Where individuals share some communal facilities the properties are generally referred to as being in the co-living sector.
However, within the sector there are various options available for investors to choose to invest in and investors should consider these before determining whether the co-living sector appeals to them.
co-living properties generally fall into the following categories:
HMO (Houses of Multiple Occupation)
These are typically houses and small converted office blocks which comprise between five and ten bedrooms with shared kitchen facilities. Investment levels are from £250,000 to £1m.
The HMO sector was plagued by rogue landlords who offered sub-standard accommodation and attracted lower-quality tenants. Standards have improved dramatically over the past few years and the sector is now seen as offering attractive and secure returns.
Properties are bought and sold on a yield on a yield basis and quality management is required if returns of 7% plus p.a. are to be achieved. Tenants are usually blue-collar workers and semi-professionals.
The Grand Collective Schemes for Young Professionals
These are much larger buildings that offer multiple facilities. The concept is that younger, professional people want to mix with similar people in a facility with a gymnasium, cinema, coffee shop etc. They are to be found in city centers and charge higher rentals which reflect the facilities provided. The developments need a large number of apartments to make the concept financially viable and investment levels start from in excess of £5m.
Some people argue that their popularity is set to grow, in the same way the popularity of purpose student accommodation has in recent years. Others argue that the higher rents deter many people and that those who can afford them will seek more self contained accommodation in the medium term.
Two or three people sharing an apartment/house falls within the co-living classification, but a standard designed property is far from ideal. Many tenants are happy to share a kitchen as they want a feeling of companionship with other tenants. However, whilst they may want a communal lounge, they don’t want a communal bathroom and en-suites are much preferred.
The solution is properties with en-suites for every bedroom and a communal bathroom off the lounge. The cost of providing additional en-suites is easily offset by the enhanced rent from separately renting the bedrooms and the lounge.
Such properties are bought and sold on a ‘bricks and mortar’ valuation and capital growth is in line with other residential properties. The advantage is that the rental yield may be considerably higher than a typical buy-to-let (but lower than a HMO) and the property will still appeal in the future to an owner-occupier.