Exploring Co-Living as a Profitable Investment Strategy With Grant Shipman

August 27, 2024

In this episode of The Same Day Podcast, host Yoni Schmidt is joined by Grant Shipman, Founder of Livingsmith, to discuss exploring co-living as a profitable investment strategy. They dive into the essential management practices that differentiate successful co-living investments, the financial benefits of this model, and how creating a strong community within co-living spaces can drive long-term success.

Exploring Co-Living as a Profitable Investment Strategy

Grant Shipman is the Founder of Livingsmith, a pioneer in the co-living property management and investment industry. With two decades of hands-on experience, he has led his company to boast a staggering 97% lifetime occupancy rate. Grant is recognized for creating the first-ever co-living course and for his contributions to addressing housing and climate crises. His drive to create sustainable 21st-century households has made him a revered mentor and leader in the co-living sector.

Here’s a glimpse of what you’ll learn:

  • [2:40] Grant Shipman explains the difference between co-living and house-hacking
  • [2:40] How co-living can continue revenue streams beyond traditional house-hacking methods
  • [5:27] The tenant-landlord dynamics in a co-living arrangement
  • [6:44] Handling tenant conflicts effectively in a shared living space
  • [12:01] How co-living arrangements address the issues of tenant demand and housing shortages
  • [17:37] The business model and structure that makes co-living investments successful
  • [24:09] Potential profits of converting traditional rentals to co-living spaces
  • [28:31] The tenant selection process for a harmonious co-living environment
  • [41:22] Acquisition strategies for co-living properties
  • [44:32] How uniform rent pricing can impact the dynamics of a co-living household

In this episode…

Co-living has emerged as a popular solution to the growing housing crisis, but is it truly a profitable investment strategy? Many real estate investors are intrigued by the potential returns yet hesitant about the complexities involved. How can you successfully navigate the challenges of co-living while maximizing profits?

According to Grant Shipman, a seasoned co-living and property management expert, the key to success lies in understanding the unique dynamics of co-living arrangements. He highlights the importance of creating a “healthy household” with structured management practices that balance tenant needs and ensure harmony. This approach minimizes conflicts and leads to higher tenant satisfaction and lower turnover rates, making co-living a lucrative investment option. Grant emphasizes that co-living requires specialized knowledge and techniques, but when done correctly, it can significantly outperform traditional rental models in both profitability and sustainability.

Resources mentioned in this episode:

Related Episodes

Quotable Moments

  • “Co-living is, instead of putting a lease on the entire house, that same house would have a lease on each bedroom.”
  • “If you don’t have conflict, you don’t have a group of people getting to build trust and appreciation for each other.”
  • “You must have some kind of emotional intelligence to live with other great people in a quality place.”
  • “I went from delivering Domino’s Pizza to achieving financial freedom and a $2 million net worth because of co-living investment.”
  • “People would much rather live with others than live alone, all things being equal.”

Action Steps

  1. Explore the potential of co-living as an investment opportunity by researching and understanding the unique requirements and benefits of these properties: This step addresses the need for new, innovative real estate investment strategies that can adapt to today’s housing challenges.
  2. Strengthen conflict resolution mechanisms within shared living arrangements: Effectively managing tenant conflicts is crucial for the success of co-living spaces and tenant retention.
  3. Consider legislation and zoning laws when investing in co-living properties, as they may vary by location: Understanding legality is key to compliant and profitable co-living setups and preventing issues.
  4. Embrace asset management practices to ensure long-term profitability and property improvement over time: This step tackles the common pitfall where investors fail to save and instead deplete property profits.
  5. Look into creating inclusive communities within co-living properties to contribute to solving societal issues like loneliness: Creating supportive environments not only ensures higher renter demand but also addresses broader societal concerns.

Sponsor for this episode…

Chris Lile at State Farm Insurance:

This episode is brought to you by Chris Lile at State Farm Insurance.

Chris Lile at State Farm helps you protect your most precious assets and investments, including home and auto.

To learn more about how you can save double digits on all your insurance needs, visit diallile.com or call Chris’ office at 918-878-7771.

Keyrenter Property Management:

This episode is also brought to you by Keyrenter Property Management.

Keyrenter Property Management is a full-service property management company that helps clients buy, renovate, and operate real estate assets.

The team helps clients build wealth while taking the headache out of property management.

That’s why, no matter what rental you have — single-family homes, condos, townhomes, or apartments — they can give you the management solutions you need.

To learn more about their services, go to https://keyrenterpmc.com/ or send them an email at [email protected].

