The Agent of Wealth - How Shared Living Can Supercharge Existing Real Estate Properties With Johnny Wolff

Podcast

28 Apr

The Agent of Wealth

How Coliving Can Supercharge Existing Real Estate Properties With Johnny Wolff

Coliving answers to the demand for roommate-style living that’s affordable and easy. Discover the in’s and out’s of what it’s like to co-live with strangers, turned roommates – and how to invest in this housing model.

Coliving has captured the attention of many as the U.S. faces an affordable housing crisis. As market demand and product rapidly grow, opportunities for investors to get involved have followed. In this episode of The Agent of Wealth Podcast, Marc Bautis is joined by Johnny Wolff, the CEO and Founder of HomeRoom Coliving, one of the fastest growing coliving companies in the United States. Wolff’s love for living with roommates motivated him to start HomeRoom in 2017, after an unusually terrible Craigslist roommate experience. In 2020, the company boasted 99% on-time rent payments, full occupancy and zero evictions.

In this episode, you will learn:

What coliving is, and why it has grown in popularity across the nation.
The typical amenities a coliving space provides, including advantages over other forms of rental housing.
How coliving housing has fared during the COVID pandemic.
How investors can use HomeRoom’s services to transform single-family rentals into coliving properties.
The future of living: How Gen Z will amplify the trends that Millennials established, such as delayed marriage and living with roommates into their 30’s.
And more!

Resources:

livehomeroom.com | livehomeroom.com/invest | Bautis Financial: (862) 205-5000

Welcome back to The Agent of Wealth Podcast, this is your host Marc Bautis. On today’s show, I brought on a special guest, Johnny Wolff. Johnny’s the CEO and founder of HomeRoom Coliving, one of the fastest growing co-living companies in the United States. Johnny, welcome to the show.

Hey Marc. Really happy to be here, thanks so much for having me.

Happy to have you. On this podcast I’ve covered a lot of different areas of real estate, but we’ve never talked about coliving. Can you start off by explaining what coliving is, and then go into how you started your company, HomeRoom?

What is Coliving? Coliving vs. Having Roommates

Coliving is a real estate term for those who live in housing shared by two or more unrelated, adult roommates. Typically there’s a service layer to coliving, so it’s not as simple as having roommates. Coliving housing typically includes professionally furnished common areas, involves services like roommate matching, and includes amenities such as cleaning services and yard care. Coliving spaces take many forms, but HomeRoom offers coliving at single-family homes.

Community is a big focus of coliving. Just as an A Class apartment building hosts events for their tenants, coliving companies provide the same. HomeRoom’s unique wrinkle is that we operate in multiple cities, so tenants can easily transfer cities with the push of a button in our app.

So is the HomeRoom experience entirely on the tenant side, or does the company offer the ability for investors to get involved?

The term “coliving” is all about the tenant side. But investing in coliving properties is so great because you get more rent per square foot. Deer Park invested 75 million in Bungalow, an online market for real estate that includes coliving.

For the investor, the experience is quite similar to investing in a standard, single-family rental. You buy the property, do some work, and then the coliving operator will manage it. But the advantage is the investor will get a higher return than that of a standard, single-family rental.

So let’s say I‘m an investor looking to purchase a property for coliving purposes. What service does HomeRoom provide? Do I have to approach HomeRoom with a property ready to make into a coliving space, or do you help investors locate a property?

We do both. HomeRoom focuses a lot on helping investors locate and purchase homes, that way we can ensure they’re ideal for the coliving set up. But we also have a number of people who reach out to us wanting to deploy this model on a property they already own, with the hopes of making more returns.

Here’s the process broken down into four steps:

Pick Your Property: We support you in the home hunting process by handpicking great properties in high-demand neighborhoods for you to choose from.
Close the Deal: Helping you move through this process as quickly as possible, HomeRoom manages your transaction from offer to close.
Improve Your Property with Upgrades: Our tenant experience team is in charge of improving the interior of your property, upgrading it with highly desirable amenities that typical renters don’t get.
Sign the HomeRoom Lease: You lease your property directly to HomeRoom, which makes us your tenant. However for your peace of mind, we carefully vet all occupants with both background and credit checks.

What It’s Like to Co-Live

So you talked a bit about the investor side, now let’s switch gears to the tenant side. Do all coliving tenants go into the living situation without knowing the other tenants or roommates?

