The property world is always changing, and right now, co-living is shaking things up. More than just a trend, it’s a smart investment opportunity that redefines urban living. Increasingly, people seek affordable and flexible housing, especially in large cities.
So, What Exactly Are Co-Living Homes?
Picture private bedrooms that have access to shared spaces like huge kitchens, comfy living rooms, and perhaps dedicated spots for working or hanging out. With a focus on building a community, co-living homes usually have features or events that encourage residents to interact with one another. Professional management companies handle the nitty-gritty, making life easy for residents and investors. For investors, this means potentially higher yields and steady demand in key city areas.
The buzz around co-living property is strong. But making a smart investment needs careful checking. At The Harmony Group, we’ve helped investors leverage diverse property sectors for over 15 years. We know that getting into a new market demands a close look. This post will walk you through five key steps to properly evaluate co-living investment opportunities and see if they are suitable for you.
Step 1: Know Your Audience and Location
Every successful co-living property starts with understanding who will live there and where they want to be. Who are the perfect tenants for co-living housing?
Who’s Moving In?
- Millennials & Gen Z: They love co-living because it’s more affordable than renting apartments or houses in expensive cities. They also value flexible leases and a built-in community, especially when moving to a new place.
- Students & Young Professionals: They need to be close to universities, major business hubs, and public transport. Convenience and a sense of belonging are huge for them.
- Digital Nomads & Remote Workers: This group is growing! They look for reliable internet, furnished places, and a ready-made social scene to avoid feeling isolated.
Where Do They Want to Be? (Location, Location, Location!)
- City Hotspots: Big cities like Sydney, Melbourne, and Brisbane are perfect for co-living in Australia. Housing costs are high, and demand for shared living is consistent. Make sure to do your homework on local rental vacancy rates, average rental yields, and population trends. This tells you if the market is right.
- Close is Best: Tenants want easy access to schools, job centres, public transport, and fun places to eat or hang out. Keep that proximity in mind when narrowing down your options to ensure you’re picking the right spot.
- Amenities Matter: Scout for nearby cafes, parks, shops, gyms and co-working spaces. All these extra amenities boost a location’s appeal, especially when trying to attract the younger demographics who love such amenities.
Step 2: Look at the Business Model and Management
Investing in co-living homes isn’t merely about buying a property and renting it out. It’s kind of closer to running a hospitality business. That’s why you need the best property managers to help you run it (more on this later!)
How Does It Make Money?
You’ll earn rent per room. With a typical three-bedroom house in Melbourne, you’ll likely earn $500 per week. Convert it into a co-living space, and each room could earn you $300 rent each week. Your rental income would be $900. You can also add other services, like laundry or special events, for extra income.
How about running costs? Be thorough when looking at these costs. Include management fees, utilities (often bundled), regular cleaning, maintenance, and community event budgets. Co-living properties might show higher gross yields, but they also have higher operational costs, so be sure to crunch the numbers before locking it in. See if the extra effort in running a co-living home is worth the return.
Who’s Running the Show? (Management is Key!)
Consider hiring a dedicated co-living management company or professional operators. They know the ropes better than a standard property manager. Still, check their experience. Can they find tenants easily? Do they know how to build a good community, handle tenant problems, and keep the property occupied and well-maintained? Those skills matter when running a co-living housing in Australia.
If you wish to run it by yourself or an in-house team, leverage apps for bookings, payments, and community chats. This makes things smoother.
Step 3: Check Out the Design and Perks
People choose co-living properties for more than just a place to sleep. They want the experience. So, here are more factors to consider when assessing a co-living investment:
Property Design & Layout
Here are some questions to ask when checking a co-living property design & layout:
- Are the private bedrooms (maybe with an ensuite?) good quality and functional?
- Are the shared kitchens, lounges, and workspaces well-designed and inviting?
- How well is the space used?
- Can you alter the layout to create more rooms and boost profits?
- Does the existing layout naturally encourage people to meet and interact?
- Does the building meet all local codes and specific co-living rules?
Must-Have Amenities
A profitable co-living property has all the essential amenities and more. Furnished rooms, professional cleaning for shared areas, and easy laundry facilities are expected. Fast, reliable internet can be a deal-breaker for co-living in Australia.
Top-notch security features give residents peace of mind. Extra amenities also make the space shine. These include gyms, cool common areas, rooftop terraces, or quiet zones.
Step 4: Dig into the Money and Risks
Every investment needs a close look at the numbers. Co-living properties are no different. Deep dive into the finances to have a clear view of any risks.
Crunch the Numbers
- Yields & Returns: Calculate your net yield. Factor in all operating costs, management fees, and realistic times when rooms might be empty. Then, compare this number to similar investments to see how co-living fares.
- Vacancy Rates (Co-living Specific): Tenants in co-living housing often move more frequently than in traditional rentals. Prepare for higher turnover costs and potential income gaps. See how these numbers can impact your returns.
- Set-Up Costs: Expect higher upfront costs for furnishing and setting up shared amenities. This number could skyrocket if you need to significantly alter the layout of a traditional property when converting it into a co-living home.
- Exit Plan: What if the co-living model doesn’t work out or the market changes? How easily can you switch the property back to regular rentals or sell it? Looking at the numbers for the exit plan helps lower your risks.
Legal & Market Risks
Here are some questions to ask to evaluate the risks of investing in co-living:
- Are co-living homes even allowed where you’re looking?
- Are you aware of the rules for multi-tenant living in your target location?
- Is your chosen market getting too many co-living properties?
- How would a recession affect demand for co-living?
Step 5: Think Long-Term and Future Growth
Smart property investing looks beyond today’s returns. You should also need to create a long-term vision for your asset and its market.
Looking Ahead
Is co-living in Australia here to stay or just a fad? Most experts see it as a long-term trend, thanks to changing demographics, continued city growth, and flexible work styles. Still, as mentioned, you should ask whether the property can easily be changed back to traditional multi-family housing or individual apartments if needed.
Scaling up is worth looking into, too. If your first co-living property investment goes well, are there opportunities to add more to your portfolio? Can your system be easily copied?
Sustainability Matters
It’s also about investing in a sustainable, community-focused future of urban living. So, consider energy efficiency and waste management. Sustainable practices appeal to tenants and can save you money. Lastly, ask yourself, “Does the co-living space truly create a good community and support responsible city living?”
Let Us Help You Assess a Co-Living Investment Further
Evaluating co-living investment opportunities calls for a mix of sharp market insight, a grasp of how these places run, and solid financial planning. While the potential for higher yields and tapping into a growing market is exciting, the unique nature of co-living properties demands thorough checking.
If you’re keen to explore this growing sector, The Harmony Group is ready to help. We offer the strategic advice and due diligence expertise you need to penetrate the co-living market in Australia confidently. Let’s discuss how co-living homes could help you generate wealth and fit into your broader property investment strategy.
