📦 Turning Smaller Spaces Into Bigger Returns with Microunit

Happy Tuesday, Do Something readers! We hope your holidays have been safe and enjoyable. 2026 will be a great year.. Some incredible opportunities are already surfacing. Until then…. let’s keep educating one another.

Last week, we kicked off this series with ADUs and how to add one more door on the same piece of dirt.

This week, we are moving inside the building and looking at a strategy that has quietly reshaped a lot of urban markets:

Microunits.

If you have ever walked a building and thought, “These units are huge for this location,” or “We could carve one more unit out of this floor,” microunits might be your play.

In this issue we will cover:

• What microunits are and why landlords use them

• How microunits can improve rent per square foot and total income

• Real world style examples of microunit conversions and new builds

• Design and livability principles that keep residents happy

• Risks, trade offs, and when microunits make sense

🧱 What is a microunit, really?

Definitions vary by city, but in practice a microunit is:

Most microunits are:

• Studio or junior one bedroom

• Located in walkable or transit rich locations

• Paired with strong building amenities or neighborhood amenities

From a landlord’s perspective, the core idea is simple:

Smaller private spaces that lease for less total rent than a larger unit, but at a higher rent per square foot and often with more total doors in the same building.

💰 Why landlords like microunits

Microunits can be powerful in the right context because they:

• Increase the number of units you can fit in a building

• Often achieve higher rent per square foot than conventional units

• Attract tenants who care more about location and lifestyle than size

• Provide more diversification of income (many smaller units instead of a few large ones)

If the building and location are right, this can translate to:

• Higher total rent on the same envelope

• Better risk spreading across more leases

• A more attractive exit story for buyers who want stable, bite-sized units

📊 Example 1: Converting large one bedrooms into microunits

For many years I worked at JP Morgan at 4 New York Plaza. While I preferred to live in North New Jersey, several of my coworkers preferred the city life and so they lived in tiny spaces in New York City. In many cases, their landlords lived across the hall from them as well, in what was basically a split unit.

Here is a simplified conversion example that reflects what a lot of urban owners face.

You have a small building with:

• 4 large one bedroom units

• Each is 750 square feet

• Each rents for 1,900 per month

Total monthly rent today:
4 units x 1,900 = 7,600

You bring in a designer and contractor and reconfigure each floor:

• Instead of 4 large one bedrooms, you create 6 microunits

• Each microunit is about 450 square feet

• Each microunit rents for 1,500 per month

Now, post conversion:

• 6 units x 1,500 = 9,000 per month

You have:

• Increased total monthly rent by 1,400

• Added two more doors, which spreads vacancy risk

• Created smaller, more affordable entry points for renters who want the location but not a big unit

From a rent per square foot perspective:

• Before: 1,900 on 750 sq ft is about 2.53 per sq ft

• After: 1,500 on 450 sq ft is about 3.33 per sq ft

You still need to weigh:

• Construction cost

• Lost rent during renovation

• Higher ongoing turnover or management complexity

But you can see how microunits can unlock income in a building that is “over sized” relative to the renter pool.

🏙️ Example 2: Ground up microunit building in a prime location

Now imagine a ground up infill site in a walkable, job rich area.

Option A: Conventional units

• 30 standard one bedroom units at 650 sq ft

• Average rent per unit: 2,200

• Total monthly rent: 66,000

Option B: Microunit strategy

• 40 microunits at 400 sq ft

• Average rent per unit: 1,850

• Total monthly rent: 74,000

Under Option B you have:

• 10 more leases spreading risk

• Lower individual rents that may be more affordable in an expensive market

• Higher total income and a story that appeals to the “attainable housing” narrative

On a per square foot basis, the microunits are again doing more work.

As a landlord or sponsor, you still underwrite construction cost, operating cost per unit, and leasing assumptions, but this illustrates how microunits can increase income on the same site.

