Co-living may sound like a trend, but this innovative concept is here to stay. In the Australian property market, it offers a fresh take on shared housing, helps address the country’s housing shortage issues and catches the eye of savvy investors. Today, we’ll share a comprehensive guide to understanding co-living and help potential investors maximise returns in a market hungry for alternative housing solutions.
What is co-living housing?
Co-living reimagines shared housing for the modern era. It’s a purpose-built living arrangement where residents enjoy private bedrooms and bathrooms while sharing common areas like kitchens, dining areas, living rooms and workspaces. Unlike traditional rentals, co-living spaces are designed from the ground up to foster community while respecting individual privacy. Key features often include:
- Self-contained bedrooms with ensuite bathrooms
- Lockable private pantries
- Fully furnished living spaces
- Shared communal areas for socialising
- All-inclusive billing for utilities and internet
This property investment model differs significantly from conventional rentals by offering a turnkey living solution that combines privacy, community & convenience. Beyond investment, it also helps address the housing shortage across Australia.
Why should you consider investing in co-living?
The co-living sector in Australia is primed for growth. Factors that drive this growth include urbanisation, flexible working arrangements, rising housing costs, and changing lifestyle preferences. Here’s why investors should take notice:
- Market Demand: Renting an entire house can be too expensive or impractical for singles, couples, young professionals and international students. With the majority of rental seekers being singles or couples, co-living addresses a significant market gap. The shortage of high-quality rental accommodation, especially in regional cities, further fuels demand.
- Higher Rental Yields: Co-living properties can generate substantially higher returns than traditional rentals. For example, a standard three-bedroom home in Regional Victoria renting for $350 per week could yield $675 per week as a co-living property ($225 per bedroom/tenant)—a 92% increase in rental return.
- Positive Cash Flow Potential: The elevated rental income often results in positively geared investments. Some co-living properties can generate $20,000 to $40,000 in annual profit after expenses, even in high-interest environments.
- Hedge Against Market Fluctuations: Diversifying your investment portfolio with co-living properties can be your hedge against market fluctuations. That’s because they cater to a growing demographic of young professionals and students seeking flexible, community-oriented living spaces.
- Reduced Vacancy Risk: Besides attracting various types of tenants, reduced vacancy risk is another significant advantage of co-living investment properties over traditional housing rentals. If one tenant leaves, you still have income from the remaining occupants.
Who are the target tenants for co-living rentals?
Co-living spaces attract diverse tenants, primarily young professionals, digital nomads, and university students. These demographics share common lifestyle preferences that align well with the co-living model. Young professionals, often in their 20s and 30s, look for affordable housing in prime urban locations. Digital nomads value flexibility and networking opportunities, while local and international students look for convenient off-campus housing options.
Tenants are drawn to co-living for several reasons. They appreciate co-living’s affordability; it allows them to live in expensive urban areas and enjoy turnkey living solutions that come with all-inclusive amenities. The opportunity for networking and community building is another significant factor, as many tenants prioritise social interaction and desire a sense of belonging. Also, the flexibility in lease terms is notably appealing to those who may not want to commit to long-term rentals.
What are the factors to consider before investing in co-living?
Location and proximity to amenities
Focus on urban areas or emerging neighbourhoods with strong job markets, ensuring proximity to public transport, workplaces, gyms and other lifestyle amenities. Choosing the location may also depend on your target market. For instance, if you want to target local & international students mainly, pick locations near campuses.
Property design and layout
Usually, a typical co-living house can accommodate four to six people, while larger spaces can house more than ten tenants, but that number could vary depending on state regulations. In New South Wales, for instance, a co-living home may have as few as six private rooms, but large co-living housing developments can have 30 to 40 rooms. Nevertheless, you should optimise space utilisation to maximise rental yield. When designing the layout, you should balance private and communal areas to foster community without sacrificing privacy. Consider adding modern amenities to your co-living property, too. Home gyms, yoga studios, cosy co-working areas, loungers & terraces and smart home features can further enhance tenant appeal.
Management and operational considerations
Efficient property management systems are essential for tenant screening and maintenance. If you want a hands-off approach to your co-living investment properties, you can partner with co-living operators or property managers to streamline operations and improve tenant satisfaction. Experts in this niche can also help you understand the legal and regulatory landscape, such as zoning laws and ensuring compliance with health and safety standards for multi-tenant properties.
What are the potential challenges and risks?
While lucrative, co-living investments come with a set of challenges. Property management can be more demanding due to multiple tenants and shared spaces. As mentioned, it is vital to partner with experienced property managers who understand the nuances of co-living arrangements. Higher insurance requirements are another consideration, as these properties often need specialised coverage due to their unique living setup. Utility and furnishing costs can also be higher, as investors are typically responsible for providing fully furnished spaces and covering all bills.
How can you finance co-living property investments in Australia?
Financing co-living investments requires a strategic approach. Look for specialised lenders familiar with co-living properties’ unique cash flow structures, as they may offer tailored loan products. Expect them to assess the property’s potential cash flow and occupancy rates, so it’s vital to demonstrate strong serviceability based on projected rental income. Also, be prepared for commercial valuations rather than traditional residential loans, as co-living properties often operate under different lending criteria.
While co-living investments can yield higher returns, they come with unique challenges that necessitate thorough due diligence and a clear understanding of the target market for successful outcomes in this emerging sector. That’s exactly where our co-living investment expertise in Harmony Co-Living can benefit you.
Let Harmony Co-Living guide you
Co-living investments represent a lucrative opportunity in Australia’s evolving real estate landscape. They offer higher yields, reduced vacancy risks, and portfolio diversification, addressing the growing demand for affordable, community-oriented housing. While challenges exist in management and upfront costs, the potential for strong returns makes co-living an attractive option for forward-thinking investors.
At Harmony Co-Living, we provide expert guidance and tailored investment opportunities to help you enter this emerging market. More importantly, we’re a specialist. Co-living is the only niche in the property investment industry we focus on—you can expect nothing but top-notch service and strategies from us. Contact us today. Let us help you start capitalising on the co-living trend and enhancing your investment portfolio while helping to address the housing shortage.
