Co-living has become a much bigger part of the Australian property conversation.
For investors, the appeal is fairly easy to understand. Instead of relying on one household paying one weekly rent, a purpose-built co-living property can generate rental income from several individual rooms.
But the number of rooms is only one part of the equation.
A good co-living property still needs people who genuinely want to live there. The bedrooms need to work. The shared areas need to feel comfortable. The location needs to suit the residents you are trying to attract. And once the property is operating, management becomes far more involved than it would be with a standard residential tenancy.
At Ethical Property Investments, we have been working with professional co-living properties for years. This guide explains how the strategy works, where the income comes from, who actually rents these homes, and some of the risks investors need to understand before deciding whether co-living belongs in their portfolio.
Purpose-built co-living is residential accommodation designed from the beginning for several people to live within the same property while maintaining a meaningful level of private space.
A typical professional co-living property may contain several private bedrooms, often with individual ensuites, alongside a shared kitchen, living area, laundry and other communal spaces.
Rather than one family or household leasing the entire property under a conventional residential tenancy, residents will generally rent individual rooms or have occupancy rights relating to their part of the property, depending on the applicable tenancy model and local regulations.
That creates a different rental model for the owner.
If there are five rentable rooms, for example, the property has the potential to receive income from five occupants rather than one household.
Exactly how the property is classified and how residents can be contracted depends on the state, local planning rules and the property’s configuration. Australia does not have one national legal definition covering every property marketed as co-living.
In Victoria, for example, a building where rooms are available for occupation by four or more people in return for rent can fall within the rooming-house regime. Queensland has its own definition of rooming accommodation. NSW also has a specific planning category called co-living housing, with its own requirements, including a minimum of six private rooms under that planning framework.
That is why planning, building, licensing, tenancy and management requirements need to be checked for the particular property rather than assumed from the term “co-living”.
The difference usually begins with intent.
An ordinary house may be built for a family and later occupied by several unrelated people sharing the rent. The floorplan was still designed as a conventional home.
Purpose-built professional co-living starts with the way individual residents are likely to use the property.
Private bedroom space becomes more important. Ensuites can give residents greater privacy. Storage, kitchen capacity and shared living areas need to accommodate several unrelated adults using the property independently.
The way the property is managed can also differ significantly.
In Victoria, for example, Consumer Affairs Victoria distinguishes a rooming house from a share house. Rooming-house residents generally have separate agreements relating to their rooms and use of communal facilities, while people in a conventional share house commonly rent the whole property together under the same agreement.
This distinction is important for investors because a five-bedroom house does not automatically become an effective professional co-living investment simply because each bedroom can theoretically be rented separately.
The property still has to work for the people living inside it.
The easiest place to begin is with room rent.
If a property contains five rentable rooms, its potential weekly gross rent is broadly:
Weekly room rent × number of occupied rooms = weekly gross rental income
But that number is only the beginning of the feasibility.
An investor then needs to consider realistic occupancy, management costs and the operating expenses associated with that particular property.
Depending on the model, these may include utilities, maintenance, furnishings and replacement costs. Insurance and council rates also need to be allowed for.
Finance costs then affect what ultimately remains for the investor.
This is why gross rental income, gross yield and net cashflow should never be treated as interchangeable figures.
There are situations where we would tell an investor that co-living probably isn’t the right strategy for them.
If taking on the property leaves very little financial buffer, I would be cautious.
If we cannot establish convincing local demand for rooms at the rent required by the feasibility, I wouldn’t want to rely on the projected yield.
We would also be very careful where the investment only works at or near 100% occupancy. Residents move. Rooms take time to re-lease. Repairs happen. A sensible feasibility needs enough room for the property to continue operating when reality is less tidy than the spreadsheet.
The same applies when someone is choosing a location mainly because the land is inexpensive.
Cheap land can make the initial numbers look attractive. It cannot create tenant demand where there isn’t enough of it.
Co-living should also fit the investor’s wider financial position and objectives. Someone seeking a very passive conventional rental may have different priorities from an investor specifically trying to increase portfolio income.
The property has to make sense within that person’s circumstances.
It can be a very effective property strategy in the right circumstances.
It can also be the wrong property for an investor, even when the projected gross yield looks attractive.
The main reason investors consider co-living is the income potential.
A conventional residential property generally produces one stream of rent. A professional co-living property can produce several room-based rental streams from the same address.
That can substantially change the income generated from the property.
