At the last house hacking class that I taught, someone asked me, “How much impact do private bathrooms have on rent when renting it out room by room?”

My response, “I have no idea! Sounds like a great thing for you to research and tell me.” And he did!

Below is an analysis by Austin Allan on how much a bathroom is worth when it comes to renting out room by room. If you have questions or comments, leave them below and I’ll make sure Austin sees them.

Thanks Austin!

—- Begin Austin’s guest post —-

After talking a little bit at the end of the house hacking class you gave this last week I began to really think about what a bathroom is worth when renting a room out. I am trying to put together the best plan I can so that when I am able to purchase that first property I have it optimized as far as rents and location goes.

I decided to do a little project to see if could figure out what a bathroom is worth here in the Denver market. I analyzed 50 room for rent posts on Craigslist and ran a linear regression to see how a private bathroom effected the cost of a room rental. Here is a link to the spreadsheet. This is by no means the most comprehensive analysis that could be done but it does provide at least some insight and can help with future decision making. 

The factors that I used for collection data were:

• Cost of the room
• Private bathroom,
• Laundry in the unit
• Distance from downtown
• Access to the light rail.

There are notes in the spread sheet that go into more detail on each of the variables. Given the inconsistent nature of CL posts many had to be excluded because of incomplete information.

After running the regression several interesting things stood out to me.

1. Laundry and light rail access are worth very little when it comes to the value of a room. They both had a negative value, only indicating that there was no consistency in the pricing of rooms which had those features. Neither of those would ever decrease the price of the room so the variable is not very helpful in determining the value of a room.
2. The change in price as you move further away from downtown is much smaller then I expected it to be. I think that there a couple of explanations for this; Denver is not a very large metropolitan area so even when you live in an outer suburb of the city you are still less than 20 miles from the downtown area. When compared to larger metropolitan areas such as LA, New York, or Houston the sprawl is much larger and people commute from much greater distances. I also believe that the majority of people commute to work via car and not public transportation, so a drive of less than 20 minutes should talk around 30 minutes or so with a consideration for some light traffic. I believe that for most people this is an acceptable commute time so the cities that are outside of the downtown area still remain a desirable and reasonable place to live even when working downtown.
3. The more important takeaways from the data are that bathrooms appear to be worth between $100-$150, with consideration to the standard deviation. With more rental data I could surely get to a more accurate number but I think considering the fairly small sample size this number seems pretty close to me. The intercept also indicates that as long as you have a room to rent you should be able to get at least $700 a month for it, no matter where it is or what you have to offer.

There are many factors that I could not account for that could change the price of the room:

• The age of the home I believe could be a pretty big factor when determining the value of a room. A new build should be able to charge a premium vs. a house that is 100 years old. However, the older homes tend to be in neighborhoods that are closer to downtown so it’s not so easy to tease that information to determine exactly what kind of impact age has.
• The size of the room being offered should have an effect on the price as well. Several of the posts had masters for rent which had the bathroom and these are worth more than a room with an unattached bathroom. Square footage of an individual room is hardly ever listed so trying to determine the true value of a larger room would be hard to do.
• Some neighborhoods are more desirable to live in so they do command a premium even while offering only basic accommodations.

All and all I think this does help reinforce some of the decisions that are made in consideration to where to purchase, how big of a property, and how much one can charge for individual rooms. I think that there is a lot more research that could be done to learn more insights into the market of individual room rent. I would love to hear your thoughts on the findings and what else you think could be interesting to look further into.