Episode Transcript

Intro 0:05

Welcome to The Same Day Podcast where we discuss driving incremental business growth and other topics related to real estate, property management and entrepreneurship. Now to the show at hand.

Yoni Schmidt 0:20

Hello. Yoni Schmidt here hosting today’s episode of The Same Day Podcast where I connect with top business and real estate leaders as well as entrepreneurs. Past guests include Chip Gaberino, a local restaurateur entrepreneur, Elliot Nelson, CEO of the McNellie’s Group, and Morgan Martin from Merrill Lynch. Today’s episode is brought to you by Chris Lile State Farm. Chris Liles State Farm helps you protect your most precious assets and investments, whether you’re at whether it’s your home and auto investments, rental properties or other valuables, call Chris Lile State Farm for your quick and painless phone call to save double digits on your insurance needs, potentially so he did save me $5,000 one year. So that was great. Today’s episode is also brought to you by Keyrenter Property Management. At Keyrenter Property Management, we are a full service property management company. We’re helping our clients buy, renovate and operate real estate assets. We help our clients build wealth by removing the headache of real estate ownership. If you have a whatever you have a single family, home, condos, townhouses, apartments, we have the management solutions for you. Go to keyrenterpmc.com or email us at [email protected]. Welcome to our podcast, where today we have the pleasure of speaking to Grant Shipman, the Founder of Livingsmith, and a leading expert in co-living, property management and investment. With over 20 years and hands on experience, Grant has propelled Livingsmith to impressive heights, maintaining 97% lifetime occupancy rates and pioneering the first ever co living course. His company offers a range of services, from do yourself guides to full service property management, addressing both housing and climate crises. Grant’s, dedication to creating 21st century households has established him as a sought after mentor and thought leader in the co-living sector. Today, Grant will share his insight into co-living, into the co-living industry, smart investment strategies and the importance of building community and modern living environment. Join us for an enlightening conversation. Welcome to the show and thank you for being here.

Grant Shipman 2:30

Hey. Thanks so much. Yoni, you and Mat and the team. Having me here is it’s a really big honor. I’m real grateful. I’m I’m excited for this. This is fantastic.

Yoni Schmidt 2:39

Yeah, love to have you here. So let’s dive right in. And this is a question that, you know, I mentioned earlier on in our conversation, when we just hopped on my biggest question, tell me, what is the difference between co-living and house-hacking?

Grant Shipman 2:40

Yeah, this. This is such a great question. It’s actually, I mean, you have the like open heartedness and mightiness to ask it, where other people are trying to ask me questions, and I’m like, that’s what they want to ask. They just don’t want to say it. So beyond house-hacking, a strategy where you you buy with owner occupant financing, rent out extra rooms to pay off your mortgage, and then after about 12 months you turn that property into, usually, a traditional, you know, long term lease. The co-living is, it actually can be beyond house-hacking is a great way to buy a co living property. What happens, though, is that co-living is, instead of putting a lease on the entire house, that same house would have a lease on each bedroom and and then that that model, that house-hacking model, where, if, where, if somebody is house hacking and they have great Property Management set up for that, then that that that two, 3x the rental income each month continues past that first 12 to 14 months. We actually, when I, when I came out with our course, the term co-living wasn’t known in 2019 so we called it beyond house hacking. So you, you nailed it. It’s just, it’s just going beyond it and continue to get that revenue.

Yoni Schmidt 4:24

Yeah. So, just to be clear, I guess the house-hacking, which I’ve done in the past, right? I bought a house. And, you know, my earlier 20s, I had a bunch of friends, it was kind of like a handshake transaction, right? I don’t necessarily know that I had a lease with that. You know, they were paying me rent, and you know, it was supplementing my income, and also, you know, I was living there, right? And they knew that I owned the home, and they knew that I was essentially, like, quote, unquote, their landlord, but really, it was just a couple of friends in the co-living. A sphere or space, right? You’re someone could say, Okay, I’m going to buy this house. It’s going to be in an LLC. I may or may not live there, right? And I’m going to rent out each bedroom, right? And maximize the returns on this. And you know, if I’m living there, the people who are renting, if I’m using a third party property management company, don’t necessarily know I’m the owner. Is that true?

Grant Shipman 5:27

Yoni, you nailed it. It’s actually you nailed it better than a lot of people that are stumbling their way through co living their current investors. Is whenever we often buy properties, syndicating, using beyond using house hacking, but whenever there’s a owner or an LLC member, we refer to them as founders, whenever they are living in a house, nobody knows it, because the egalitarian nature of the house, everybody’s on the same footing, makes for a much better quality house. Nobody wants to rent a room from. You know, when the owner sitting in the living room watching you right.

