Co-Living Apartments in Chicago
Investor · Chicago, IL · Member since 2017 · 39 posts · 13 votes
I see this trend slowly popping up in Chicago and I was curious, does anybody here have experience with co-living apartments? If so, what kind of returns are you getting vs a traditional lease? I'm thinking about this as a possible strategy for a multi-unit investment. Since it's a rather new concept for me, I'm trying to weigh the pros and cons.
Unfortunately, I am not using this strategy. But! I am a big believer in this. As rents increase and millennials shift from needing the "white picket fence" to experiences in the ity, I think this trend will continue. I personally would do a co-living apartment but maybe I am not the norm.
I think because you're selling a hybrid of a community/hotel/apartment, you have to have a plan that's a little more than just "sign lease, pay rent, call if there's a problem." A lot of the services that offer these seem to have cleaning, events, etc. You're acting almost like a luxury service. You'd need figure out what would make someone see a little more than "rent savings." You're potentially bidding for someone who is on the fence of having a roommate, but needs a little more.
Unfortunately, I am not using this strategy. But! I am a big believer in this. As rents increase and millennials shift from needing the "white picket fence" to experiences in the ity, I think this trend will continue. I personally would do a co-living apartment but maybe I am not the norm.
I think because you're selling a hybrid of a community/hotel/apartment, you have to have a plan that's a little more than just "sign lease, pay rent, call if there's a problem." A lot of the services that offer these seem to have cleaning, events, etc. You're acting almost like a luxury service. You'd need figure out what would make someone see a little more than "rent savings." You're potentially bidding for someone who is on the fence of having a roommate, but needs a little more.
Unfortunately, I am not using this strategy. But! I am a big believer in this. As rents increase and millennials shift from needing the "white picket fence" to experiences in the ity, I think this trend will continue. I personally would do a co-living apartment but maybe I am not the norm.
I think because you're selling a hybrid of a community/hotel/apartment, you have to have a plan that's a little more than just "sign lease, pay rent, call if there's a problem." A lot of the services that offer these seem to have cleaning, events, etc. You're acting almost like a luxury service. You'd need figure out what would make someone see a little more than "rent savings." You're potentially bidding for someone who is on the fence of having a roommate, but needs a little more.
Have you started anything yet? You think this will work in a 3 story flat in Lincoln Park?
Love this topic! I've been working on a business plan for it using the senior living housing model without the ADA/medical component.
If anyone is seriously interested in exploring this, please contact me and let's put together a team for it. I've been scouting sites looking for the place to make something like this happen.
I'm as green as they come as it relates to real estate investing, but I'm am absolute expert at starting and running businesses into the ground.
However, over the years, I've trained into my muscle memory a set of skills that make it VERY difficult for me to continue to blow wads of cash on any "idea."
This is for those of you who are wondering if this is a good idea, should you do it, etc.
The Lean Co-Living Start-Up
I "googled" "co-living" for the first time today as I'd never heard of this term before. I'm going to put together a plan to relatively quickly validate / or invalidate this business model.
I'll wait until after the Holidays as at the moment, people are doing more defaulting on mortgages and missing rent payments vs. looking to plunk down cash on a new place.
Plan
Sell the concept as if it existed in my target market. I'll need photos of beautifully lit, and well staged home. No details spared as it relates to presentation.
I'd then build a landing page, hammering away at the features, benefits, and mock pricing. I'd play with a mix of prices and features and do A/B testing.
Example; lets say I own mycolivingsite.com - I can set up my A/B testing so that when I receive 100 visitors, 50 can see one version and enter one funnel, the other 50 can see another version and potentially enter a completely different funnel.
Just off the top of my head, a test I may want to run is to offer all the most amazing features I can think of at lets say $1,000 / month. Then, I offer LESS features for $1,000 / month. Then, I may want to take the EXACT same set of features and offer them at $1,000 and $1,200 respectively.
There'll be clear calls to action and they'll fill out a form after clicking "Save Me A Room."
I'll gather name, e-mail, phone numbers of those interested in this amazing place in a great location. Then, I'd get on the phone with them and talk try to learn as much about them as possible (record calls, take notes). I would let them know of my intentions, "hey, I'm test marketing this concept, I just wanna get it right..."
At the end of all this, I know a LOT about them, and I'll know EXACTLY what the plurality wants, where they want it, how much they want to pay, what's most important, what's least important, etc.
This allows me to precisely optimize a co-living space for that market. I can spend $300-$500 (graphics, landing page, facebook ads) and come back with qualitative and quantitative data that says "bad idea!" Big deal, I lost $300-$500 instead of losing a down payment, rehab costs, staging costs, and on and on.
Again, if the data comes back positive, then I've got as close to as a fail proof start up as you can get. Additionally, I have customers WAITING for me to deliver the solution vs. building the "solution" (which will likely be incorrect) and TRYING to sell it.
Wrapping Up
I love this model because you can essentially make a margin on your maintenance costs. If a magical real estate fairy came down and asked all you landlords "wanna have someone come and clean your tenant occupied rentals for free every week?" You'd say 100x yes!!! Because when they exit, your costs to get it back on market, and occupy that unit are much lower, and you'd get it rented much faster. So, I view this model as a way to get people to pay for that reality.
I have been approached twice recently to finance these types of properties/projects in Chicago so I know this is trending right now. My clients mentioned that there are very large Private Equity funds (mostly out of California) that have recently been raised to buy properties and convert them to co-living housing. I haven't seen the numbers yet on any of these since it's just starting but as I will be getting some good insight into these projects after I get the full financing request and close on a deal. Fo now all I can tell you is that building owners are getting approached by these companies to lease out the entire building and convert them to co-living. One of my clients that was approached owns a 6 unit building so it doesn't have to be a large building.
Marco - I have a client in LA that is executing this really well. I think there are a few things that need to happen. First, you need to have a really good location, one that is high density and in high demand. Secondly, you have to look for existing assets where the square footage of each unit can be modified to the co-living layout. For example, you are taking X amount of square feet and turning it into Y rooms. Third, I would be directly marketing to students or that 18-27 demographic. Student debt levels are at an all-time high, zero in on great locations, where there's a high percentage of highly educated people, and in premium locations. I think that's the right formula for co-living. The re-design will impact the type of rent you can capture, but premium location will drive that number significantly higher.