1-Bed v.s. 2-Bed v.s. 3-Bed properties ... Which go up in value the fastest?

A question property investors often ask is: “how does the number of bedrooms impact a property’s capital gain?”

Said another way, “if I buy a 3 bedroom property, will it go up in value faster than a 2, 1 or 4 bedroom property?”

Data provider, CoreLogic, recently released the data to us to determine whether this has been the case over the last 20 years.

This includes an analysis of properties in Auckland, Christchurch, Wellington and Hamilton, and comparing how the value of properties have changed both based on the number of bedrooms and the type of property.

How the data was calculated

The properties have then been electronically valued to calculate the median value of properties in January 2000 and then again today.

It’s important to note that any properties that have newly build over the last 20 years have been excluded from the analysis.

This protects against the risk that larger or high-spec homes built in recent years skew property values higher.

2-Bedroom apartments go up in value faster than 1, 3 or 4 bedroom apartments

The data shows that in some cases, the number of bedrooms has had a consistent impact on the growth experienced by properties in our four sample cities.

For instance, in Auckland, Christchurch and Wellington, the median value of 2-bedroom apartments increased 30.1 – 37.5% faster than the price of a 1-bedroom apartment.

In each of these three cities, 2 bedroom apartments had the highest capital growth rates compared to 1, 3 and 4 bedroom apartments.

That suggests that historically, on average 2-bedroom apartments have made a better long-term investment than apartments with another number of bedrooms.

In each of these three cities, 2 bedroom apartments had the highest capital growth rates compared to 1, 3 and 4 bedroom apartments.

That suggests that historically, on average 2-bedroom apartments have made a better long-term investment than apartments with another number of bedrooms.

2-bed flats are preferrable to 1-bed flats. But after that, there's no consistent trend

But, in other cases, the data is less consistent.

4-bedroom flats increased the fastest in Auckland, whereas in Wellington it was 1-bedroom flats, 3-bedroom flats in Christchurch and 2-bed flats in Hamilton that appreciated most quickly.

Nonetheless, we can still spot trends.

2 bedroom flats in Auckland and Hamilton appreciated significantly faster than 1-bed units in the same cities, 31.3% and 52.8% faster respectively.

And while 1 bedroom flats grew faster in Christchurch and Wellington, they did so at a much slower rate, just 9.2% and 1.5% respectively.

While this is a weaker trend, if I were considering two properties – the same in all respects, except one has 2 bedrooms and the other had 1 – I’d be more comfortable investing in the 2-bed property.

It’s important to note that while small differences in growth rates can seem minute, they can also have a significant impact.

Take the 1-bedroom Auckland flats mentioned above. Since January 2000 these properties grew in value on average by 4.85% annually.

On the other hand, the median-priced 2-bed flat grew in value by 6.37% on average each year.

Had a property-purchaser of a 1-bed flat invested the same amount of money in the average 2-bed unit, they would be more than $205,000 wealthier today.

Take this article with a grain of salt

But before you start looking at properties with only a specific number of bedrooms, there are some limitations to this data.

We can’t use the number of bedrooms as an indicator for future capital growth in stand-alone houses because there is no discernible trend.

In these cases, an investor looking for long term capital gains is better looking for other factors: durability, location and the property’s relative price.

Similarly, we can’t tell from this data whether the increase in value is caused by the additional bedroom alone.

For instance, did 2-bed apartments increase in value faster than 1-bed apartments because of the additional bedroom, or was it because we can assume 2-bedroom apartments are larger than 1-bedroom apartments?

Having said that, in the cases of apartments, flats and townhouses, it does appear that 2 bedrooms are better than 1. In other cases, the number of bedrooms doesn’t seem to matter much at all.

Write your questions or thoughts in the comments section below.