Why Co-Living Should Be Part of Your Rental Property Portfolio

What Is Co-Living?

Serious multifamily real estate investors recognize the wisdom of diversifying the different types of rental properties they own across the full spectrum of living arrangements to give them a presence in each rental market segment. For a long time, that meant offering rental units and lease terms tailored to the needs of:

• – young individuals and couples not yet ready for or interested in home ownership
• – older people and empty-nesters downsizing from a larger home
• – roommate groups renting together, with all of them named in the lease

In recent years, a new market segment has emerged—individuals looking to rent a bedroom in an apartment or house with others, each of whom has their own lease. This kind of living arrangement essentially is what the buzz term “co-living” refers to.

The specific types of rented accommodations in demand in all of these market segments, including the co-living market, are widely varied—single family homes, smaller multifamily buildings, garden apartment complexes, high rise buildings, —you name it! 

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What Is the Demand for Co-Living?

The U.S. market for co-living accounts for roughly 5% of the global co-living market, but is growing and expected to continue growing for a number of reasons. The vast majority of people in this country seeking co-living opportunities are young adults—millennials and zoomers. 

The number of young adults living alone has been decreasing for nearly two decades, many of them forced by high student loan payments and high rents into living with roommates.

But there is more at work here than economics. Even prior to the Covid-19 pandemic and the resulting increase in people working from home, there was an increasing demand, especially among younger adults, for flexible work schedules and remote work. “Work/life balance” has become a mantra for many unwilling to sacrifice personal time and interests for difficult commutes and all-consuming jobs. 

Covid shutdowns proved that many jobs don’t require a physical presence, and the related rise of the digital nomad is fueling a desire among young professionals for geographic mobility and a lifestyle untethered from the traditional office environment. 

These demographic and lifestyle trends are drivers of change in the rental housing market, specifically creating the increasing demand for co-living. 

What Co-Living Tenants Want

People interested in co-living want:

• – flexible lease terms that don’t require a 12-month commitment and allow them to vacate the premises without paying a penalty
• – no additional rent liability when a co-tenant departs
• – the financial and companionship benefits of having “roommates” without the hassle of finding them on their own
• – furnished accommodations 
• – services such as cleaning, stocking the kitchen with essentials, etc.
• – perhaps common co-working spaces and other shared areas

In many cases, landlords will be able to provide these without expanding their portfolio of rental properties.

Implications for Landlords

The demand for co-living is less a demand for a particular type of rental housing and more a demand for a particular type of lease. That allows landlords to enter the co-living market without necessarily having to acquire new properties. 

The relative scarcity of co-living opportunities at this point and the additional services provided permit landlords offering them to charge premium rents. Current co-living rents in the U.S. are as much as 38% higher than those for traditional rental housing. 

Co-living also gives landlords more control over tenant selection, as tenants are not choosing their co-tenants on their own.

On the downside, landlords who own rent-stabilized rental properties may not be able to charge enough to provide everything co-living tenants are looking for. There also may be legal obstacles to co-living in cities that have strict regulations regarding single room occupancy (SRO) rentals. Landlords who write individual leases for co-living tenants rather than one lease signed by all can easily run afoul of SRO laws.

Additionally, having more tenants per unit puts more stress on the physical facilities and can increase maintenance and repair costs. Co-living also means more tenant turnover and a greater property management workload.

Getting Started

There are a number of co-living models and variations on the co-living concept. That’s essentially what co-living is—a concept, one that can be applied in whatever ways make sense. 

In other countries, where there is far more experience with co-living than is the case in the U.S., co-living companies are common. They specialize in acquiring properties (such as motels, large single family homes, former schools, etc.) and converting them for co-living, with shared kitchens and spaces for work or recreation. Co-living companies may also operate purpose-built co-living properties designed with private bedrooms and bathrooms as well as communal spaces.

Reading up on what some of those co-living companies are doing will make it easier for you to decide whether and how to add co-living to your rental property portfolio.

Get in touch today to find out how we can help.