Multiple occupants may also reduce the financial impact of a single vacancy. If one room becomes vacant in a five-room property while the other four remain occupied, some rental income continues to come in.
There are trade-offs.
Purpose-built co-living can cost more to develop or purchase because the property itself may require more bedrooms, bathrooms, services and specialised design decisions.
Operating costs can also differ from a standard rental.
Depending on how the property is operated, the owner may be responsible for utilities, internet, furnishing or other inclusions. Property-management requirements are usually more involved because rooms can be leased and vacated at different times.
Then there is tenant demand.
A co-living feasibility can look impressive on a spreadsheet and still struggle if the local market cannot support the number of rooms, the asking rent or the type of accommodation being offered.
Gross yield is usually calculated by dividing annual gross rental income by the property value or acquisition cost.
For example, one EPI co-living property example involved a purchase of approximately $862,000 with projected annual rent around $78,000.
That produces a gross yield of roughly 9%.
But the owner does not receive 9% of the purchase price as spendable income each year.
Property expenses still have to be paid. So does interest where the purchase has been financed.
The useful question for an investor is therefore deeper than:
“What’s the yield?”
We want to know how that yield was created.
What rent is assumed for each room?
How many rooms are assumed to be occupied?
What vacancy allowance has been used?
Who pays the utilities?
What does specialist management cost?
What allowance has been made for ongoing maintenance?
What happens to the numbers if one or two rooms take longer to lease?
Those questions tell us far more about the investment than the headline percentage.
We have also worked with co-living properties producing around $1,800 per week, or approximately $93,000 per year in gross rental income. Results like these are property-specific examples rather than an expectation that every co-living property will achieve the same result.
Rent, costs and occupancy depend on the individual property and market.
This is one of the first questions I think an investor should ask.
Before counting five possible rental payments, we need to know who those five residents are likely to be.
Professional co-living can appeal to people who want a comfortable private room without paying the full cost of renting an apartment or house by themselves.
Depending on the location, residents may include young professionals and key workers. NSW planning guidance also identifies these groups as common residents of co-living housing.
Other markets may attract singles relocating for employment, people who want to live closer to work, and students where the location and property are appropriate.
Affordability can be part of the attraction, particularly where the cost of a suitable one-bedroom apartment is high relative to local incomes.
But cheap rent alone does not explain why somebody chooses professional co-living.
A resident may value having their own ensuite rather than sharing a bathroom with several strangers. They may want a property close to their workplace or public transport. Someone moving to a new city for employment may prefer a furnished room and a simpler move-in process.
The experience inside the home can influence how long people stay too.
A poorly designed property can technically provide enough bedrooms while still being uncomfortable to live in. Limited kitchen storage, cramped common areas and bedrooms offering very little privacy can eventually become leasing problems.
This is one reason we look at co-living from the resident’s side as well as the investor’s.
A room is only an income-producing asset while somebody is willing to pay to live in it.
Vacancy works differently in a property generating rent from several rooms.
Imagine a five-room co-living property where each room produces the same amount of rent.
If all five rooms are occupied, the property is at 100% room occupancy.
If one becomes vacant while four remain leased, the property is at 80% room occupancy. Assuming equal room rents, around 80% of the potential room income continues to be collected.
Compare that with a conventional house leased to one household.
When that household leaves and the property is between tenancies, rental income from the property can temporarily fall to zero.
This is the vacancy-resilience argument behind co-living.
But investors should be careful with the conclusion they draw from it.
Having several rooms does not remove vacancy risk.
If several rooms are empty at the same time, the reduction in income can become significant. High tenant turnover can also create additional leasing costs and management work.
A property could have five available rooms and still struggle financially if local demand is weak, rents have been set too high or the property is poorly positioned.
That is why we include vacancy in the feasibility rather than assuming every room will remain occupied every week of the year.
The real question is:
How does this investment perform when occupancy is less than perfect?
That is usually a far more useful test than looking only at maximum potential rent.
One of the easiest mistakes in co-living is assuming that a tight rental market automatically creates a strong rooming market.
Strong demand for rental houses does not automatically mean strong demand for individual rooms.
They are related markets, but the tenant behaviour can be different.
A family searching for a four-bedroom house and a single healthcare worker looking for an ensuite room close to a hospital are solving different housing problems.
So when we investigate an area for co-living, we need to understand the likely resident.
What could they afford?
Where are they working?
What other rooms could they rent nearby?
How much are those rooms being advertised for?
