Co-Living in Rental Apartments - New Trend
Roman Bodnarchuk, CEO Social Living
For investors in Canada, owning and renting out multifamily properties is not the same capital building enterprise that it used to be. Although vacancy rates are decreasing, with a national average of 2.4 per cent in 2018 and rates much lower in larger cities like Toronto and Vancouver, cap rates are also being driven down, with multifamily homes offering the lowest rates in real estate. Typically, a cap rate of between 7 to 10 per cent was seen as a good return on investment. In Canada, investors can expect to see cap rates that do not exceed 5 per cent, due to the relative low risk of the investment and the rising cost of living.
When selecting a rental property, investors need to start considering new options to unlock higher cap rates in a saturated market. One viable option that is gaining traction across larger, densely populated cities, is co-living.
"In high rent areas like Toronto - Co-living will become more prevelant"
The concept of co-living is not new, although it has become increasingly popular over the past few years. It offers residents a private, furnished bedroom with access to shared communal spaces, such as the kitchen, bathrooms, common living room and outdoor space. Unlike traditional apartments, co-living tenants pay one monthly bill, which includes rent, all utilities, cleaning services and basic common provisions such as towels, kitchen supplies and other necessities. Because of the all-inclusive nature of co-living, it is seen as being similar to a hotel stay, although the duration is longer, typically on a 6-month lease.
Co-living also sets itself apart by building communities and relationships among tenants. By taking away the pain points of living with others — such as cleaning — it allows tenants to bond with one another. Roommate selection is highly strategic and done through meticulous algorithms that place an emphasis on common interests, goals and living styles to maximize compatibility. Community events usually occur regularly in co-living homes as well. Birthdays, barbecues and other social activities are often planned to give members a chance to interact and take advantage of what their city and community offers. For this reason, co-living is frequently used for newcomers or for people looking to build their network. With an increase in remote and freelance workers, co-living can fill in the gap socially and can offer shorter leases to entice people who may move frequently for work.
Similar to multifamily rentals, in co-living homes, there are multiple leaseholders involved. The difference is that each leaseholder occupies a single room, and there are multiple leases in one home. This takes the stress off of the tenant, as their lease is separate from their roommates and will not be impacted by others moving out. It also helps investors, as they can charge per room, resulting in a higher yield on the property overall.
To promote higher rental rates, co-living homes need to be newly renovated and modern. High-end appliances and furnishings are investments and will help raise the prices of each room. This is important because co-living homes also require the investor to pay for expenses that traditional multifamily homes would not, such as internet, cable and other amenities. Individuals who are looking for convenience are willing to pay a premium for their room in a co-living home, as they are offered more amenities than a traditional bachelor or one bedroom apartment. This can yield up to 40 per cent more than a traditional rental price, while still offering residents around a 20 per cent discount to living alone.
Although owning and managing a co-living property can seem daunting, many co-living homes operate in a similar way to hotels. Traditionally, there are those who own the co-living buildings, but the property management is outsourced to co-living facility management experts. The building owner will enter into a long-term management agreement with a co-living provider, which could last multiple years, where rent and income is shared among the owner and provider. Unlike rental agreements, management agreements take the stress off the building owner to select tenants, run events, worry about utilities or invest in furnishings. It will ensure consistent revenue and high rents for the property, without the overhead costs.
The co-living provider may renovate the home to increase rental value, which also increases property value for the building owner. Also, the nature of co-living ensures that the property manager retains rights to go to the property and inspect it regularly. This ensures that the tenants act respectfully to each other and to the space. For real estate investors, this management system alleviates the stress of having to invest the time into creating a functioning co-living environment.
With vacancy rates and cap prices decreasing, it will be important for building managers and owners to look at alternatives for increasing revenue on rental properties. Co-living is the key to an evolving industry where renters are expecting more and are willing to pay for these luxuries, without putting the burden on building owners and investors.
Canada's Economy Slowing But Households Continue to Spend?
Growth in real gross domestic product (GDP) slowed to 0.1% in the fourth quarter, owing to a decrease in business investment and weak international trade. These declines were offset by increased household spending. Final domestic demand edged up 0.2%, after rising 0.8% in the third quarter. The annual growth rate of Canada's real GDP was 1.6% for 2019, a deceleration from the 2.0% growth in 2018. By comparison, real GDP in the United States increased 2.3%.
Business investment in machinery and equipment (-3.6%) declined for the third consecutive quarter. Notable decreases occurred in aircraft and other transportation equipment (-10.5%) and in trucks and buses (-10.9%). Investment in engineering structures was down 1.1%, after rising 3.2% in the previous quarter. Investment in non-residential buildings rose 1.5% in the fourth quarter, following a 1.2% increase in the third quarter. Investment in intellectual property products was down (-0.8%).
Export volumes fell 1.3% in the fourth quarter, the second consecutive quarterly decline. Import volumes were down 0.6%, the third consecutive quarterly decrease. Export volumes weakened substantially in farm and fishing products (-10.2%), crude oil and bitumen (-5.3%), and passenger cars and light trucks (-4.6%).
Growth in overall household spending (+0.5%) stemmed from household spending on services (+0.8%). Notable increases occurred in imputed rents of owner-occupied housing (+0.6%), paid rents (+0.7%), food and beverage services (+0.4%), air transport (+2.3%) and telecommunication services (+1.0%).