Yoni Schmidt 6:03

Right. The question then becomes, say, one of the roommates right, or tenants call them is doing something that may violate the lease, right, and the owner is living there. Have you ever been in a situation like that, where essentially the owner now has to either deal with it and say, Hey, you’re violating the lease, right? And I’m going to call you out on it, not because you know that I’m the owner, but because I live here too, maybe. Or do they reach out to their property management company and they say, hey, this person is violating their lease agreement by, you know, housing an unauthorized pet. Let’s just say, for example, right?

Grant Shipman 6:44

You’re, you’re hitting on the 256 million dollar question. And I use a specific number because the this is, this is in regard to, you know, problems or conflict, which, which happen in every single group of people living together, related or not, on the same lease or not. But it is unique to co living because, and this is the reason it’s 250 $6 million Yoni, is that amount of money has been flushed down the drain in institutional hedge fund investing for people who don’t know how to handle tenant conflict and, or when there’s a problem, right? Whether it’s the an owner is involved or not. And so how does this work? Right? Do you contact the property manager, or do you just, you know, talk to the person directly, and, and it’s been really interesting, because these massive, I mean, let’s see. Common is $112 million startup in in in June. So last month, from this recording, they just went bankrupt. And so they, they, they, they bumped that up to the 250, $6 million that has been wasted, wow, because of of tenant conflict. And what’s weird to say is, is my company has thrived, and the reason is, I lived for about 20 years in the intentional living community. So these are the OGS of of of unrelated adults sharing a house. I mean, we’re talking old hippie co ops, communes, house shares. I I kind of accidentally ended up there when I had a I got married really young, and that that marriage failed, and so I did the unexpected and moved in with a bunch of hippies in Austin. Um, actually, the the house, the house that I moved into was so incredible. It was started in the later 70s, and so many of them, half of the house, went on to help start Whole Foods, the the grocery store. Oh, wow. So they they have their they have their systems worked out because people who live in the intentional living community, they’re not there because they can’t afford to live elsewhere, they’re accomplishing amazing things. And then the, you know, these institutional investors, other real estate investors, they just have their property management, you know, investing acumen and and it’s been failing left and right in in this so to to answer your question, to say, but to say why it’s such a a huge question is, and the difference, I think 100% between success and failure is, is that we, we have a we’re one is tenant conflicts, important if you don’t have conflict, if you don’t have somebody thinking somebody else is breaking the rules, whether they are not, then you don’t have a group of people getting to build trust and appreciation for each other, right? If you don’t have conflict, you don’t have that built up relationship. But if you don’t have a way to resolve that conflict, then you just have, What? What? A. Lot of people are experiencing, which is, which is high tenant turnover, property damage, and ultimately, you know, $100 million company goes bankrupt, a $30 million goes bankrupt, Star City, Ollie hub, house, you name it. I mean, we don’t know about these. They’re not, they’re not spoken about, even the other leading voices and co-living investment. I talk to them, and they have no clue, right? We, we kind of just have our heads down in a lot of ways. But to say is what we do is there’s a conflict, a conflict resolution system. I learned, like, exactly, you know, like nose to toes exactly, from the intentional living community. It has nothing to do with the property manager, right? You go tattle that doesn’t build a relationship. But the house has that as part of a part of our property management system. They have this to resolve conflict, and so whether it’s the owner or it’s not, it’s it takes conflict, and it 99% of the time, it turns into a beautiful thing where the next day, you know, those two people are going to grab tacos, you know, for lunch together, even though they thought the other person was the devil the night before. And then the 1% that it doesn’t, then that just gives the house a chance to protect itself and get rid of a bad egg that happens on occasion. I mean, yeah, yeah.

Yoni Schmidt 11:22

So interesting. So, you know, does do you ever come into before we I want to go into, like, the nitty gritty of, like, what you do, what Livingsmith does, but before we do that, another question that kind of popped up in my mind through what you were saying is, you know what’s, what’s the difference? Or has there ever been a scenario where you know the co-living is also co ownership, right? You have a four bedroom house, four people together come together, they want to buy this house, and also co live in it and essentially invest in real estate. Is that something that you’ve seen interesting?

