Co-living redefines property investment. It allows you to enjoy multiple rental income streams under one roof with a construction budget comparable to a standard residential property. As such, it offers a rental yield higher than traditional rentals. But just how high can these yields go? Are there strategies to help you maximise the rental yield of your co-living investment? Let’s talk numbers and more on this blog.
What is Rental Yield?
A key metric for property investors, rental yield represents the annual rental income as a percentage of the property’s value. You can calculate it with this formula: rental yield = (annual rental income/property value) x 100
For example, if a property valued at $500,000 generates $30,000 in annual rent, then the gross rental yield would be 6%.
Now, what is considered a good rental yield? A rental yield of 4% to 8% is typically viewed as “good,” although this can vary based on the specific location, property type and current market trends. The average gross rental yield in Australia in 2024 is 4.98%. Higher yields often suggest a more lucrative investment opportunity.
What’s a Good Rental Yield for Co-Living?
While traditional residential properties typically yield 3-5%, co-living property investments can achieve yields of 6-15% or even higher in some cases. A yield above 7% is generally considered excellent for co-living properties, reflecting their enhanced income potential.
Co-Living vs. Traditional Rental Yields
Co-living investments often outperform traditional rental properties in terms of yield. Here’s why:
- Efficient Space Utilisation: Co-living properties maximise rentable space by offering private bedrooms with shared common areas, leading to higher overall returns. Even if co-living housing comes with property management or maintenance costs, income multiple tenancies can easily cover such costs.
- Higher Occupancy Rates: The flexibility and affordability of co-living attract a diverse tenant pool, from university students to retired couples who choose to downsize. This reduces vacancy risks and maintains steady incomes.
- Premium on Convenience: Co-living offers multiple tenancies at a fixed price that includes utility bills and fully-furnished private spaces. Fortunately, tenants are often willing to pay more for the all-inclusive nature of co-living spaces.
Let’s consider a practical example. A standard three-bedroom house in Melbourne might rent for $500 per week. When converted to a co-living space, each room could command $300 rent per week, totalling $900. That’s a significant 80% increase in rental income, boosting the overall rental yield of that particular property.
Strategies for Maximising Rental Yields in Co-Living Housing
Location is Key
Choose areas with a limited housing supply or a high demand for affordable housing. It is best if it’s close to universities, business districts, or transport hubs. A well-located property naturally commands higher rents and attracts a steady stream of tenants. Also, maximise a good location by creating inviting shared areas that encourage community interaction. Such spaces can be a selling point for potential tenants.
Quality Over Quantity
Invest in well-designed spaces that prioritise comfort and functionality. Work with architects, designers and other specialists to construct a co-living property or convert a traditional home into a space that promotes the perfect balance of privacy and communal living. Also, keep in mind that high-quality furnishings and modern amenities justify higher rents and attract discerning tenants. So, consider investing in smart home devices, cosy co-working corners and even home gyms.
Efficient Property Management
Partner with experienced co-living operators or implement robust management systems to minimise vacancies and operational costs. With reliable property management, you can offer value-added services, too. Enhance your tenants’ living experience with services like cleaning, high-speed internet, and community events. These additions can justify premium pricing and increase overall yield.
Flexible Leasing Options
Multiple tenancies allow you to experiment with flexible leasing options. Consider offering a mix of short and long-term leases to cater to different tenant needs and maximise occupancy rates throughout the year.
Regular Market Analysis
Like any property investment, co-living housing investments can be impacted by local market trends. So, stay updated about local rental trends and adjust your pricing strategy accordingly to remain competitive while maximising returns.
Learn More About Co-Living Investment
As the demand for flexible, community-oriented living continuously grows, co-living housing investments present a compelling opportunity for new and seasoned property investors to achieve higher rental yields. Doing so also means contributing to the solution for affordable urban housing. With careful planning and strategic management, co-living properties can offer a win-win scenario—providing attractive returns for investors & meeting the housing needs of a diverse tenant base.
Want to learn more about co-living property investment or curious about how to get started? Reach out to our team. At Harmony Co-Living, we specialise in co-living investments. It’s the only niche in the property investment industry that we focus on; we know the ins and outs of this investment model, making us the most capable guide for you. Our team may even help you to invest in co-living through SMSFs.
Give us a call or fill out our enquiry form to get started.
