Toronto



4.3



3.5



3.8



3.5



Oshawa



2.2



4.1



2.7



4





Regards,

Neil
 
QUOTE (investmart @ Jan 21 2010, 09:59 PM)
Great input Adam!



I was also a bit surprised to read Thomas response for another reason:

"in hindsight the ONE change I would make in my investment career is to buy more 2BRs" (Thomas Beyer):

http://myreinspace.com/search/public_forums/Real_Estate_Discussion/62-5382-24623-CAP_Rates_and_Your_Expectation_by_Property_Type.html#24623



For the same reason I thought Thomas would also prefer 1-bdrs on bachelors. However, I understad this is not the case(?)

..


yes .. 2BRs are better because you get lower turnover (a couple usually .. often with a kid or 2 even) .. thus less transient than single.



1BR is sometimes a couple.



Bachelor is usually a single person or a financially challenged couple .. thus: the smaller the unit the higher the trunover .. ON AVERAGE



Where is the confusion / surprise ??



(I am confused !!)
 
In other words the problem is growing with a reduction in unit size. However, you only prefer 2 bdr on 1 bdr, NOT 1bdr on bachelor. That`s the confusing/contradicting part.
perhaps you were not aware of the significant difference in vacancy rate between bachelor and 1-bdr. anyway, not a big deal :-) Thanks.
 
QUOTE (housingrental @ Jan 21 2010, 09:24 PM) You guys on the west coast have an easier time with Bachelor`s than in Ontario?
Here, there the next step above renting rooms to drunks

I agree with this sentiment. Regardless of how great the location is, no one WANTS to live in a bachelor suite: that`s just where they end up.
 
Hmm maybe its only in BC then?
Anyone out there can confirm Yev`s thoughts?
QUOTE (PaulPoulsen @ Jan 22 2010, 02:45 PM) I agree with this sentiment. Regardless of how great the location is, no one WANTS to live in a bachelor suite: that`s just where they end up.
 
Is it possible to convert any of the bachelor suites into 1 bedrooms?

I`ve just done it with a 491 sq foot bachelor suite. Put up a wall with a pocket door, add a closet, make sure there`s a window and voila...you`ve got a one bedroom suite!

Just a thought.
 
Be careful with this - In certain (all ?) area`s there are minimum building code requirements of how much sq ft living room / dinning area / kitchen / hallway width`s / bedroom size / etc.. have to be. And how big of a window available to service them.

QUOTE (jlee @ Jan 23 2010, 12:46 AM) Is it possible to convert any of the bachelor suites into 1 bedrooms?

I`ve just done it with a 491 sq foot bachelor suite. Put up a wall with a pocket door, add a closet, make sure there`s a window and voila...you`ve got a one bedroom suite!

Just a thought.
 
QUOTE (housingrental @ Jan 21 2010, 09:06 PM) Hi Godfiied
Your right in theory
In practice the pro-forma cap rate`s are often BS and don`t properly account for true occupancy and collection rates.
Same with repairs - cleaning - pretty much everything - Generally the worse the product the worse the numbers play out - and as stated info in so many listings are future estimates, potential, or industry averages they can mislead.

Hi Adam, I read this as a theortical question. In practice you`re probably right.

quote name=`investsmart` date=`Jan 21 2010
QUOTE - The fact that CAP Rates are the same does NOT mean vacancy rates are the same! more likely bachelor vacancy rates

The Cap Rate is based on Net Operating Income which includes `Effective Rent`. Effective Rent is `Gross Rent minus allowances for vacancy and bad debt charges`. That is straight out of the handbook of the Calgary Real Estate Courses for realtors.

Also, I noticed in Calgary`s vacancy numbers plublished by CMCH last year (and posted here on this site by Thomas??) that vacancies for 1 bedroom units was lower than 2 bedrooms. My explanation is that 1 bedrooms are most prevalent in Downtown and also in areas along Bow Trail such as Killarny, where single oil company employees (usually better jobs) like to rent. Oilco employees are often more stable than students with room mates and non-professional couples who tend to rent 2 bedroom apartments in other parts of city . I may be completely out on this, but that is why I concluded that in aforementioned areas (downtown and along the Bow Trail) you may get better cashflow in 1 bedroom units.

This is contrary to the overall tendency that 2 bedrooms are more desirable as rental properties. Considering that Bachelors seem to have different patterns in Waterloo than in the West (Vancouver?) as I read in some posts here, renter behavior between these two area may be different as well. Consequently, answering the original question in the opening post would be dependant on what market you`re operating in. [in theory that is]
 
QUOTE (gwasser @ Jan 24 2010, 12:21 AM) The Cap Rate is based on Net Operating Income which includes `Effective Rent`. Effective Rent is `Gross Rent minus allowances for vacancy and bad debt charges`. That is straight out of the handbook of the Calgary Real Estate Courses for realtors.

If you look at the CAP Rate formula, 2 properties can have the same CAP with different vacancy rates. not sure why you struggle with that. Unfortunately it`s beyond the scope of this forum to start proving such things although in this case really straight forward.

Also, not sure why you are comparing 2 bdr to 1 bdr. when referring to CMHC. the question is 1 bdr VS. bachelors.

QUOTE (gwasser)Jan 24 2010, 12:21 AM` post=`77066`] "Consequently, answering the original question in the opening post would be dependant on what market you`re operating in. "

Good point!
Regards, Neil
 
QUOTE (investmart @ Jan 23 2010, 11:50 PM) If you look at the CAP Rate formula, 2 properties can have the same CAP with different vacancy rates. not sure why you struggle with that. Unfortunately it`s beyond the scope of this forum to start proving such things although in this case really straight forward.
Not so straight forward actually !

While an attempt is made to accurately measure vacancies it is a "best guess" effort, as vacancies come in FIVE flavours thus different people use the ones that suit their purpose:

a) empty - and ready to be rented
b) empty - but needs work to be rentable
c) empty right now - but rented for next month
d) occupied - but not paying (yet)
e) occupied and not paying (and will likely not pay, being evicted which takes weeks to months depending on province)

So, in a 24 suiter with one suite each in each category: What is the vacancy used for CAP rate measuring purposes ?
 
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