Why Smart Investors Are Jumping On The Co-living Trend

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Look, politics aside, we’ve learned a lot about economics and social reaction over the past couple of years. Most of us now understand that ‘those in charge’ aren’t really that concerned with our individual well-being — politicians want votes, and they’ll do or say anything to get them.

2020 has taught us that we can’t rely on government for our prosperity — and more and more people are realizing that if we truly want to better our lives, we’re going to have to do it ourselves — and with the rising cost of housing, folks are taking initiative.

Fig. 1 — Micro-apartments offer shared spaces as well as smaller, private areas.

As smart investors, we have to adapt to market changes and not only provide the services that are in demand, but do it with a nice chunk of profit in our pockets, when all is said and done.

The Real Estate Climate

Millions of people all over the country are out of work and unable to pay the rent. That’s a relatively new development — but it isn’t what has caused this new co-living trend.

According to The Urban Institute, 33% of those polled can’t qualify for a mortgage. 26% said it’s cheaper to rent, and 23% look at owning a home as a huge risk.

That’s a large block of citizens that are looking for a less-expensive alternative to home ownership — without sacrificing comfort.

Sources: Survey of Household Economics and Decisionmaking, Board of Governors of the Federal Reserve, and the Urban Institute.

Millennials, as well as adults and seniors, are now looking outside the box for alternative housing options. Let’s take a look at some changes that were already in the works pre-COVID.

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How The Concept Of Housing Has Changed

Around the turn of the 20th century, America was booming. Cities were growing at an incredible rate. Populations exploded in busy, bustling cities like New York, Philadelphia and Chicago.

Fig. 2 — Busy, bustling streets at the turn of the century.

In recent decades, we’ve tended to think of a single-family home as the normal living situation, the ultimate goal. But as the wealth and income gap has expanded (the rich are getting richer and everyone else is getting poorer) and as the cost growth of housing, healthcare, and education continues to outpace wage growth, people have sought new and creative living arrangements — with the goal of reducing their monthly living expenses.

During the difficult times of the past, boarding houses and flop houses would fit the affordable housing needs of the working people quite well. These types of living arrangements were essentially the answer to low-wages, convenience, and limited available acreage.

The modern equivalents of boarding houses are called Co-living and Micro-apartments. Co-living involves sharing or splitting expenses — where residents occupy a bedroom in a house or apartment, and usually have a private bath and share the use of the common areas — kitchen, living room, yard, office, etc. It’s a trend that actually began to gain traction among millennials and active seniors even prior to the 2020 pandemic. 

Fig. 3 — Like micro-apartments, tiny homes offer all the essentials in minimal space.

A micro-apartment, on the other hand, is a completely self-contained living unit, usually with a kitchenette instead of a full kitchen, that occupies a much smaller footprint than a typical “normal sized” apartment. It’s much like the tiny-house concept spreading through the country — except it’s a bunch of tiny-houses stacked together.

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Micro-apartments range from 200-400sf (compared to 800-1,000sf for normal apartments) and tenants share outdoor living space and community entertainment rooms. Micro-apartment furnishings tend to be hip and modern, like hide-away Murphy beds or Bumblebee furniture that is concealed in the ceiling and lowers on demand to maximize usable space without excessive cluttering.

Dorm Life For Adults

In many ways, co-living and micro-apartments are like life in a college dorm, only a lot better. It’s much more high-tech and features better and more abundant modern amenities.

Fig. 4 — Co-living has a certain college dorm vibe but with much better amenities.

In a co-living building residents have private sleeping quarters and have access to shared spaces like the kitchen and living room. 

Privacy is paramount, especially in a COVID environment, and residents don’t have to share their personal space with roommates. The biggest difference between co-living and micro-units is that co-living buildings are purpose-built, specifically for that modern mission — while micro-apartments tend to be repurposed hotels or other commercial buildings retrofitted with modern furnishings and high-tech amenities.

Oregon’s Harbor of Hope Project

Oregon started addressing their shortage of affordable housing with their all-ages Harbor of Hope project and it’s going extremely well — in fact, the Poston Investment Collective is moving towards this model as a sound source of long-term income, as well as an amazing opportunity for short-term profitability. 

Fig. 5 — Oregon’s Harbor of Hope project matches trustworthy renters with home owners.

Co-living buildings (houses or apartments) and micro-apartment buildings can both capitalize on seasonal short-term residents by renting excess inventory (vacant rooms or units) in an Airbnb-type arrangement.

How Co-Living Can Increase ROI For Investors

Co-living and micro-units provide win-win benefits. Tenants typically pay less than they would for a full-size apartment or house, while landlords receive a much higher price per square foot. For example, a standard 1,200sf apartment might rent for $1,500 while a 350sf micro-unit will rent for $900. So this type of housing is more affordable yet contributes more to the NOI (net operating income) of the owner.

Right now our collective has an abandoned motel under contract in Taos, New Mexico — converting the motel into micro-apartments. We’re also adapting an apartment building in Albuquerque with a mix of standard and co-living apartment units.

We’re also developing Omega Sanctuary — that will include individual homes, as well as communal living areas. This project is completely off-grid, features renewable resources such as solar power and water collection. The community has a strong bond amongst residents, who all have access to the same type of amenities found in modern apartments.

Fig. 6 — Omega Sanctuary offers co-living off the grid, complete with amenities that rival modern apartments.

While preppers are looking for isolation off the grid, there will always be people that are drawn to social interaction. Co-living and micro-apartments help meet that need by reducing renter’s individual expenses, while still providing a lifestyle that is positive and fulfilling.

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Conclusion

Basically, we can sit around and lay blame on COVID (or politics) — or we can step up to the plate and take a swing.

As investors and developers, we need to look to the future and see the direction the market is heading. Right now, there is a strong trend towards tiny homes — and that means co-living and micro-apartments are an attractive option to those who prefer to imbibe social connections.

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Ken Walker

Ken Walker

Ken Walker is the Digital Editor of OPM Secrets. Having started in commercial construction right out of high school, he has since worked in every aspect of new construction from foundation work to framing, drywall, roofing, plumbing and electrical — as well as interior finish work, cabinet & countertop installation, windows, doors and siding.

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