The profitability of shared accommodation can generate a gross yield ranging from 6% to 12%, taking into account factors such as location, tenant profile, and the property owner. For students, shared accommodation has become a very attractive option as it is less expensive to rent. From 2016 to 2021, the rate of people opting for shared accommodation increased by 15.5%, a figure that will interest a real estate investor looking for projects in this field. Shared accommodation benefits both the landlord and the tenants. Even though the rental cost is higher, the rent is shared.
Converting a house into shared accommodation is therefore an investment based on adapting a property to a group of tenants. So, what is the profitability threshold if you proceed with transforming your property into shared accommodation? In this article, we'll discuss the best ways to maximize the return on investment for rental properties in this direction.
Choosing a Potential Tenant Profile for Better Profitability
Before putting your apartment or house into shared accommodation, you need to define target tenant profiles. This approach will allow you to tailor the space according to a specific objective. You can then adjust the rental price based on the chosen tenants.
Students
Students make up the majority of those interested in shared accommodation due to the equal sharing of rent. To maximize profitability, you can invest in renovation tailored to student profiles. Students do not have the same needs as a normal household. In other words, they only seek the essentials for living.
If you opt for this tenant profile, the living room is not recommended. To achieve profitability, maximize the number of bedrooms. Also, ensure that the kitchen is spacious enough to accommodate all tenants from time to time. This is important to allow for the installation of a refrigerator where everyone can store their groceries.
In terms of bedrooms, you should provide a large bed per room, storage space, and a desk. This setup is sufficient for a student room. Alternatively, if you want to raise the standard and rent, you can install a television for comfort. Since students are often connected, you should plan several outlets in the room.
For student shared accommodation, the bathroom and toilet are among the main criteria to consider. They are often sources of disputes among tenants. You should therefore separate them during the redesign.
Seniors
Opting for a lease with seniors can bring considerable benefits. With various social benefits, they will have no problem paying your rent. Currently, it is common to see seniors opting for shared accommodation. This option allows them to break the solitude by living with others in a house or large apartment. In addition to being able to share the rent, each tenant can contribute to the payment of costs related to medical services. Compared to the needs of a student, those of seniors are more specific. A living room, for example, is a necessity for them so they can gather during the day. Moreover, they have the means to pay rent corresponding to this type of comfort.
Renovating a property to accommodate shared accommodation for seniors is simple and profitable. Elderly people need to interact, hence the need to set up common areas. The layout of the spaces should be easily accessible even in a wheelchair. Access to the property should also be reviewed if you want to make a rental investment for this purpose.
Young Professionals
Young professionals who are starting their careers generally have limited means. Consequently, they deliberately choose shared accommodation to have a large space at a lower cost. Often, these young professionals know each other, which is why they decide to opt for shared accommodation. Thus, aim for 2 or 3 bedrooms at most as they are generally not interested in overcrowded housing.
To adapt your house or apartment to the lifestyle of young professionals, you can offer rooms with built-in storage. Generally, this tenant profile does not need a desk, but just a large bed with some decorative furniture.
The most important thing for this type of tenant is conviviality. Therefore, the living room is mandatory to serve as their living space. It is also wise to provide more space in this room so that tenants can entertain guests. If you lack space, the option of an open kitchen will allow you to enlarge it.
Opting for furnished accommodation to maximize profitability
The rental price for furnished accommodation is naturally higher compared to its price when unfurnished. Renovation projects generally do not include expenses related to furnishing the property. So, how do you make a furnished shared accommodation investment profitable?
The importance of furniture for shared accommodation
The rental price for a shared house differs from that of an apartment in a building. The number of rooms and available space are the main reasons. However, furniture also plays a significant role in rental rates. For shared accommodation, furniture for communal use is necessary. For example, a large corner sofa and a television are sufficient for the living room, in addition to other decorative elements.
Regarding the kitchen, you can opt for the essentials after defining the targeted tenants for your investment. Purchasing furniture beyond the basics will attract more roommates. For example, you can add additional storage or a coffee table.