Grant Shipman 12:01

So there’s, there’s no non owner renters. Is that the scenario? Correct? Yeah, it’s, you know, this would actually be the, the difference between, what I would say is co-living, meaning this, this house sharing that’s been happening for centuries. co-living is a, is a property management, meaning a renter, property manager. Relationship like it’s a, it’s a, it’s for the mainstream. There’s always been rooming house, boarding houses. They’re wonderful. They’re wonderful housing option that’s needed, but nobody wants to live there longer than they have to where what you’re talking about, and it’s still happening, and it’s wonderful. Is I would, I would put that in, not the co-living world, to be technical, but to put it in the intentional living community, where people are sharing equity there. They might be sharing groceries, they might be sharing a lot of things, and these are, I mean, when people team up, I mean, I think it’s so great about about your company, you guys have have brought people together, because business is a team sport, right? I would rather get, I would rather get half of something that has 100x the profits than all of something that has 1x the profit, right? Yeah. So, so what you’re saying, it exactly happens. I would say it’s and there’s conferences for that. There’s all these things for that, because the shared ownership, shared living, shared other things are really outside of that, that co-living, property manager, renter relationship.

Yoni Schmidt 13:42

Yeah, maybe that’s more suited to things like Picasso and the vacation rentals. You know, I don’t know if you’ve ever heard of that, but they have a very interesting model, these ex silo executives who came together and put together Picasso, which is more for just vacation rentals. And you know, you get to spend 44 days of the year at your vacation home, right? So it’s not necessarily the same thing, but interesting. So okay, tell us, I guess, a little bit about, you know, what inspired you to found Livingsmith. And you know, can you dive into what is it exactly that you do?

Grant Shipman 14:23

Yeah, the, you know, the the easiest way to put it in a sentence is, I went from delivering Domino’s Pizza and renting a room no savings, nobody was going to give me a loan for house and and 15 months later, I had financial freedom and a $2 million net worth because of co-living investment and and so I I experienced the the the treasures, the the wisdom. The intentional living community has which is, which is households out of unrelated adults. I mean, that’s, that’s what’s happening all over the place. It’s been happening since, Oh, wow. And, I mean, in 2003 the most, the most popular residential lease was a one person lease. If you really drill down into the data and co-living offers that, because all things being equal, people would much rather live with others than live alone. And so if that’s a if that’s a positive experience, then man, people get the the price the a beautiful house in the neighborhood for the price of a room. So So for me, like, the, really, the kind of, the, I don’t know, the end or the beginning of my story was, you know, I wanted to, I was a, you know, I was delivering dominoes. I was a single, lonely guy and, and I, I read all the, you know, the the Keller Williams, the Rich Dad, the BiggerPockets. And I was like, This is awesome. I want financial freedom, because then I can get married and I can have kids, and I can have the time to enjoy those kids. This is so exciting. I did all the math with, okay, I can do small, multi family. I can do this. And I thought, man, in 10 years, in only 10 years, if I don’t screw up, and I have no bad luck happen, and things go exactly how I think they are. I will have financial freedom. I was like, Well, I mean, that was a tough pill to swallow, but 10 years is way better than not at all. So I went after it. And during that time was kind of this. I came upon a house, and I I, I learned, I was like, oh, everything I learned from the intentional living community is, is very, very profitable. And so I zoomed that up to two years. And, you know, got, we got we got two babies, we got a house in Rocky Mount National Park. It’s, I mean, it’s just fun. I get to do, I get to do what I love. It’s like, the thing I was so passionate about became the thing that, like, seems like the number one investment strategy, as far as I can tell it it’s nice when that kind of works out.

Yoni Schmidt 17:12

Yeah, definitely. So would do you work with investors today that would go buy a house, and you basically parse it up by the room, and handle their investment leasing up the property by the room. And I guess in that instance, you can charge a little bit more for each room and end up netting more than what you would if you were renting it out to a family.

Grant Shipman 17:37

Yes. So that’s exactly right. We work with a number of people. Some people are able to do it by themselves. Some people we, we team together so real estate syndication, and, and, and then it’s, it’s like, we’re, we’re working with a number of people in Jacksonville right now in El Paso the the legislation is kind of as as legislation is going the wrong way for Airbnb. It is going a beautiful, right way for co-living like this, this, this month, effective July 1 2024 all of Colorado has banned any restriction on unrelated adults living together.

Yoni Schmidt 18:26

Yeah, so there are restrictions in other states, right? You can’t have more than three people living together that are unrelated. It doesn’t work. I mean, look at college towns and college campuses and, I mean, everyone is violating this right? I mean, to be fair, right? And, and that’s something that it’s hard to enforce. What would you how would you enforce something like that?