🛋 Design rules that make microunits livable, not cramped

Microunits work when they feel smart and intentional, not like someone chopped up a building to squeeze rent.

There are a few design rules that show up in successful microunit projects:

1. Light and volume are non negotiable

   • Large windows for daylight

   • Higher ceilings where possible

   • Simple sightlines so you see across the whole unit when you walk in

2. Built in storage

   • Floor to ceiling wardrobes

   • Storage above kitchens, bathrooms, or beds

   • Hooks, shelves, and niches that reduce the need for bulky furniture

3. Multi use zones

   • A single area that can function as living, working, and sleeping with a Murphy bed or convertible sofa

   • Built in desks or ledges that double as dining and work space

4. Efficient kitchens and bathrooms

   • Two burner cooktops, smaller but quality appliances

   • Thoughtful layout that allows one person to use the space comfortably without wasted steps

5. Strong building level amenities

   • Shared lounges, co working areas, roof decks, bike storage, fitness rooms

   • Laundry rooms if in unit laundry is not feasible

The idea is that residents accept a smaller private box because the building and neighborhood offer extended living space.

👥 Who actually rents microunits?

Microunits tend to appeal to:

• Young professionals who value location and walkability

• People in life transitions - first job, new city, post breakup, short term work assignment

• Students and medical staff near universities or hospitals

• Commuters who need a city base during the week

What they often have in common:

• They prefer a lower all in rent in a prime location over a bigger place in a secondary location

• They are willing to trade storage and private space for lifestyle and convenience

• They often stay one to three years, then “graduate” into a larger unit or home

From a landlord lens, this means:

• Leasing velocity can be strong if you hit the right rent point

• Turnover may be slightly higher, so systems and management need to be dialed in

• Marketing should emphasize experience, convenience, and community, not square footage

⚠️ Risks and trade offs you need to respect

Microunits are not a magic solution. A few key risks:

1. Regulation and minimum unit sizes
   Many cities have minimum unit size rules or specific microunit guidelines. You cannot simply draw tiny boxes and expect approval. Always check local code.

2. Overestimating rent or demand
   Just because small units downtown get high rent per square foot does not mean every neighborhood will support that. You need real comp data for studios and small units in your submarket.

3. Higher management intensity
   More units mean more leases, more maintenance calls, and potentially more turnover. Your property management needs to be competent and adequately staffed.

4. Noise and privacy complaints
   Smaller units in closer proximity can generate more noise issues if sound insulation is not done well. Spend the money on good walls and doors.

5. Lender and appraiser perception
   Not every lender or appraiser is comfortable with a building full of very small units. Some may discount the asset or require a stronger track record. This is improving but still worth considering.

🧭 When microunits make sense for your strategy

Microunits tend to work best when:

• Land and location are the main value driver

• There is strong demand from singles, students, or young professionals

• The neighborhood has built in amenities - cafes, gyms, transit, parks

• You can design for quality, not just quantity

• You have management in place that can handle higher unit counts

They may be less suitable if:

• Your market is family heavy and everyone wants multiple bedrooms

• Zoning is restrictive and anti density

• Construction costs are very high while rents are relatively low

• You or your manager are not set up for a more operationally intensive building

📌 So think about this:

• Microunits are not about squeezing people into boxes. They are about right sizing units for renters who prioritize location and price point over raw square footage.

• Done well, microunits can increase total income, improve rent per square foot, and spread risk across more doors.

• The success of a microunit strategy lives and dies on design quality, tenant profile, and location. Poorly designed small units in the wrong area will sit.

In the next part of this newsletter series, we will move into redevelopments and how to reposition tired properties into resilient, income producing assets that are set up for the next cycle.

If you have a building you are considering for a microunit or redevelopment plan, reply to this email with a short summary. We may turn a version of it into an anonymized case study in a future issue. Who knows!

 🙏🏾 Thanks for reading!

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Stay blessed and Do Something!

— Dami Fadipe