Outlays on durable goods were flat in the quarter as higher spending on new trucks, vans and sport utility vehicles (+0.8%) was offset by declines in new passenger cars (-3.8%) and used motor vehicles (-0.7%). Additionally, outlays for semi-durable goods decreased 0.7%, while non-durable goods edged up 0.3%.
Toilet Leak Detection - A Case Study
Nano Presciutti - WCC Water Mangement Services Inc.
As mentioned in a previous Apartment Digest, it is estimated that, at any given time, approximately 20-25 percent of all toilets in North America are experiencing leaks, which is the number one cause of water loss in multi-unit residential buildings resulting in the loss of billions of dollars in Net Operating Income (NOI) each year.
Toilet water usage in apartments and condominiums accounts for 34% of total water consumption. With toilet leakage contributing an extra 8% - 10% on top of that, almost half of all water consumed by residential tenants comes from toilet usage. Just one leaky toilet can waste up to 20 cubic meters a day or up to 600+ cubic meters a month costing approximately $80 and $2400 respectively depending on the size of the leak.
WCC Water Management has a device which measures leaking toilets in real time. It funnels all this data through the web and to those on the ground that can address this situation immediately. This will reduce the amount of water lost and hence save you money on your overall water bill. We have been testing this device in the GTA market and have been seeing serious positive results, even on buildings where the toilets have been changed about 3 years ago.
We have just completed a year long study with a major apartment building owner. They decided to put the devices in three of their buildings totally around 250 suites. We installed the device and monitored the buildings for 3 months to build a base line and then spent the next 9 months addressing the leakage and repairs in order to quantify the savings and costs. These buildings were professionally managed and most had toilets replaced 3-5 years ago.
The initial cost to the client for the install was around $25,000. As well there is an annual fee of around $7,200 for the back office program and real time monitoring software. The measured consumption for the period was around 65,000 m3 or around $163,100 per year. Once the installation was completed and over the period leaks were addressed in a timely fashion about $20,000 of water was saved or a savings of around 12.25%. Based on the pure cost to install, the pay back was around 1.25 years.
Since these were buildings in Toronto those savings if added to the Net Income and using a 3.5% cap rate means the owners just increased the value of their building by about $570,000 for spending $25,000.
Now not all the buildings leaked the same or had the same profile. As well, the above does not mean that next year the savings will be exactly the same - they could be more they could be less. However, the fact of the matter is that owners now have a tool in which they can be pro active on this front and not reactive. Knowledge and data will only mean money savings to any owner in the long run.
If you want more information on this product please contact:
Nando Presciutti - 416-451-7838 - firstname.lastname@example.org
RECENT APARTMENT SALES
479 Aberdeen Avenue – Hamilton – SOLD $3,500,000 / $194,500 per suite / 5.0% Cap Rate
This is a property located in a prime residential neighbourhood of Hamilton and comprises 18 apartment suites in three buildings. This property was sold by the Apartment Group and the buildings were in excellent conditions with 15 of the suites totally renovated to a high quality. There was some on site surface parking and common laundry facilities. No major cap ex was require at the time of sale on this property. The property was fully exposed and marketed and was sold to a private investor.
Minto Disposition - Toronto – SOLD $228,925,000 / $262,700 per suite / 3.5% Cap Rate
This is a sale of 3 apartment complexes in the Toronto area being: 2777 Kipling Avenue, 205-207 Morningside Avenue and 31-35 St. Dennis Drive. The entire holding consisted of 868 suites and some commercial space as well. All of the buildings were concrete mid and high rise rental buildings with elevators and underground parking and were purchased by Minto 3-4 years ago. Since the purchase Minto renovated suites and common areas and got rents up. This asset was fully marketed and exposed. The buyer was Q Residential for the Kipling building and Starlight Investments Ltd. for the balance.
314 Londale Drive – Toronto – SOLD $10,490,000 / $1,311,250 per suite / 3.35% Cap Rate
This property is located in a prime residential neighbourhood in the city known as Forest Hill. It is within walking distance to the intersection of Lonsdale and Spading - The Village. This property was emptied and totally gutted and renovated to high level. Units sizes were over 1,400 sf and the building contained 8 suites and surface parking. Average rents were north of $5,500 per month. The property was fully exposed and marketed and purchased by Westdale Properties.
11-25 Sherwood Avenue – Toronto – SOLD $34,500,000 / $338,235 per suite / 3.47% Cap Rate
These area collection of 4 mid rise rental apartment buildings located in the Yonge and Eglinton area on a single family residential street. They are of wood frame construction and comprise of 102 rental suites circa the 1920's. The property is situated on 1.33 acres and building amenities included: laundry and surface parking. This property was fully marketed and purchased by Minto Properties.
THE APARTMENT GROUP
Together the team has completed over 1,000 transactions and has sold over $5 billion in apartments and development land. Put us to work for you and see the results. NO ONE has sold more buildings then our group. Experience, knowledge and professionalism will insure you get the right deal or the highest price if you are selling.
The Apartment Group is a dedicated team of professionals specializing in the sale of multi-residential investment properties. With over 40 years of combined experience, the team brings together their strengths including strong negotiation and sales skills along with highly technical market analysis and appraisal methods.
We are a boutique Brokerage but have the capabilities of the larger houses without the overhead. We have: an internal database of over 10,500 active apartment and land Buyers; a list of all apartment building owners in the Greater Toronto Area; our web site gets over 50,000 hits a month; we highlight properties for sale through our newsletter which reaches 10,000 investors monthly.
President & Owner,
LORENZO DIGIANFELICE, AACI
Broker of Record, Owner