2 or 1 Bedroom Unit?

Hi guys, was looking into purchasing my first investment unit in the Auckland area. Obviously a 2 bedroom will have an advantage in terms of rent but is there a significant difference in terms of the demand to rent? Would love to hear from someone with experience with both 1 and 2 bedroom rentals.
Also are there other major differences such as quality of tenants or length of occupying? And do 2 bedrooms traditionally see a better capital gain long term? Basically how big really is the difference between a 1 and 2 bedroom? Cheers

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Originally Posted by rocketman11

Hi guys, was looking into purchasing my first investment unit in the Auckland area. Obviously a 2 bedroom will have an advantage in terms of rent but is there a significant difference in terms of the demand to rent? Would love to hear from someone with experience with both 1 and 2 bedroom rentals.
Also are there other major differences such as quality of tenants or length of occupying? And do 2 bedrooms traditionally see a better capital gain long term? Basically how big really is the difference between a 1 and 2 bedroom? Cheers

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In the medium term I believe there will be a strong move towards 2 bedroom houses or units or apartments, but only if they have 2 bathrooms.
This gives them the ability to rent out to 2 couples, or families of 4 or 5. I think the days are over for 1 bathroom for 4 or more people. The other consideration is whether the 2 bedrooms are of comparable size, noone wants to take the small one. There is a significant demand for 1 bedroom, no carparks, in the centre of Auckland for students, and the return is in double digits. Maybe not capital gain longterm, but excellent positve cash flow.

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Originally Posted by rocketman11

Hi guys, was looking into purchasing my first investment unit in the Auckland area. Obviously a 2 bedroom will have an advantage in terms of rent but is there a significant difference in terms of the demand to rent? Would love to hear from someone with experience with both 1 and 2 bedroom rentals.
Also are there other major differences such as quality of tenants or length of occupying? And do 2 bedrooms traditionally see a better capital gain long term? Basically how big really is the difference between a 1 and 2 bedroom? Cheers

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Every property is different so you need to work out cashflow, rental occupancy, potential for capital growth for each property. Check out my spreadsheet that I use

I think their is more of a market for 2bedroom and they are easier to rent but the flipside of that is 1beds you will get a higher return as long as you can keep them occupied. You need to work out if you will manage them or someone else.

I heard of good story where an investor had a few 1 bedroom apartments in the city he managed them himself and he wrote into the tenancy agreement that the old tenant needed to find the replacement tenant before they left. He only had 3 days in five years where the apartment was unoccupied, he was getting a 11% cash return.

The other thing to be aware of is the size of the place you are buying and how much banks a willing to lend. If it <40m2 banks will require about 40% deposit and 20% on other apartments.

Hey mate, thanks for the reply (and the spreadsheet)
I reason I am keen for a one bedroom is that I would be able to finance it completely myself and I would be wary of buying something bigger on a mortgage (its just how I've been brought up)
Would you that in general 2 bedrooms see a higher capital return? I guess the appeal of a 2 bedroom is that it also fits into the 'first home buyer' category.

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Originally Posted by stanace

In the medium term I believe there will be a strong move towards 2 bedroom houses or units or apartments, but only if they have 2 bathrooms.
This gives them the ability to rent out to 2 couples, or families of 4 or 5. I think the days are over for 1 bathroom for 4 or more people. The other consideration is whether the 2 bedrooms are of comparable size, noone wants to take the small one. There is a significant demand for 1 bedroom, no carparks, in the centre of Auckland for students, and the return is in double digits. Maybe not capital gain longterm, but excellent positve cash flow.

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Excellent points lou,
I guess with one bedroomers, location becomes that much more important with regard to things like university, hospitals etc... I think perhaps the alternative for me could be a 2 bedroom in a place a bit further out from Auckland city.

Thanks for the reply

Its not a matter of one or two bedrooms when it comes to capital gain, it is more about location and the style of the building.

It can be hard for an apartment to have capital gain because there is no land associated with the building. Land is a fixed in supply so you can generate more land if there is an increase in demand. However if there is demand for apartments you can build another apartment building.

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Originally Posted by KW

Adding my 2c worth.

There is an increasing number of single person households forming (unmarrieds, divorced, elderly, etc) however, this is not really translating into demand for single bedroom places - most people still want a spare bedroom for guests, or just for extra storage. So I would be inclined to go the 2 bedroom route rather than a 1 bedroom.

If you buy in the city you will limit your capital gains as these apartments do not age well, and your unit will always be in competition with the more recently built units. Supply is unlimited as they can just keep on building them. If you buy in the city only do so for income purposes (ie. positive cashflow) and not capital gains. Although be aware that rental growth may also be constrained due to that increased supply and competition with newer units.

Better to buy in the suburbs close to transport, shops, schools, and get something that has some character and will age well architecturally. Supply in the suburbs is more limited as planning and heritage restrictions limit the amount of infill housing, building heights, etc. Tenant demand will be higher as you appeal to a wider market, and capital gains will be similar to what the houses in the same area experience. Its likely your rates and body corporate fees will be lower in the suburbs as well, minimising your costs.

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Hi KW,
Thanks for the reply. Very good points, especially with regard to the whole bedrooms situation. Also agree with the point about suburbs, have been keeping a look out. It seems that with a lot of the renters moving into the first-home buyers category (low interest rate et..) that the price of the two bedroomer seems to be increasing substantially. Perhaps some 'up and coming' suburbs which are further out from Auckland could be good as they may see the greatest capital gain.

Once again thanks for the reply

Hi rocketman, how did you go?
We see a lot of demand for 1 bedroom properties and we don't see many units and minor dwellings under $300 any more.
There are a larger number of 2 bedroom properties available and these often attract professional couples or a family with one child. We would recommend 2 bedrooms if you can afford it.
Good properties have high tenant demand across most of Auckland, so I wouldn't be worried about purchasing outside of the CBD.
Check out the Unit Titles Act if looking at units and remember to factor in body corporate fees.