Co-living spaces can generate good rental yields. Thinking of investing in a co-living space? Here is an insight into how to achieve just that.

The concept of co-working spaces gained momentum soon after the pandemic, and the housing market followed suit with co-living spaces beginning to gain traction as a viable venture. A co-living space is a housing option where people share communal areas along with the amenities that the housing complexes have to offer. For those seeking rental income, co-living presents multiple benefits as an investment-grade asset. Co-living buildings and units have a clear segregation between common spaces and monetizable areas. The average rental unit size, typically around 100 sq ft per bed, with no frills and common areas, offers efficient rental yields ranging from six percent to eight percent compared to rental yields from traditional apartments and flats, which usually range from two percent to four percent.

The common areas, which consist of community spaces including kitchens, cafeterias, recreation spaces, and Laundromats, provide additional income-generating opportunities in pay-per-use and monthly subscription forms. Co-living assets are ideal for annuity income and are fast-moving rental units, especially among Gen-Z and millennials, shares Onkar Shetye, executive director at a prop-tech firm.

While on the surface this seems like a promising venture, there are certain drawbacks to consider before adding this to your investment portfolio. Here's a list of advantages and disadvantages of co-living spaces:

Benefits:

Better rental yields: Co-living spaces are in high demand, especially in bustling cities like Chennai. This translates to high occupancy rates and potentially stable rental income.

Reduced vacancy periods: Finding a single tenant for an entire property can be stressful. With co-living, an owner can have multiple tenants, reducing the risk of prolonged vacancy periods.

Reduced operating costs: Due to a higher number of tenants consuming the same space, an owner can benefit from economies of scale regarding utilities and maintenance.

Economies of scale: Owning a co-living space entitles you to economies of scale when it comes to utilities and services like housekeeping and internet.

Targeted audience: Students and young professionals are the primary market for co-living spaces. This can simplify marketing and tenant screening processes. Co-living appeals strongly to the community-oriented generation that values social connections. Well-managed areas can foster a lively sense of community, enhancing tenant satisfaction and reducing turnover.

Lease flexibility: Co-living spaces often offer flexible lease terms, attracting a larger pool of interested tenants and minimizing the time between vacancies.

Drawbacks:

Hassle of management: Co-living requires a more hands-on approach to property management. An owner will need a system for screening tenants to ensure compatibility or bring in an operating partner to manage these aspects. The drawbacks are not limited to management but extend beyond it.

Location: Not every area is suitable for co-living. Success hinges on targeting neighborhoods with a high density of young professionals, convenient access to public transportation, and a scarcity of affordable single apartments.

Privacy: While co-living fosters a sense of community, some residents may have privacy concerns in common areas. Well-thought-out shared spaces and clearly defined house rules are essential.

High initial investment: Furnishing a co-living area with appliances, amenities, and interior design typically requires a substantial upfront financial outlay to create an inviting living space.

Market saturation: Co-living is becoming increasingly popular. Depending on the location, there may be a lot of competition and difficulty in finding tenants.

The Chennai Real Estate Market

In Chennai, the real estate market is ripe for the growth of co-living spaces. As a hub for IT professionals and students, Chennai presents an ideal environment for the proliferation of co-living options. The city's ongoing infrastructure developments, such as the expansion of the metro network and improvements to road connectivity, further enhance the attractiveness of co-living investments.

Neighbourhoods like Velachery, OMR, and Medavakkam are particularly well-suited for co-living spaces due to their proximity to IT parks, educational institutions, and commercial centers. These areas are witnessing a surge in demand for rental properties, making them prime locations for co-living ventures.

Owning a co-living space offers significant benefits and drawbacks that need careful consideration before investing. While co-living spaces are gaining popularity in India, especially in metro cities like Chennai, this investment requires thorough planning and evaluation. The advantages, such as higher rental yields and reduced vacancy periods, can be lucrative, but the challenges, such as management hassles and high initial costs, should not be overlooked.

Investing in co-living spaces in Chennai real estate can be a rewarding venture if approached with the right strategy. By targeting the right locations and managing the properties efficiently, investors can capitalize on the growing demand for communal living and secure stable, long-term rental income.