Grant Shipman 18:55

Well, the the number one thing, I think, is, is real estate and, and particularly real estate that’s high in demand, right? You’re, you’re a multi family, single family houses, right? Like everybody needs houses all the time. But when it’s high in demand, it is so easy to make money. I always say, just follow the law. There’s, there is zoning rules. But in in most, most every city, county, etc, there is places where it’s perfectly fine and and there’s and there’s also states where not only is it fine, is they really want this to happen, they’re actually, they’re actually the government has a number of incentive programs because the housing shortage has been such a challenge to small and large governments alike. So to say is I think being aware of zoning is as easy as googling the planning building or covid. Enforcer in that jurisdiction, and just asking them, hey, I want to do I want to lease rooms out. I want to buy a house. I want to lease rooms out to help people who can’t afford rent. Where can I do that? Like legally? And these people are public servants that are paid to help you, and usually they love that kind of question.

Yoni Schmidt 20:18

So, yeah, interesting. Tell me, I guess, a little bit about the areas that you operate in. Is it easy for you to come into other markets if you get plugged up with, you know, good property management that can handle all aspects of the day to day, or are you specifically in one area and you’re expanding into neighboring areas, yeah.

Grant Shipman 20:44

And I like this, because if I was, if I was listening to this, I kind of accidentally became, like, the owner of the company that’s real successful at this, like, in the beginning, I was like, surely, surely other people know. And I was going after it to ask questions, and could you manage my properties? When I started, I had no intention to manage my own properties. And then I I couldn’t find anybody who was great they did, either did college housing or senior housing, which, sure, technically, it’s a, it’s a, it’s a niche of co-living. But when, when I use the term co-living, I’m meaning, hey, this is, this is non niche. This is for mainstream. This is the civil engineer that you work with, you know, an office, you know, or a cubicle next by, or the HVAC technician who just came and solved all your AC problems. But the what we do is, actually we, we’ve got our hands full. We used to be expanding, and now we, we have our hands full because the current, the the one company, large startup called pad split, that hasn’t gone bankrupt yet. I really, really hope they don’t. They’ve done a lot of work in helping people understand investors understand the opportunities. By the way, you never need to help renters understand the opportunities, because we, I mean, we have waiting lists. People are dying to rent a room that’s in a quality place with quality people, right? They love that, you know, and, but this, this company, pad split, has got people, investors, so excited. So, for example, last month, I, I was at a doctor’s appointment in Dallas, and part of my teaching team said, Hey, these people in Dallas really, really want to meet you. They’re, they’re with Pat split. They’re really feeling the squeeze, but, but basically, this company has done a great job at getting people excited about it, but they haven’t equipped them to actually manage in their their their just a software platform and and so these, these, these people are, are, there’s and pad splits in 20 primary cities. So suddenly, instead of us figuring out how to expand, we’re just trying to figure out how to how to support these pad split people, because they’re getting charged by pad split a little bit more just for a property management software And and placing services. Then my property management company offers for full on property management and asset management services. So, so we’re, we’re trying to nicely respond to people who are saying, Hey, can you come manage and just say we’re not in that city yet. And we want to expand in a way that, you know, we make sure we can give you good quality and enjoy our lives. But at the same time, I feel for these people, because they like this guy. I met down in Dallas, I saw a bunch of their houses. They’re so they’re beautiful houses. They’ve done a great job. This one guy’s only nine months in, and he’s got eight properties, and he’s only 20. Wow, right? Like, but, but he’s, wow. He’s he has no clue about management. He’s just doing his best. And, and, and, yeah, I mean, can you imagine?

Yoni Schmidt 24:09

And for him, the traditional, the traditional rent, long term rental for a family, it just wouldn’t work on the numbers on the return, is that, is that safe to assume?

Grant Shipman 24:19

That’s, that’s right in your in your major MSAs. And so they’re, they’re, it’s just very hard to have a property cash flow. And with co-living, suddenly a property is going to cash flow one to $3,000 a month.

Yoni Schmidt 24:37

Which is, yeah, what’s the deal? What’s the what’s the rule of thumb? I guess, let’s call it right? You say, if I buy a house, long term rental, it should. You know, the rule of thumb used to be when my grandfather was teaching me, this was 1% of the purchase price, and then if you wanted to make it a short term rental, you know, which my father does, and and. In the city that I was born in, you know, it’s three times long term, right? That’s yeah, like the rule of thumb, right? And even today, in Oklahoma and Arkansas and Kansas and in the markets that we operate, that’s kind of the rule of thumb. If you buy a house for $100,000 it should rent for $1,000 if you make it an Airbnb should be $3,000 a month in top line revenue, right? That will cover all your expenses. Co-living is there, you know, simple back of the map in math formula for this. So the

Grant Shipman 25:36

I mean, with with rates changing in different loan programs coming out. It’s the rather than something nice and easy like that, we just have a like a calculator, similar to, you know, what? What bigger pockets the number of people offer, but it what it includes in there is, is, what would this be as a co living investment? So, so if, if the simplest way to say is a property that would rent out on traditional rental, if you just put that in rent a meter, then that property should make at least two, if not three, times as much revenue and as a as a traditional rental, and at least 5x to more the the profits and the profits are what’s important, right? That’s, that’s, that’s the big one. So if that’s the that’s the simple rule of thumb, my my wife does Airbnb. She loves it. And if you love hospitality and you love managing cleaners and all of that stuff, awesome. If you want long term rental that’s got, you know, significantly more money than than just putting one lease on a house like co-living is, is pretty rad. It’s, it’s hard to.

