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The 7 mistakes costing co-living investors $150k
As the nation’s property market tightens, investors have begun to shift their attention to an emerging commercial asset: co-living.
Co-living dwellings provide tenants with private accommodation alongside shared living spaces, offering an affordable housing option typically located in well-connected areas.
The asset type was previously identified as one of the hottest commercial property sectors, with tenants taking advantage of proximity to amenities, transportation, and employment opportunities.
With co-living becoming more prominent in the property market, Harmony Group co-founder Yannick Ieko said investors needed to understand the fundamentals driving interest in the sector.
Across the market, Ieko said that many first-time co-living investors were making mistakes that could cost them between $30,000 and $150,000 in lost returns or remediation costs.
He said that buying in the wrong location or without support from a specialised property manager was a common pitfall for first-time investors.
“These mistakes follow predictable patterns that experienced analysts can identify before contracts are signed, making prevention straightforward when you know what to look for,” Ieko said.
“The reality is that success depends entirely on systematic due diligence rather than market timing or luck.”
“Investors who achieve consistent positive cash flow from settlement follow rigorous screening processes that reject most opportunities before committing capital.”
Here are the most common mistakes investors were making in the co-living sector:
Poor location choice
Much like the traditional property market, interest in co-living dwellings has primarily been driven by location, with investors who bought in the wrong locations limiting their long-term returns.
Ieko said that failing to understand an area’s demand would have the greatest financial impact on an investor’s wealth.
“Co-living in oversupplied markets like Brisbane achieves 6 to 7 per cent gross yields versus 10 to 12 per cent in controlled-supply areas like Wyndham and Melton.”
“Market selection is the single highest-impact decision any co-living investor makes, regardless of property quality or purchase price.”
Wrong ownership structure
When purchasing co-living investments, Ieko said that having the right ownership structure in place could save landlords thousands of dollars.
“Sole ownership versus trust versus company structure decisions carry long-term implications that require specialist advice before purchase rather than correction after settlement.
“Wrong ownership structure selection costs $3,000 to $8,000 annually in unnecessary tax on co-living investments,” he said.
Failing to check 1B certification
While townhouses or duplexes have been classified as a 1A property, co-living dwellings have stricter requirements and are classified as 1B.
1B properties bring enhanced fire safety compliance measures, such as hardwired smoke detectors, emergency lighting, and at least one room with disability-compliant features.
Ieko said the most damaging mistake co-living investors could make was purchasing a property for co-living without a confirmed 1B certification.
“Properties lacking this certification are illegal to operate and uninsurable, exposing investors to council shutdown orders and potential total loss.”
“This is non-negotiable across all Australian states.”
Inaccurate rental projections
With demand for co-living properties on the rise, Ieko said investors must ensure that they are making fully-informed decisions based on current market data and understand the demand for their asset.
“Fantasy rental projections not validated against live Domain or REA data create 20 to 30 per cent cash flow shortfalls within 12 months of settlement.”
“This destroys investor confidence and forces early exits at significant losses.”
Lack of specialised co-living experience
For investors to maximise their return on co-living, Ieko said they should lean on a property manager who understands how to manage the asset.
Ieko said that finding a specialist co-living property manager could be the difference between a 98 per cent occupancy rate and an 85 per cent rate for a standard property manager.
“This 13 percentage point difference translates to $8,000 to $15,000 additional income per property in undersupplied markets.”
He said the difference in management quality compounded over time and could create a significant wealth gap between otherwise identical investments.
Inexperienced builders
For those looking to develop in the co-living sector, finding builders who understand the compliance measures was key to protecting their investment.
Ieko said that builders with fewer than 10 completed co-living projects often failed to meet compliance requirements, potentially costing investors up to $150,000 in remedial work.
“Builder experience matters more than most investors realise.”
“Experienced builders understand the specific construction standards, room configurations and council requirements that differ from standard residential builds.”
Insufficient rate rise buffers
With the market constantly fluctuating, Ieko said investors who failed to plan for potential rate rises could find themselves unable to hold on to their property during market downturns.
“Properties with 15 to 20 per cent buffer built into cash flow projections survive rate cycles, while those with a 5 per cent buffer often face a forced sale.”
He said that to avoid being stung by rate increases, investors should build a buffer of 2 per cent into all projections and stress-test at three per cent to confirm their capacity to hold the property.
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