New York City Insights

For the same purchase price, a Rockaways SRO generates more rent than a Gramercy Park 1BR

Microrentals are just SROs by another name (but with fancier amenities)
By Constantine A. Valhouli  |  June 28, 2018 2:59 PM

Hotel Lawrence, Beach 116th St., via Bridge & Tunnel Club
It's only ugly until you consider the financail statements.

Just for fun, our team did an analysis of whether a single-room-occupancy (SRO) property in the Rockaways can actually generate more rent than a 1BR in Gramercy Park, for the same purchase price.

SROs are the original micro-apartments

We should note that SROs and micro-apartments are opposite sides of the same coin – although SROs are the original idea, and micro-apartments are the updated version. From a design perspective, SROs are small rooms with shared kitchens and bathrooms. On the other hand, the newer micro-apartment buildings often have a significant density of smaller apartments with tiny kitchens and bathrooms, but with considerable building amenities (which SROs typically lack. Along with regular plumbing and electricity, as times).

SROs and microrentals are highly profitable on a per-sq.ft. basis

However, from a developer's point of view, SROs and micro-apartments both are very attractive because they can generate more revenue – and often higher revenue – than a conventional building. How does this work? On one hand, there is less space lost to common areas in SROs. There is also usually a gap between asking price and price per square foot.

For example, in a SRO, a single 300sq.ft. room might rent for $900 per month – but this works out to $27/sq.ft. annually. If you have five such 300sq.ft. rooms (and assume about 600-700 additional sq.ft. for bathrooms and kitchen and hallways), it would generate 5x$900, or $4,500 per month for a typical 2,200sq.ft. house.

On the other hand, that house might only have two 'official' bedrooms, and if it were rented as a 2BR, it might only generate $1,800-2,200/sq.ft. per month, or $12/sq.ft. annually.

Using this approach, a 1BR in Gramercy Park might rent for $3,500/mo. – or, given that it is a 550sq.ft. apartment, $76/sq.ft. annually). That same apartment would likely sell for about $645,000 (or $1,172/sq.ft.).

Meanwhile, that same price would purchase a 6BR two-family (about 2,000-2,400 sq.ft.) in parts of the Rockaway peninsula. Even assuming just renting each bedroom out as part of an SRO at $800/mo., this would generate $4,800 per month. If the basement and attic were turned into, say, four more rentable rooms, this would then generate an additional $3,200 per month, for a total of $8,000 per month.


So, yes, an SRO in the Rockaways would generate more rental revenue ($6,500-8,000/month) than a 1BR in Gramercy Park ($3,500/mo.) bought for the same price. And that's not even taking into account the monthly maintenance fees of over $1,000 for the Gramercy co-op.