Co-living vs HMO - what is the difference?
Some say co-living and HMO are two ways of saying the same thing. Others are adamant that the two words are not interchangeable. Semantics? It certainly generates considerable debate amongst shared-living investors, agents, operators, developers, lettings agents, and anyone else steeped in this arena. (Even whether or not to hyphenate co-living can stir up a lively argument!)
It’s a question I get asked a lot, and I admit my answer has been refined a number of times over the last couple of years. So let’s take a closer look at each of these.
The technical definition of an HMO is:
An entire house or flat which is let to 3 or more tenants who form 2 or more households and who share a kitchen, bathroom or toilet.
That’s it. Pretty basic. (How it’s defined by the Housing Act 2004, is discussed in more detail here.) At its most bare bones, it is what you technically create. An HMO could be self-contained bedsits, which, depending on condition and location, might be more slum than a safe place to stay. An HMO could also be the most well-designed shared property, with spacious rooms and social space for potentially every eventuality and whim of a tenant. Referring to both of these properties by the same generic name, HMO, does a disservice to well cared for and designed properties, tarring all with the same brush. We coined the term Next Level HMO to distinguish our projects from those of others, and I encourage other tenant-minded HMO developers and owners to do the same. The goal is to launch you into the top 5% of operators in a marketplace where you must be positioned near the top to maintain a resilient business.
Think of co-living as the wrapper of an HMO, presenting it as a community within a shared house.
A co-living property features two key facets that encourage the formation of a community within:
A co-living HMO has facilities to encourage a community to form – it won’t just be a room with access to a narrow kitchen, where tenants must wait their turn to cook, and tiny bathroom.
Co-living developers creatively use space to encourage occupiers to use it, e.g., both large and small spaces, dining areas, cinema rooms, co-working/telecommuting spaces, outside space, etc. The larger the property, the more options you have. (The recent Covid-19 pandemic has had an additional impact on the creation of space, as noted in another article here.)
Some developers can’t fathom why we take what could potentially accommodate more tenants and make it what they see as ‘dead’ space, namely lounges and/or dining rooms. If you visit my YouTube channel, you’ll see where I analyse the numbers, comparing these two options, a larger number of bedrooms in a poorer quality HMO vs. a smaller number of rooms in a Next Level HMO. The numbers speak for themselves. Fewer rooms, when done well, is shown to yield the owner/operator more profit over time.
When we surveyed tenants in shared properties, our research demonstrated that tenants are happy to share with three or four others if the space is well-designed. So, with that in mind, you can look at a project in a more informed manner.
A co-living property is managed in a way that encourages community and uses well thought through technology to facilitate this. Managing a true co-living property is nothing like managing an HMO, in my experience. Most HMO agents view the tenant as nothing more than a liability as soon as the tenant move in, with the conversations between agent and tenant overwhelmingly negative. ‘You haven’t paid the rent.’ ‘Well, the washing machine is broken. And the guy in Room 4 keeps stealing my food.’
A co-living operator views their property as a sum that is greater than the parts. And they view their tenants differently. They see them as housemates, as members of a community. They see themselves as community managers, NOT as simply HMO lettings agents. By using good technology, such as text messaging and apps, you can reduce and systemise problems to take up less time. In this way, the number one focus of this community manager can be on building community. By doing this, the conversations become positive, and when the negative stuff arises – and it still will – it is easier to deal with because lines of communication have been opened and continue to be open.
A good system should be effective, efficient and easy to use, and that extends to the technology you use. For communication, something simple like WhatsApp groups help bring tenants together. For managing day-to-day operations, we like property management systems like Arthur, or BigRoof. One system that works really well for us for management and communication is COHO, which specialises in being the tech solution to manage the co-living experience.
Encouraging community means encouraging gatherings: beer and pizza, movie night, poker night… And using the local business community to facilitate this. Fundamentally, it means being proactive to encourage the occupants to want to be involved. Once they form communities, they will socialise and create their own events and gatherings. That increases their comfort level in the property and makes them want to stay there longer – with their housemates, their newfound friends.
This is obviously a boost to the investor because the most expensive part of running HMOs is tenant turnover. Dramatically reducing turnover generates increased profits.
In summary, the technical, tangible building you own and operate is the HMO, while the sense of community – the intangible magic that makes it all work – is the co-living. The benefits of co-living are plain – it creates great well-being for not only the tenant but also the landlord who can sleep well at night knowing their tenants are happy and safe, and that their business is strong and resilient.