If you’re an investor who is active in the multi-family rental market have you ever wondered about the mix of units in the project and how developers who build new apartment buildings decide how many studio, one and two bedroom units? Three bedroom maybe? Or perhaps you’re considering investingone or two bedroom unitsin a newly constructed apartment building and reviewing the cash flow. More bedrooms mean more rent, right? Then why wouldn’t someone just build an apartment building with all two and three bedroom units?

 At first glance that seems like a legitimate question. If you want more cash flow then charge more rent and you can get more rent from larger units. But if you do that then you’re isolating an entire demographic. It’s nice to charge more but if the demand for three bedroom rentals isn’t all that great you might end up having an extended vacancy that’s eating up your cash each month. Instead, don’t look at the investment as how many two or three bedrooms to have but your vacancy rates.

Do the research needed to make sure what you’re investing in has a market. Large two and three bedroom apartments will be on the higher end of the rental scale and will appeal to those with higher incomes. On the other hand, studio and one bedroom apartments will typically have a wider audience. Who rents studio and one bedroom units? The single set. Smaller apartments are usually transitional units, especially if the complex is near a college campus or a shopping and entertainment district.

Studio and one bedroom units won’t command as much rent as larger ones do but you’ll likely discover that there is such a demand for the smaller ones they’re always occupied. Missing just one month of rent from a nice three bedroom tenant will be more of a burden compared to a smaller apartment.