How quickly are suitable rooms being leased?
We look at broader market signals including vacancy, population movement and local employment. Nearby hospitals, education precincts and transport connections can also be relevant because they can influence where potential residents need to live.
Then we get much more specific.
We want to understand competing room supply and the difference between advertised room rents and rents the local market is genuinely accepting.
Specialist property managers can be particularly useful here.
A manager actively leasing rooms in an area can often tell you where enquiries are coming from, what residents are requesting and which properties are sitting vacant longer than expected.
That evidence becomes part of the feasibility.
A suburb can have an excellent story at headline level and still be the wrong place for a particular co-living property.
One of the biggest mistakes is starting with a target yield.
An investor decides they want 9%, 10% or some other number and then searches for a property configuration capable of producing it.
That can push the analysis backwards.
The rent ultimately comes from residents, so I would rather begin by understanding who is likely to rent the rooms and what they are realistically prepared to pay.
Another mistake is building more rooms simply because another bedroom increases the projected gross income.
There is a point where design starts working against the resident.
If adding another bedroom makes the common areas cramped or creates an awkward living environment, the extra theoretical rent may come with a leasing cost later.
Cheap land creates another trap.
A lower purchase price can improve the projected yield on paper. But if the property is too far from employment, transport or the places residents need to reach regularly, the room demand may never justify the original assumptions.
Then there is occupancy.
A feasibility based on every room being occupied for 52 weeks of the year gives the investor very little room for normal tenant movement.
Utilities are another area that can be underestimated, particularly where they are included within room rent. Management costs can also surprise investors who compare specialist co-living management directly with the fee charged on a conventional residential tenancy.
Planning and compliance deserve the same attention.
The rules differ by state and can change according to the number of residents, room configuration, use of the property and local planning requirements. In Victoria, for example, rooming houses are subject to specific registration, operator licensing and minimum-standard requirements.
Queensland has separate rules governing rooming accommodation, while South Australia applies its own rooming-house framework.
Finally, investors need to be careful about assuming that growing interest in co-living means almost any new project will work.
More investors entering the market can also mean more competing room supply.
The feasibility still needs to stand on its own.
Start by working out who is likely to live in the property.
Then investigate where that person is already trying to live and why.
Someone working shifts at a major hospital may have very different location priorities from a university student or a professional commuting into a CBD.
Employment is therefore part of the picture. So are transport connections and the cost of alternative accommodation.
Local room rents tell us what residents may already be prepared to pay.
Competing supply tells us how many other owners are trying to serve the same demand.
We also look at how affordability is changing.
If renting a self-contained apartment is becoming difficult for a single person on a local wage, professionally designed room accommodation may solve a genuine housing need. That still needs to be confirmed through local leasing evidence rather than assumed.
From there, the property itself has to work financially.
Land cost and construction cost affect the feasibility. Planning requirements may affect what can legally be developed or operated on the site.
We also consider the eventual exit market.
A highly specialised property may perform very well as co-living, but investors should understand who may want to buy that asset later and how the property’s design affects its resale options.
This is why our location work goes beyond finding a suburb with population growth.
We want enough evidence to answer a much more practical question:
Is there a sustainable group of residents here who would choose this particular accommodation at the rent required for the investment to work?
If we cannot answer that confidently from the evidence available, we keep investigating.
We have been involved in high-cashflow property strategies for years, including purpose-built professional co-living.
Our assessment starts with the investor’s circumstances and the income they are trying to create.
From there, we investigate the market and the property.
That includes the likely resident profile, realistic room rents and competing supply. We also consider the economics of acquiring or developing the property and the way it is likely to operate once residents move in.
Sometimes the answer is that co-living fits.
Sometimes another property strategy makes more sense.
And sometimes the sensible decision is not to buy yet.
For us, the objective is to find a property the investor can realistically hold and that residents genuinely want to call home.
If you are considering co-living and want to understand how the numbers could work within your own circumstances, you can speak with the Ethical Property Investments team.
We can look at your objectives, financial position and the type of property strategy you are considering, then help you understand whether co-living deserves further investigation.
Book a Strategy SessionGeneral information only. Property performance, rental income, occupancy and costs vary between properties and markets. Any examples shown are property-specific and should not be treated as forecasts or guarantees. Planning, tenancy, licensing and other regulatory requirements vary by jurisdiction and property configuration. Investors should obtain appropriate financial, legal, tax and property advice for their circumstances.
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