HEARD ABOUT THE CO-LIVING INVESTMENT PROPERTY?

Co-Living Investments: Cash Flow Opportunities and Challenges for Property Investors

The real estate landscape is constantly evolving, with new trends emerging to meet changing demographics and lifestyle preferences. One of the most talked-about investment opportunities in recent years is co-living properties. As housing affordability declines and urban areas become more densely populated, co-living has grown in popularity. That’s because co-living provides flexible and community-oriented living solutions.

In a July 2024 Core Logic report, Head of Research – Eliza Owen stated that “there are stronger rental growth trends in larger dwellings, potentially reflecting the formation of share houses or multiple family households, with an 8.7% rise in rent for houses with five bedrooms or more.”

But is investing in co-living properties the right move for ADF investors? In this blog post, the property investment experts at Capital Properties break down the pros and cons of co-living property investing, so you can make informed investment decisions.

Interested in property investment but unsure where to start? The Capital Properties our FREE Capital Properties Discovery Session is designed to help ADF investors navigate opportunities like co-living with confidence.

Talk to our team to get the insights and expert guidance you need to build a strong, future-proof portfolio.

On the go? Here’s 30 seconds of take outs:

• Co-living is like shared housing, where individuals rent private bedrooms within a larger, communal property.
• It offers a viable solution to the Australian rental crisis.
• The strategy to invest in co-living properties must align with your investment goals & strategy.
• Pros of investing in co-living:
  • Higher rental income
  • Strong demand in urban areas
  • Reduced vacancies
  • Professional property management
  • Better re-sale potential
• Cons of co-living property investment:
  • Higher operating costs
  • Regulatory challenges
  • Increased tenant turnover
  • Property design/renovation considerations
  • Market risks
• Before investing in a co-living property:
  • Conduct market research to identify high-demand areas.
  • Partner with experienced property managers
  • Comply with local housing & zoning regulations
  • Take ongoing costs into consideration

Keep reading >>

What is co-living?

Co-living is a modern take on shared housing, where individuals rent private bedrooms within a larger, communal property. These properties typically feature shared common areas such as kitchens, laundries, living rooms, workspaces and/or gardens, that can foster a sense of community among residents. It’s especially popular with young professionals, digital nomads, and students who value affordability, convenience, and social connection.

Plus, as we’ve discussed in our blog post “Housing affordability/rental crisis/extremely low vacancies. What does it all mean?”, the lack of affordable housing, extremely low vacancies, and increased demand has led to a rental crisis in Australia. To tackle the issue, the Federal Government created a $10 billion Housing Australia Future Fund for tens of thousands of new homes. However, with increased migration, changing family structures and more overseas students coming back to Australia, the demand for rentals is not slowing down. This makes an excellent argument for increased access to co-living housing.

Pros and cons of co-living investment properties

As with all investments, there are pros and cons that need to be carefully considered. Making the decision to invest in co-living properties should align with your investment goals and overall investment strategy. If you haven’t yet clearly identified your short, mid- and long-term goals, recommend you meet with the Capital Properties team to make sure you’re headed in the right direction. You can check out our Capital Properties Goal Setting Strategy – The Well-Formed Outcome here to get started.

The pros of investing in co-living properties

1. Higher rental yields

• Higher rental income – multiple tenants mean multiple rent payments, maximising your returns. For example, a 3-bedroom property rented out to one family could bring in $500 per week. However, if you convert it into shared housing and lease each room for $250, you could earn $750 a week.

This diversified income stream reduces financial risk if one tenant moves out.

2. Strong demand in urban areas

• With skyrocketing property prices in major cities, many people, especially young professionals and students, are priced out of the traditional rental market.  Co-living offers them an attractive, affordable option.

Although we don’t have exact data, an SBS News article on co-living in April 2024 reported that a study done by the University of Queensland and Griffith University found that the number of people living communally rose by over 40% between 2001 and 2016. It’s (modestly) estimated that more than 25,000 Australians live in co-living spaces. And we think that’s growing even more quickly post-pandemic.

3. Reduced vacancy rates

• The flexibility of shorter lease terms appeals to a wide tenant base which means co-living properties have lower vacancy rates compared to standard rentals.

It also means that vacancies are filled more quickly. This is especially beneficial in cities with transient populations, such as Sydney and Melbourne.

4. Professional management services

• Most co-living spaces have specialist property managers who handle tenant sourcing, rent collection, maintenance and community engagement.

This “hands-off” investment model allows property owners to enjoy a passive income with minimal day-to-day involvement.

5. Better re-sale potential

• Co-living properties often outperform dual occupancy properties in resale value due to their higher rental yield and broader market appeal.
• The growing demand for affordable, community-driven housing is attractive to both investors and future owner-occupiers.

Multiple income streams increase their perceived value, offering greater liquidity and flexibility in the property market.

Cons of co-living investment properties

1. Higher operating costs

• Co-living properties often come with increased operational expenses because landlords typically cover utilities, internet, and cleaning services.

More tenants = increased communal area maintenance which adds to ongoing expenses.

2. Regulatory challenges

• Different cities and states have varying zoning laws and regulations for co-living. For example, local councils can impose occupancy limits.

Compliance with fire safety and other regulations is essential.

3. Increased tenant turnover

• Co-living tenants often prefer flexible, short-term leases.

Frequent turnover means more time and resources spent on tenant acquisition (advertising/contracts etc).

4. Property design considerations

• Not all properties are suitable for co-living. Renovations may be required to add extra bathrooms or improve shared spaces.

Layouts must be designed to balance privacy with community living.

5. Market risks

• Like any real estate investment, co-living is subject to market fluctuations and shifts in housing trends.

Reduced demand or regulatory changes could impact future rental income and property value.

Is co-living the right investment choice for you?

Investing in co-living properties presents a unique opportunity to maximise rental yields while tapping into a growing market. However, the rewards come with additional management responsibilities and potential regulatory risks.

If you’re considering a co-living investment strategy, make sure to:

• Conduct thorough market research to identify high-demand areas. Get in touch with the Capital Properties Team to get your copy of the Australian Property Market Report.
• Partner with experienced property managers who specialise in co-living. Capital Properties can recommend trusted professionals – just give us a buzz.
• Ensure full compliance with local housing laws and zoning regulations.

Factor in ongoing costs like utilities and maintenance when assessing returns. The Capital Properties Property Investment Tools and Apps are a Godsend when it comes to managing complex accounts. For example, use the Capital Properties Rental Property Income Tax Return checklist to help you prepare your tax return in a timely manner.

Ready to explore co-living investment properties?

o-living property investment offers an exciting real estate trend that looks likely to continue for the foreseeable future. At Capital Properties, we understand the opportunities and challenges of co-living investments. Yes, the potential for higher yields and low vacancy rates makes it an attractive investment option, but ADF property investors must also consider higher operational costs and regulatory considerations.

If you’re new to property investing and are wondering if co-living is a good place to start, book your FREE Capital Properties Discovery Session so our expert team can guide you through every step.

Already in the market and keen on exploring co-living as an alternate investment to diversify your portfolio? Then the Capital Properties Pinnacle Support Program will support you to capitalise on this growing sector of the real estate market.

Note: This information is general advice only. Always conduct your own research and seek independent financial advice before making investment decisions.