Yoni Schmidt 26:59

Yeah, but some would argue that, you know, a four bedroom house, you could, you could rent it to the traditional family, one lease, right? You know, less problem in this instance, in the co-living you’re, are you under four leases? Or is it one lease? And, okay, so it’s four leases, four times the amount of problems, because you have four times the amount of people, you know, a lot of things could, could happen there, right? Each person has a, you know, a significant other, they come over, they sleep there. All of a sudden you go from a four bedroom house to an eight people a four person house, an eight person house. Um, lots of nuances and complexities here, I would imagine. Tell me, how do you make sure that, you know, the personalities of the people that you’re putting in the homes aren’t explosive? You know, in today’s very contentious world, we’re not going to talk about politics. We’re not going to talk about, you know, social issues. We’re not going to talk about any of these at all. But, you know, putting two people together, four people together in a in a house that could be on different sides of the, you know, of the spectrum of, you know, politically, socially, fiscally, whatever, whatever you know you want to, you know, touch on. Now, how do you make sure that it doesn’t become into, you know, a hostile situation, right? And I can only imagine the things that you must be dealing with, almost like babysitting.

Grant Shipman 28:31

Yeah, well, and I want to Yoni like you nailed it. And this is such an important part of my my like, life vocation is, is co-living is happening even when people don’t know the name of it. One guy from Michigan, he just read our book, welcome home and, and he’s like, Grant. He goes my, my daughter and, and, and people she lives with. They’re doing this. I didn’t even know it had a name and it, yeah, this or, or the number of, you know, even adult children living with their parents, these, these non traditional households, it’s just happening, and it’s been happening. And so you getting, you saying, hey, what about this issue is so important? Because it is easy to talk about revenues like, oh, it’s, it’s all the revenue, yeah, you get a lot of money at the beginning of the month, and by the end of the month you hate real estate because you’re stressed about property management, and all your profits have, have, uh, have vanished, right? Poof, um, and, and that is really, if you can, if you can imagine the difference between if somebody who wanted was just doing the traditional long term Property Management System, and now they said, I’m going to have a a. A short term rental house, but I’m just going to use this same property management strategy. It would be a nightmare like my my wife yesterday, had had, there was a turnover in in Estes Park in one of her properties, and the people she the cleaner, showed up, and it just seemed like the people had left. Well, actually they had they didn’t. They didn’t know that they only had it one night. They thought they had it another night. So it took hours to clean up all of their stuff, to make sure, to not damage their stuff, to have it ready for but that is that requires a special type of management. And so what you’re getting at is is so key with co-living, we we have what we call the co-living gold standard. It’s a special type of property management. It includes setting up the household or setting up the house. And we use the term household to mean the who and the how is living in the house. And when you have this, this is what is the result. So the the result is, for those of you are really big in numbers, and Yoni, I know that your company like drills it on numbers, you can’t get the success you guys have without it is, is we? So we’ve had a 97% occupancy or lifetime average even through covid. We are renters. They are their average. One is staying over two years and and one full time property manager. So maybe a $52,000 position is managing 140 leases. So if you So, that’s kind of that’s compared, comparing things with numbers and and, and this is a beautiful system. Everybody loves it like, like I, I did what Brandon Turner said he would. He had his little daughter, I think he said her name’s Rosie. He bought a house for her that was on a, you know, a 15 year mortgage that would become her college fund. I did that same thing with my my my little baby, who’s now two and a half, and then I’ve got a one and a half year old. But they the the renters know. Know them. They love their house. They really dig each other. They’re so grateful. And this is not the exception, if the if the investment strategy fits the rental strategy fits the demand in market. You have amazing things happen. Otherwise you have explosive 250, $6 million of startup capital going down the drain, not to mention all the little individual investors like like us. You know that that just could just just disappear all their hopes and dreams and work?

