As interest rates continue to rise, property investors are looking for ways to boost the yield on their properties to offset higher mortgage costs. A unique approach that increasing numbers of investors are considering is co-living properties that house a collection of individuals rather than a family.
This is most common with student housing, where large four or five-bedroom homes are being converted into shared accommodation for students. However, there is a growing trend with co-living spaces that can accommodate singles and even couples.
In recent years, there has also been an increase in specialist housing under the NDIS, that can accommodate a range of occupants with specialised medical needs.
All these types of people can benefit from co-living, and there are a range of advantages.
The main advantage for singles and even young couples often comes down to affordability. With the rental crisis across Australia continuing to worsen, many younger Australians and those on lower-paid jobs are struggling to pay rent.
Shared accommodation options like boarding houses provide affordable accommodation in good quality locations. Some of these properties are also professionally managed, and the costs include things like internet access, electricity, gas, and water. This makes it a great option for those wanting everything taken care of at a price that is cheaper than renting their own property.
The other major advantage of this type of property is that they offer more privacy than your typical share house. Many co-living properties are reconfigured or purpose-built so they include ensuite bathrooms. This makes them more suitable for couples or even singles who want more privacy compared to your typical share house where different tenants would also use the same bathroom. However, most co-living spaces would still have one kitchen and dining area for the entire household.
The concept of co-living properties like boarding houses is particularly appealing to investors as they can typically earn far higher yields on their properties than they would renting it out as a family home. In some cases, the yields might be twice as high as a normal family rental, with some specialist properties under the NDIS offering even higher yields.
There are also other advantages, such as the fact that there are multiple leases on the property at any one time. That means if a tenant moves out, there is likely to be other cash flow still being generated by the property. While there are also other tax deductions available to investors due to the different costs that come along with a multi-resident property.
Given that these types of properties are normally larger, they also offer multiple exit strategies. You can sell the property back to an owner-occupier, as well as an investor who will be tempted by the strong yields on offer.
However, there are some risks worth considering. When purchasing or refinancing a co-living property, lenders might view it as a commercial property and want to apply a lower LVR. Similarly, if you’re trying to sell to an owner-occupier, and the property has been extensively reconfigured to suit multiple occupants, this might hurt the value.
Finally, managing multiple tenants can also be tricky. Typically, tenants will look for short lease terms, and there is often a high turnover of tenants. If you look to use a property management company that specializes in short-term rentals and co-living properties, they will also likely charge higher management fees than a traditional property manager.