Choosing furniture according to the target audience
The choice of furniture depends on your target clientele. By doing so, you can attract specific profiles in addition to making your property more profitable. For a student target audience, you can, for example, opt for modular bookshelves to be placed in the common area of the property.
Alternatively, with older roommates, the furniture in the bedrooms and living room should match their lifestyle. Bathrooms and toilets can significantly impact rental rates. Therefore, it is necessary to review their layout with grab bars and suitable tiling to prevent falls. The same goes for the kitchen, bedroom, and dining room.
If you want to rent out without defining the profile of roommates, you can opt for simplicity. To ensure the comfort of roommates, choose standard, user-friendly furniture. Purchasing this type of furniture will appeal to all types of roommates without making any particular distinction. Thus, you can conclude a lease agreement more quickly based on applicable law by setting the rental price of the property at the average level.
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Mastering your budget to avoid additional expenses
To ensure significant returns, you must manage your investment in renovations effectively. There are several ways to improve the profitability of your property transformed into a shared house.
Reducing renovation costs
In a real estate project, renovation is the most expensive step. Thus, finding good labor to carry out the most expensive work will make it more affordable. You can negotiate with all artisans to obtain discounts and thus gain more.
Generally, the bathroom and kitchen are the most expensive rooms. If your property has two or three bedrooms, you can set up a single bathroom. However, if you have four bedrooms or more, installing a second one with a toilet is mandatory. The rents of each roommate should justify this addition to achieve a more reasonable return.
Choosing materials
Choosing materials yourself to carry out the work is a good way to save money. You can visit stores and suppliers to compare prices and choose the one that fits your budget. Moreover, by going in person, you can access promotions on certain products. For shared accommodation, mid-range materials are ideal. Consult your artisan to find the necessary materials at the best price.
As a landlord, you should use durable materials to prevent premature aging. Private rooms are the most affected as they will be subject to more frequent use. Also, pay particular attention to flooring and wall coverings. Prefer coverings suitable for heavy traffic, such as flexible PVC. It is a less expensive solution compared to tiling, but more durable and easier to clean.
Choosing the location to facilitate tenant search
For good rental returns, you must choose a strategic location for the shared house. You need to study the room rates in the current market by area and choose a city where you can easily find your target clientele.
Student cities
Putting a residence in shared accommodation in a student city has many advantages. It is an alternative for buildings whose apartments are always in demand. With the number of students in France totaling more than 2,700,000, the country lacks apartments and residences. Therefore, investing in shared accommodation in a student city can only be profitable.
In a student city, vacancy rates are low due to the shortage of housing. Shared accommodation is therefore an effective way to make your real estate investment profitable. When a student vacates a room, the lease for a new tenant is signed within a few days. Word of mouth in the student community and advertisements are the main reasons for this ease of search.
In most student cities, rents are rising, and the risk of default is very low. Many students receive housing assistance to reduce rent prices. A termination clause in the lease will then not be necessary, as it terminates the contract in case of default. You will therefore be assured of having no recourse to the law for such a reason. Otherwise, you can implement a joint liability clause among roommates to ensure rent payment.
Cities with an active job market
Cities with a dynamic job market represent a significant opportunity for real estate investment. They attract young professionals who want to find their first job without having a large budget. For these young people, having a roommate is ideal as they can share the rent and freely look for work. The price of a room for shared accommodation in these areas ranges from 480 euros to 720 euros. This constitutes an average rental return in the long term if you convert your house for this purpose.
Choosing the tax regime for better shared rental returns
Renting a furnished apartment is an additional offer made by the landlord to roommates. It generally results in higher rents for each roommate than those for unfurnished apartments.
The most advantageous tax regime to make the most profit is furnished rental under the LMNP (Non-Professional Furnished Landlord) scheme. With this status in furnished rental, you will be taxed on 50% of your rental income. In the best case scenario, the taxable base can be reduced to 0 thanks to the depreciation of the property and other expenses. In general, you will not pay taxes on furnished rental income during the depreciation period of the building or the housing under LMNP.