How Coliving Properties Match Roommates

Typically none of the tenants know each other. Occasionally there are groups that come to our platform knowing each other beforehand, but it’s rare. HomeRoom has various processes in place to ensure compatibility exists among roommates before moving in. We’re working on a roommate matching machine learning algorithm that perfects the process from a data science standpoint. In the meantime, until that technology is ready, we organize video calls between potential coliving roommates for people to meet and make sure they’re a good fit.

We also do a standard background credit check on all potential tenants to make sure they are a high-quality citizen. When it comes to coliving, it’s important that tenants are responsible and thoughtful of others.

Because HomeRoom manages the entire process, from property selection to deal underwriting, do you inherently get involved in conflicts between roommates?

How Coliving Properties Mitigate Roommate-Related Conflicts

In terms of roommate dynamics, we have much fewer issues than you’d think. Generally, tenants get along, but we do have an escalation process in place if there is a problem. We have a therapist on retainer if needed, for issues that are escalated.

In terms of a lease structure, does everyone living at a property fall under the same lease, or does HomeRoom structure separate leases for each individual?

How HomeRoom Structures Coliving Leases

With HomeRoom, everyone has their own lease.

Are all of the leases 12 months?

Well, we actually call it a member agreement, not a lease. Tenants can actually transfer between properties seamlessly with our member agreements. Typically people sign for 12 months, but HomeRoom has member agreements as short as three months.

So HomeRoom has a directory of properties with openings that tenants can transfer to?

Correct. You can move from Kansas City to Austin tomorrow.

How many cities is HomeRoom currently operating in?

35 and counting.

What goes into the process of adding a new city to the list?

We look at a variety of different factors. One of the things my partner Mike and I discovered pretty early is that if you want to create a change in the way people live, there needs to be a lot of movement. Therefore cities with a lot of migration and growth work really well for coliving. Cities like Dallas and Kansas City have been really strong for HomeRoom. As long as there’s movement in and out of the city, and the total demand is increased, coliving thrives as it offers a unique solution for many seeking housing.

In addition to migration trends, we look at economic fundamentals. It’s important for us to make sure that our investors are buying a great business model that can pretty much work anywhere. But having that prosperous city maximizes their upside over time.

What is the typical coliving tenants’ age? I’d imagine a younger person is more apt to co-living.

Source: HomeRoom

Trends in Coliving

The average age is 31, but that’s actually been trending up. A couple of years ago the average age was 28.

Do you have thoughts as to why it’s trending that way?

In general, we’re seeing marriages be delayed, and I think housing affordability is a crisis across all age demographics. We really think that coliving is one of the bigger solutions to that.

How has coliving fared over the past two years with COVID? Are people more reluctant to co-live because they want space or separation?

How Coliving Housing Has Fared During the COVID Pandemic

We get that question a lot. COVID affected real estate because initially, everyone stopped moving. If you had a lot of housing inventory – especially shared housing inventory – this was a really tough time. In our case, HomeRoom had zero vacancy at the time. So no one left, and no one joined for about four months.

After that period of time, it got back to normal. Because our tenant demographic is on the younger side, the ongoing pandemic affected them less than the average person.

Sales velocity for HomeRoom went up 300% in 2021. So, we’ve been growing faster than ever… because the need for housing – and community – is stronger than the negative forces of COVID.

That’s great.

How long do people tend to co-live?

The Rise in Shared Housing

I can answer that in a couple ways. One is; on average, people stay a bit longer than a year with HomeRoom, and we see that trending upwards. We do have some tenants that have been with HomeRoom since the company has been in business, which is a bit over three years. Beyond that time period, we don’t have the data. But we’re learning more and more every day.

If I remember correctly, something like 33% of 19- to 29-year-olds live with roommates today, so it’s not like people are living in this phase for two or three years. It’s now become a 10-year, and maybe even a two-decade trend. Some people in their thirties are still living with roommates.

Do you think the main reason for that trend is delayed marriages and delayed families? Are there any other reasons you can point to?

There are so many core drivers: housing affordability, delayed marriages, student loan debt, etc.

Think about it like this: A young adult graduates at 22 with $150,000 in student loan debt. They get a job for $40,000 right out of college, because wages are stagnant. They decide that they don’t want to get married right away – which would double the household income – because their parents divorced when they were 13, and it was terrible.

How many Millennials can relate to that? Or aspects of that statement?

