As changing housing market conditions have made homeownership more expensive, demand for affordable rentals has increased significantly. Naturally, this increased rental demand has driven rent prices up in recent years, especially in high-value markets like Los Angeles. And this has led to more creative living arrangements for renters.
Specifically, we’re seeing an increase in the number of co-living and roommate agreements. These arrangements allow multiple renters to share a single unit, saving money by splitting the rent multiple ways.
But the terminology is confusing, and many real estate investors are asking what is the difference between roommates and co-living arrangements? Plus, now we’re seeing the term shared living added to the mix. Is shared living the same as roommates? Or Co-living?
In this post, we’re breaking down rental arrangements: roommates vs. co-living vs. shared living. We’ll define these terms and explain what they mean for real estate investors.
What is a Roommate Arrangement?
A roommate arrangement is when multiple adults occupy a single unit together. In most cases, the renters are not related, but siblings and cousins can be roommates as well.
With a traditional roommate arrangement, all roommates share a single lease. This means they are jointly liable for paying rent and taking care of the property. If one roommate fails to pay rent, the landlord can seek payment from all roommates and even evict everyone from the unit if payment cannot be collected.
What is a Shared Living Arrangement?
The term shared-living can be used interchangeably with the term roommates. However, we’re seeing the shared living term evolve to refer to a specific type of roommate arrangement in which three or more roommates live together in a space specifically designed for multiple roommates.
Innovative real estate developers are creating multi-family structures just for those with multiple roommates. In these shared living buildings, each unit has three to five bedrooms, all of which are similarly sized and come with an attached bathroom (as opposed to traditional layouts, which offer a primary suite with its own bathroom and smaller bedrooms that share a single bathroom).
This is ideal for shared living because each roommate's accommodations are similar, so the rent can easily be divided evenly (rather than figuring out how much the roommate in a traditional primary suite should pay compared to the roommates who get smaller bedrooms). Plus, roommates appreciate the privacy of having their own private bathrooms in a shared living space.
What is a Co-Living Arrangement?
Co-living is when multiple adult renters occupy a single housing unit, but each individual renter has their own lease in place for the portion of the property they are authorized to occupy.
With this arrangement, each renter is individually responsible for paying their share of the rent and taking care of their share of the unit. If one renter fails to pay rent, that person is solely liable for the debt. The other renters are not on the hook. One person’s lease can be terminated without affecting the others.
The renters in a co-living arrangement are still technically roommates because they live together, but having multiple active leases for a single unit is an important distinction that deserves unique terminology.
What is the Difference Between Roommates and Co-Living?
To summarize, roommates all share one lease, making all roommates jointly responsible, while co-living allows each roommate to have their own individual lease. And shared living is another term for roommates, which is more frequently being used to describe three or more roommates in a space specifically designed for multiple roommates.
What the Difference Between Co-Living and Roommates Means for Investors
Leases protect real estate investors by outlining the terms and liabilities of a rental agreement. As a real estate investor, you need to know how your leases are structured.
If you rent a unit to multiple renters on a roommate arrangement, you can seek remedy from all roommates if one roommate misses their share of the rent. If you rent a unit to multiple renters on a co-living arrangement, you cannot expect one roommate to compensate for another roommate's failure to pay rent.
Skip the Hassle and Invest in Syndication
If you love the many benefits of investing in real estate, but you’d rather not deal with messy tenant situations, consider investing in real estate syndication.
Real estate syndication is when multiple investors pool funds to finance a specific real estate project. The project is professionally managed by a real estate sponsor, which means your returns are completely passive. You can invest without spending any of your own time or energy on the project. And since you get to leverage the pros, you can invest in unique real estate deals without any prior knowledge or experience.