Yoni Schmidt 32:39

Yeah, I mean, I generally enjoyed owning some real estate long term. And, you know, just letting the tenant pay my mortgage, and, you know, pay my insurance and my taxes. And, you know, you looked at, you look at the principal pay down as a first way of, as a forced, you know, avenue of savings, right? And when we look at asset values, right over the last five years, I think, you know, we I just spoke to Mat Zalk earlier this morning, and he was looking at the numbers and drilling into Nevada. He said something about, you know, asset values have gone up 45% over, you know, a pretty short period, right? So, right. You know, costs are up. Sure inflation is, is definitely squeezing investors. Insurance costs are way up. If you, if you’ve taken a look at that recently, but at the same time, on your equity, you know, if you, if you bought $100,000 house, you put down 20% you’ve enjoyed a pretty good appreciation on that money that you put into the into the home. Talk to me, I guess, a little bit about your fee structure, which I guess could vary from, you know, probably traditional property management companies like us, where it’s like, you know, 10% of for of gross rent collected per month on a single family residential home, a flat rate leasing fee, a flat rate renewal fee, you know. And then, of course, we ask people to put, you know, a certain amount of money in a property reserve fund. It’s their money. It’s held in a trust account with us, and it’s used for the purpose of maintenance, repairs, utilities. When the house turns over and we have to take over the utilities, you know, tell me a little bit about that. And then I want to segue into like, fairness and pricing for the renters or the residents, right? Because each room is different and each space is different, and I think, you know, there’s a lot there. I was in college, and I’ll tell you a little story about 804 Morningside drive in Norman, Oklahoma, and some unfairness, but I think it was interesting. So talk to me about your property management fee structure a little bit.

Grant Shipman 34:43

Yeah, the it was, it was only a few years ago we started managing properties we had no interest in. And you know what I mean by interest, right? We, we love managing third party properties, but we were just always, we always had 50% or more ownership. And all of it. And so we started managing these third party properties and and we, we always vet the owner. We vet the property. So if, if anybody listening and say they have $500 single family home portfolio, probably only 40% of those homes are going to be work for co-living. So, so, so, for example, look at what your high room for rent is in your area, the high end. So, so, for example, we’re around 800 $850 in, like, the, say, the, I mean, pretty much everywhere there is, there is, if you’re in, you know, the the middle of, say, Boulder, Colorado, or downtown in a special place that you know, then it gets to be, or say, Estes Park, Colorado, like 1000 or 1100 but most everywhere, and this is the room rental market is different from, say, the single family market, but most everywhere, people are going to pay between 709 $100 for A room, and $800 is a sweet spot. So, so if a property rented out by the room that you have would be compelling enough financially to do with co-living rather than traditional rental, that that’s where it becomes like, hey, this might work well. You also need to look at parking, bedroom, bathroom ratio and and then we go, we go down the list. It has to meet zoning. We talked about that already. So there, the house really needs to fit co-living. So when that happens, what, what we end up doing is we, we have a third party owner will will talk to us. We’ll have the application. We’ll look through the house. We’ll talk about the setup. They’re going to need, storage shelves they’re going to need. We we put together a chore board on the wall. Like, people who move into these houses, they value, they value things being clean and quality. Like, like, if you know, these people are usually single, and when they bring a date over, that date doesn’t think, man. These people, they can’t afford to live with the on their own. Know what they think is, they were like, Man, this is a really nice house. Wow. This yard looks great. And they come in and they say, Well, you live with really great people. You might you must have some kind of emotional intelligence and and, wow, this place is clean. So, so the setup cost, we talk about that, but basically, we don’t. We just do a 16% across the across the board, and if we don’t actually have make them more profit every month than they do if they landlord it on their own. Then, then, I mean, really, the property doesn’t fit for co-living. So it’s, it’s our, our 16% rate. They love it. We love it. Or some people that have they’re more the old school investors. What they want to do is they say, hey, I’ll just, I’ll just, I’ll just take the same same rent I was getting on this for traditional rental, and we’ll guarantee that amount, almost like a master lease, right? We’ll just guarantee this amount. We make a lot more money, but for them, they’re lowering their risk profile, because what we do is our property management walks the property once a month, because they fill up supplies and they leave candy for people in a note, and they say, Great job on the yard. And people love that. And when your property, when the property manager sees the property once a month, I mean, our properties, year after year, are getting better and better. So that’s the two ways we do it. We do a guaranteed structure, or 16%.

Yoni Schmidt 38:40

Got it. And so on. Either of those, there’s a setup fee. Because you come in, you put the chore board out, you you know, set up the chores. Who’s responsible for trash this week, or this that, you know, yard cleaning, whatever it is, I’m guessing, right? And, yeah, I’m missing stuff, even though, you know, I’m sure, I’m sure there’s a lot of chores in my house that, you know, I should probably be doing a lot more regularly, thankful to have people in my life to help. So, okay, interesting, 16% or a guarantee for their their long term traditional rental, and then you make, you make the Delta.

