9 Reasons Your Rental is Better without Coliving

As tenants have mobilized to cities and the cost of living in these dense areas have increased substantially over the last decade, it has created an evolution of affordable living habits, including the trend to formalize coliving. Coliving has been around for a while, as roommates who weren’t considered a part of the same family would live in a home to offset living costs. This informal concept of coliving quickly grew to become formalized by several companies with promises to take your rental property and generate a higher return by renting it on a per room basis versus the entire property.

While this method can be lucrative, it is not without risks which we’ve seen with Hub Haus recently closing its business as well as Bungalow announcing it will not be paying owners.

Why coliving startups (and landlords) are in trouble

Many of the coliving companies experienced growth through the trend of urbanization with generation Y and Z flocking to cities to be close to work and amenities. With the onset of COVID, more companies are switching to remote workforces and giving tenants more optionality. This is especially true in the higher cost, coastal cities, where tech jobs are more amenable to virtual working. With individuals no longer needing to be close to work, tenants who are renting rooms are less constrained and most likely to move. This is noted by the coliving companies who have seen rental rates drop and more movement with their tenants.

Drawbacks of coliving from a property management perspective

While coliving offers the opportunity to form close relationships, culture, and can lower costs for tenants, it has its drawbacks for the landlord and manager.

#1 Tenants are not jointly responsible

Property management is about working together to make sure tenants live in a safe and habitable environment. Tenants and landlords both do their part, based on what is outlined in the lease.

For example, if a tenant puts a bottle cap down the disposal, the landlord will inform all of the tenants living in the property that they are jointly responsible for paying to get the $350 garbage disposal replaced. It doesn’t matter who did it, they are jointly responsible for fixing the damage, per the lease agreement.

In a coliving situation, it is more rare to find the tenants working together to prevent and fix (or pay for) the damage. After all, it is difficult to point blame on a certain tenant and their leases are separate.

It seems this part of the coliving model is not well developed, especially when it comes to repair coordination services. When tenants aren’t jointly responsible for the communal areas, such as the kitchen, living room, and bathrooms, it has been noted that things break more frequently and more repair requests are submitted.

Customers of these companies are now in a situation where they are no longer receiving rents, but still have mortgages and expenses to pay. In addition, these customers are likely locked into contracts and are unable to rent the property out on their own or pass on the property to another management company.

#2 Coliving startups are new and have not survived a downturn

Coliving providers who offer to take your home and turn it into a coliving dwelling is a relatively new business model that has sprouted up within the last 7 years. With Bedly & Hubhaus going out of business, and Bungalow announcing they are no longer paying out October 2020 rents (but are still collecting them), there is an apparent risk if you opt to work with one of the property management providers.

Just read these reviews from tenants and owners on Bungalow and HubHaus. With lag-times on the turnaround for repair requests, it poses two risks:

1) The problems get worse over time causing the repair cost to increase and potential collateral damage causing more repair cost.

2) Tenants becoming unhappy that repairs aren’t being taken care of and opt to not renew the lease or become disgruntled where they miss rent payments or are late. Or, the tenant may also decide to ignore maintenance and upkeep.

Now, don’t get me wrong, longer term rentals are also taking a hit. But the numbers are not as daunting as that for the coliving trend. Hemlane found that there was only an 8% hit to payments versus 100% for these coliving startups in the coastal cities.

#3 Higher turnover

Those who are interested in coliving are typically more mobile individuals (young/single) or are more likely to move versus a more situated tenant who is likely to stay longer. Turnover can be a significant cost to a landlord since it results in damage, loss in rent due to vacancy, and marketing fees. Tenants may also have personality compatibility issues which result in turnover as roomates that come to you organically will likely get along better than those who are matched by a landlord .

#4 Cashflow stability concerns

As we have seen with coliving companies going out of business, the shorter-term nature of co-living leases resulting in more frequent turnover. You will likely have a much more variable cash-flow compared to long term which provides a much greater opportunity of getting a set amount for a longer period of time.

#5 Extra cost and upkeep of furnishings

Generally coliving means that tenants are expecting a move-in ready home with furniture, kitchenware, and more. Not only are they expecting this, but they most likely expect clean and modern finishings, especially if you want to keep up your rental rates. Therefore, not only will you have to pay for new furnishings, you’ll be responsible for the extra cost to maintain and upkeep the furnishings. When there is a stain on a couch or a dish broken, it’s hard to pinpoint blame on the responsible tenant when the tenants are not jointly responsible. You most likely are footing this bill.