The big economic drivers of wealth creation – getting married young (creating a dual income) and buying a house – have been pulled out from underneath the Millennial generation. So they’re left with little options, and one is to go into a roommate housing situation in which they pay 50% on rent and get the communal aspect of having a marriage and a family. That now comes from having a roommate.

The reason the show “Friends” was so universally beloved is because that is the new way of living. The Millennial generation has created their own adult family after college.

That makes a lot of sense. You mentioned that HomeRoom will discuss coliving opportunities with existing property owners. What are some of the features you look for when either selecting a property, or renovating a property for this purpose?

The Components That Make For a Good Coliving Property

We find that perfecting the space and environment creates a better experience, both for the investor and for the tenant. Having a better experience means people are going to stay longer, which is HomeRoom’s ultimate goal.

Less about the space, but more about the property management: We find that removing any possible tensions for tenants is the key. HomeRoom provides a cleaning service for the properties. This way, if there’s dishes left in the sink, they get cleaned up. We also create the house for cleanliness. There are little details throughout the experience that fine tune it for roommates, making them happier. That, in turn, yields more money to the investors.

And in terms of the logistics and layout, how many tenants do you have per property, or per bedroom?

Each person gets their own bedroom. In some cases, we will add a bedroom to a property to increase the number of rooms, but we are super mindful when making those decisions – we want each property to be a perfect shared living experience. When we add bedrooms, we do it in a way that’s elegant and fits with the floor plan. That, in turn, will extend the stay of everyone there, because more bedrooms means less rent per tenant.

But all of the properties have to support the amount of people living there. That includes parking, number of bathrooms, etc. We are very thoughtful.

What are these properties like in terms of maintenance and capital expenditures compared to that of a single-family property?

I think maintenance of a coliving property compared to a single-family rental is probably the same, or even a little less.

When people first think of coliving, or hear that six young adults are living together, they think of college students drinking out of kegs and destroying the neighborhood. That’s not the case here. As I said, our average tenant is 31-years-old. There’s no keg parties happening at these properties.

The demographic of tenants is responsible, too, and when these responsible, young adults are aware of their surroundings, they identify things faster. In turn, a lot of maintenance issues are prevented.

HomeRoom’s coliving properties don’t allow pets or children, which tend to be the two most destructive things for a rental property.

So is the typical coliving tenant someone that keeps to themselves?

Well, I lived in our first ever coliving house for three years. For the first two years, which were during the COVID pandemic, everyone spent their time at home. But before that, most of the people I lived with spent a fair amount of time in and out of the home.

It’s not like my roommates were hosting office meetings at the house. They were busy young adults… some would spend days and nights away… There were even times, prior to the COVID pandemic, where I wouldn’t see a roommate for a week because everyone’s doing their thing. But it really varies.

Okay, so we talked about coliving on the investor side, but I think HomeRoom also offers a more passive approach to investing in coliving through a fund. Can you tell me more about that?

How to Invest Passively in Coliving Properties

We have a syndicate fund through a registered investment advisor partner for accredited investors. They can invest $50,000-100,000 into the fund that buys and manages a property. It’s just a different way to deploy capital into coliving, which, in my opinion, will be such a big opportunity for real estate over the next three years.

Awesome. What’s next for HomeRoom, besides adding cities to the platform?

We have a lot of plans. Last month we launched the syndicate for the coliving fund. We recently added the cities of Indianapolis and Pittsburgh… Tampa is next. In the future, we’d like to be in every city in the United States.

We’d also like to offer property management services to single family home investors as well. We really want to increase our form factor footprint as well as our geographic reach.

Alright. Well, we’re just about out of time. Johnny, I’d like to thank you for being on The Agent of Wealth Podcast. You provided some great information into a type of real estate investment that a lot of people don’t know about: coliving. How best can someone reach out to you?

My pleasure. Your listeners can go to livehomeroom.com for more information. On the investor side, go to livehomeroom.com/invest. On the site, there’s an option to schedule a call with a member of my team. In terms of reaching out to me specifically, you can email me at johnny@liveHomeroom.com. Feel free to hit me up anytime.

Awesome, we’ll link to all that in the show notes. Thanks again to everyone who tuned in to today’s episode. Don’t forget to follow The Agent of Wealth on the platform you listen from and leave us a review of the show. We are currently accepting new clients, if you’d like to schedule a 1-on-1 consultation with our advisors, please do so below.

Johnny Wolff