Building a 3-Story Rental Property (Pros & Cons)

Depending on the local market and your development's density needs, a 3-story rental unit might make a whole lot of sense. Steve, Chase, and Sherida discuss their experiences building 3-story townhome communities...

Watch the full episode, here: https://youtu.be/H0g2Lf81gG8

What are you thinking about when it comes to the actual layout and the flow of your rental units? What floorplans matter to tenants?

Chase Leavitt

One thing that we've learned is that we typically don't attract the older couple. The 55 and older. But especially if we put in a 3-story floor plan, are they gonna want to lease that or rent that out? They're more likely to do a 2-story floor plan, or maybe a one-bedroom studio, if we're looking for that demographic.

But there are different things that you can learn when you understand this area and who your target renter is going to be?

Steve Olson

Something on that point. We've done some of these 3-story townhouse-style units and have a one-car attached garage with a driveway. And we would do far less of those, knowing what we know now. I'm thinking of one project, in particular, that's close to a university. And because those things are 1,800 square feet, they're big units, and they get Packed to the Rafters with college students. So that actually works pretty well. That floor plan. It creates a nightmare on parking. There's a give and take here.

When you solve one problem you might create Another thing you have to be aware of that, but I think that if you compare that to some of the other projects we've done we'd much rather have, because a three-story unit, no matter how you do that, it doesn't flow very well. It's choppy.

But there is a tenant that is purely concerned with square footage. They don't care about that as much. whereas others say, I'll take 1,300 square feet, but I want it laid out better. Right? And maybe I want a two-car attached garage instead.

Sherida Zenger

I'm thinking about that three-story model. So we did a floor plan back in the day that had a bedroom on the main level. And then you walked upstairs, and it had the family room Kitchen. And then on the third level, were two more bedrooms, two more bedrooms. And we also did a floor plan where the family room was on the main level, the second level was a master bedroom, a kitchen and then the top level was to the two bedrooms again.

And I tend to think that people really like the kitchen, the family room together. So some spin that we had to put on that was, hey, some people have used this master bedroom as another family room. And because the rooms upstairs were so large, they use one of those as a master and use the other one as an officer kids room, or they use this one on the second floor. so be cautious of what you're doing there to think of how you would maybe want it and what flows the best because I think that chopping that up was kind of unique and funny.

Chase Leavitt

Even though it is a little bit choppy and more stairs you're getting they're getting more square footage. Plus they're getting that one-car garage with not always but usually a driveway parking spot, which can be huge compared to maybe other comps within the area that don't have a garage.

Steve Olson

Yeah, yeah. Well, that's funny that you bring that up, you know I'm in a deal right now in Phoenix. It's 32 townhomes. And to get the density that we needed, it needed to be 32 townhomes.

But the city of Phoenix was driving me nuts right now. And I don't care if they're listening, drive me nuts. They came back and said, you cannot put garage doors on the parking because these are frontloaded two-car garage units are so they were designed.

You can't put those on because you don't have enough extra guest parking throughout. So I'm thinking so somebody rents this unit in this space that's like a garage that has a door into their unit. Any anybody can park there. That's the dumbest thing I ever heard, right? I had some renderings done, I want it last this gonna look right.

I talked to a couple of property managers and we said, You know what? People rent apartments all the time where they don't have a garage, and they park in an enclosed space. So we just completed we're just going to deal with it.

And we don't think it's very likely that anybody parks, you know, we're probably gonna assign it anyways, and he can't do it because we know they can park on the street too.

But that comes down to the floor plan and the city and your density. So much of this. Right dictates what you can do. It's easy to nitpick properties that you see a joke about that with my wife, we build a new house recently, and people can criticize a property. But yeah, you don't know the laws of physics and engineering and budget, right? Usually when something doesn't make sense, because you maxed out one of those. And you can't go any further, but I guess we would add the city too.