#6 More tenants = more administration

With more tenants, comes more administration including more contracts, renewals, and rent payments. If you have four separate rooms being managed, you have 4x the administration and the extra profit simply might not be worth it.

#7 Utilities, cleaning and internet are paid by you

Generally, utilities and internet are paid by your long-term tenants. The tenants will put the water, gas, electric, trash, internet, cable, and other common bills in their name. You are not responsible for paying or monitoring it. And, who wants a 2 A.M. call that the internet isn’t working?

For multi-unit building, submetering is a great way to make sure it is fair and each tenant is only paying their portion based on usage. For both single family homes and apartment complexes, you only need to put the bills in your name during the turnover process.

But with coliving, these utilities and fees are put in your name. When the internet goes out at 11 p.m., you’ll need to be on the call with Comcast for two hours to figure out how to fix it.

#8 Tenants may not assist with basic maintenance

Tenants in coliving situations are not responsible for cleaning, fixing light bulbs, and other simple maintenance with long-term tenants. With single family homes, the landscaping and yard work is typically listed as a tenant responsibility in the lease. With coliving and the communal nature of the setup, the tenant feeling that common areas are not their responsibility due to renting a room might lend them to not keeping up the same.

#9 More general wear and tear

Many people choose to simply have larger spaces and empty bedrooms for storage/home-offices/guest rooms etc. With coliving, you will likely always have the max # of individuals living in a property which can result in the maximum wear and tear.

Looking to convert your home from co-living to long term?

If you find yourself in a position where you need to exit your contract immediately in order to pay your mortgages and bills or otherwise need the cash flow, then you can look at these options

General steps for transitioning from one property manager to another

We have an article here on how to transition from a full service manager including what documents to obtain and general guidance. Make sure you to get in touch with your Hemlane account manager to aid in this transition.

Property manager or coliving provider has gone bankrupt or suddenly closed

We have an article on exactly this subject here to assist you on what actions to take and what you need to know if this happens. Make sure you to get in touch with your Hemlane account manager to aid in this transition.

Review your cancellation policy

Check your cancellation policy and see if you can leave the coliving situation. It may be a good time as tenants are less likely to view it as a long term solution.

Inform the provider that you want to leave amicably

If you are having a very difficult time getting out of your contract, mention reviews and how you’d like to make sure that you’re not having to provide negative feedback on the experience. No company likes to have a negative review on their record and by informing them that you’ll need to leave multi-negative reviews, you may encourage action. Here are some places where reviews are left:

• The BBB
• Facebook
• Google
• Yelp

Consider Small Claims Court

Did the coliving provider violate any terms of your agreement. Small claims are designed to be accessible, cost-effective, and straight forward. Look up the small-claims court in the city listed in the agreement contract and start a claim.

Get started with more passive management of your tenants

Step 1: Analyze local market and regulations

It will be important to gain a familiarity with the local market and regulations. Things to consider:

• What are the current or pending regulations on rent-control and other legislation?
• What is the economic forecast for the city?
• What are the current CAP rates and where are they expected to go?
• What are your HOA regulations on renting, if applicable?

You’ll want to be conscious of this before moving to long-term rentals. To view a list of tenant-landlord laws, visit us here to view by state.

Step 2: Understand how to reconfigure your rental

Analyze what is currently on the market in your area and what are the most popular rentals (fewer days on market and more contacts). Some things to consider include:

1. Do furnished rentals stay on the market for longer? In most cities, they are more difficult to lease and it is recommended to remove the furniture.
2. What types of properties are in most demand? Is it one bedroom rentals or a larger home? We see a trend where second bedrooms are popular for additional office space.
3. What is the rental price that you could expect to receive? Learn more about pricing your rental here.
4. Should the unit be renovated or updated for longer-term renters?

Step 3: Choose your property management system to use

70 percent of long-term rentals are self-managed or use a system like Hemlane. You will want to speak with local agents, managers, and review online solutions to determine what works best based on your needs. You can learn more about the cost and time savings of property management options here.

Step 4: Find qualified tenants!

Your goal will be to have the rental on market for less than 30 days, with an average of one inquiry per day. If you are not getting those results, then you may have it priced incorrectly or be listing it in an “off” season (e.g. a single family neighborhood where children are in school).

The most costly expense is a bad tenant, and therefore you want to make sure you select a tenant who meets your criteria. Here are some articles on selecting tenants:

1. The Rental Application Screening Process
2. 3 Fastest Steps to Understand Credit
3. Best Practices for Lease Agreements

And bonus! Here is a free eBook on finding and selecting the best tenant.