Would you buy a co-living property that doesn’t cash flow with just one tenant?

[Marcel Williams]

Hello BP!

My wife and I are in the Atlanta area in search of our third rental property and we are super excited about the idea of starting a co-living strategy. But of course were running into the same issues as everyone else, finding a property that actually cash flows, specifically when rented out the traditional way with just one person on the lease. I feel confident about making the property cash flow once we get tenants in the home with the co-living strategy, but just covering all my bases, I would feel a lot better with an extra exit strategy of being able to rent the home out the normal way with one tenant. Also, as this co-living thing is generally new and catching on in some cities, I would hate to have this whole strategy ruined by a new restriction set by the city for co-living or the crazy rise in mortgage cost from property taxes and be forced to revert back to the traditional route.

So my question is for those that are already doing the co-living strategy; are you all buying the home purely off of the co-living cash flow, or are you all considering the cash flow from renting the home with just one tenant as well? And is it a deal breaker if it doesn't cash flow normally?

[Josh Bowser]

Hey Marcel - My primary clientele are coliving investors and I'm planning to buy my first one this year. I've closed 20+ coliving deals as an agent over the past year or so and have offered/UC on dozens more.

If you're going to buy a 'turnkey' operation (following info is true for a coliving BRRRR) - the buyer's out there are underwriting the properties to about a 9-10 cap on what the properties can generate conservatively OR are generating. Typically, these investors are trying to put down as little as possible. Lenders in this space underwrite to a 1.0 DSCR based on Long Term Rents for a turnkey coliving property which has been 30% down on the last 5/6 deals or so I've done with clients over the past two months.

Thus, the lenders underwriting criteria are a gut check to the purchase price which is a net positive in my opinion.

In my experience, very few coliving deals, turnkey or conversion, would get done if they we're underwritten to cashflow as a long term rental as well.

That said! You need to do a deal that you're comfortable doing! If you're hesitant to do a new deal, are there any properties you currently own that would be a good fit for rent by the room?

Please feel free to reach out to me (dm or contact info in bio) if you have any questions - I'd be happy to share my experience / advise on the Atlanta coliving world with no strings attached.