Co-living property investment: a guide for investors

Co-living property investment: a unique opportunity for investors

Co-living property investments have in recent years emerged as a lucrative option for investors seeking both stability and profitability.

We caught up with UNO broker Andrew Wyers to delve into the world of co-living properties.

We cover what they entail, their advantages and disadvantages, financing options, and how to embark on this exciting investment journey.

Summary

• Co-living or 'rooming properties' allow separate tenancies within a single house, typically accommodating 4-6 individuals.
• Typical co-living tenants include working professionals, students or international professionals. They are hence strongly positively geared.
• Special lenders can recognise higher rents on co-living investment properties which could boost serviceability unlike on a typical residential property.
• A $3,000 commercial property valuation is required if you are depending on rent for mortgage serviceability on these properties.
• Advantages include high rent and positive cash flow, stable tenants, and flexibility in finding new tenants.
• There are some costs associated with furnishing, utilities, and insurance requirements.

What is a co-living property investment?

Co-living properties allow separate tenancies within one property. They typically consist of private bedrooms and bathrooms alongside common areas. Examples include international student accommodation, and housing to accommodate contract/FIFO workers.

UNO Broker Andrew Wyers said co-living is an attractive option for property investors.

“​​Especially in the high interest rate environment we’re in at the moment, these properties are extremely positively geared. So after all expenses and mortgages, owners could profit $20,000-40,000 a year. Whereas a normal property in this environment could be zero.”

“This is because, unlike typical residential investment, co-living bases rent on each room which can be quite profitable,” he said.

Borrowing money to fund your co-living investment

Andrew is experienced in helping customers find co-living loans appropriate to their needs. He said co-living mortgage products have a few key differences from typical home loans.

“Generally, some lenders work off the expected rental market value when lending. Even if your co-living property could make $1500 a week, a big lender might say but that isn’t what the property next door is going for. So the lender needs to be okay with lending to this type of investment property,” Andrew said.

“Specialised lenders will do a commercial valuation on the property. It’s still classed as a residential loan, but they need a commercial valuation which costs around $3,000 for the owner, the borrower.”

“The lender will then go off this value, the rent that is expected on a co-living property, which is typically much higher than normal rentals,” Andrew said.

Despite these differences, co-living property loans have typical mortgage features such as digital banking and offset accounts.

Andrew said an 80% Loan-to-value (LVR) ratio is typical for this type of loan.

Benefits of investing in co-living property investment

Andrew said co-living properties are an attractive investment because they are positively geared, unlike many residential investments amid high interest rates.

Co-living properties can also guarantee a sense of stability in terms of tenant vacancies. If someone moves out of a co-living property, you can still collect rent from the other tenants, unlike in a typical rental which would sit vacant.

Finally, if you are relying on property income for mortgage serviceability, specialised lenders can consider a much higher co-living income compared to traditional lenders who only accept a ‘market’ value.

Disadvantages of co living property investment

Andrew said as with any investment, there are potential drawbacks to co-living property investment, namely around property management, and utilities insurance.

“If you’re not using a good property manager who is experienced in multiple people living in a property and the higher demands this creates, that can be an issue. So pick a good property manager.”

“These properties also usually come fully furnished and with the bills paid for. So as a property investor, you could have to connect water, gas, and electricity,” he said.

Andrew also said co-living properties come with higher insurance requirements compared to typical rentals.

“It comes down to insurance requirements and unrelated residential parties. So insurance on these properties can sometimes be higher and have different requirements,” Andrew said.

How do I invest in co-living property?

Andrew said the common route for co-living property investment is approaching a builder who specializes in co-living accommodation.

While it is possible to buy existing co-living properties, these are harder to come by.

Next, you will need to find the right lender. An experienced UNO broker like Andrew can help you with this while streamlining the process.

Andrew said co-living investments can be surprisingly affordable when compared to normal residential properties.

“These properties typically appeal to somebody who wants to diversify their property investment strategy while enjoying a high-income investment,” he said.

Investing in co-living property with SMSF

It is possible to invest in co-living properties under a self-managed super fund (SMSF).

“You can also have this type of loan within an SMSF. The only difference is an SMSF won’t allow you to buy and renovate an existing property, it needs to be a new build,” Andrew said.

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