Grant Shipman 39:22

No, none we it’s, it’s, you know, as we grow maybe we’ll become a little bit more sophisticated, because maybe we’re leaving more money on the table here and there, but the amount of money, like when you the pie, is so big that we’re just trying to make sure, you know, our services stay quality, and we don’t make that mistake other companies do of scaling too quickly because of opportunity. Yeah. So we, we, and something else we really like to do is, is asset management, because that’s where, you know, 95% of single. Family investors fail. They they go and spend all their profits rather than having reserves. And so we, we do all the asset management side, because a co living property, it’s it what, what we like to do is, is we want to set it up. We want to have it be a cash cow all the time. Those people love it. They never, ever want to leave like it’s, it’s just, I mean, once that fits you, unless your job moves you, or you decide, like me and my wife did, to get married and get kids, you want to stay there and but it’s, it’s so great. Our goal is we would eventually buy that from the third property, the third the owner of the property, because, if it fits for co-living, and we’ve got a house set up, and it’s wonderful, awesome.

Yoni Schmidt 40:45

Yeah, yeah. I mean, I have so many questions about pets, and how do you, you know, do that, and what kind of loan products do you have to, you know, set up for these kind of, you know, properties. Is it traditional financing? Is commercial financing. And you do, I guess, you know, debt service coverage ratio loans are pretty favorable for this kind of situation, because your, your, your debt service coverage ratio must be, you know, way over 1.2 I mean, probably closer to, you know, two, maybe two and a half. I don’t know it’s interesting.

Grant Shipman 41:21

Yeah, you’re, you’re nailing it. So the the, I would say, the one side, the the acquisition side is, is very, very similar to any kind of single family purchasing Now, this can be used in multi family. It’s just not as popular yet, because whether it’s closed mindedness on my side, or my my I do a lot of study in multifamily investing, because it’s the strategy is, you know, multiple leases on one property, which is co-living. I had to learn a lot from the multifamily world. And so, so to say that the acquisition side is so similar, DSCR loans, Owner, occupant, financing, conventional, 20% down. All of these things are, are just, it’s really easy. People are actually really great at getting those. The the secret sauce, then, is the other part of what you said is, hey, what about pets? What about, what about a girlfriend, you know, sleeping over? What about out of town guests? What about all these things and and basically what we have is we have a lease that includes a household covenant. It’s kind of like a roommate agreement. And we have, we have this 40 point we call it a 40 point complete household system. So rather than having to find people who get along, which you can imagine is very tricky, because you know a group of friends that known each other for years, they move into each other, and suddenly they they their friendship ended, right? So? But what, what the secret sauce is, is, when Yoni, when you, when you talk about, hey, there’s chores at your house, there’s, there’s these different ways that we understand that, that those who live in this house, this is how it works. This is how long you can have a dirty dish this place before it breaks the rules. But what we have is we make a household. We call this a healthy household. So if a household is has no rules, it’s chaotic. Nobody feels safe, nobody feels like they can thrive. If a household has too many rules, it’s strict. It’s like a boarding house. Nobody wants to stay there a minute longer than they have to. But a healthy household is there’s there’s enough structure for people to feel safe, people feel like they can thrive. Their uniqueness. So just to say what we do is we set up a healthy household. The house pretty much runs itself. They handle their own conflict. They do their own chores. You’re we’re talking a six to 11 person household, normal house in the neighborhood, AB level neighborhoods and and the property manager gets to stop by once a month and mostly just drop off cavity, and says, This is great, so I don’t need to make it too wonderful, but if the right recipe is followed, you know, the brownies are delicious.

Yoni Schmidt 44:14

Yeah, could two could two strangers be sharing a room?

Grant Shipman 44:18

We don’t. We don’t do that because we just bake one person per room, unless that room has an en suite bathroom, then we’ll allow, like, a couple to share it. But mostly these people are single, typically.

Yoni Schmidt 44:32

So yeah, yeah. And I’m guessing there’s some sort of calculation that you have to and that’s pretty subjective, I would imagine, to come up with that, you know, room that has the en suite versus the two other rooms that don’t have it, and they’re sharing hallway bathroom, and that’s also probably the guest bathroom as well. So, you know, the rents have to reflect the value that each of the residents is receiving.

Grant Shipman 44:59

Yeah, and so. People get into this and make it fairly complicated, and they have success with it. Our, our our places. So far, all of our rooms are the same cost. Wow. And what’s kind of cool is, there’s no seniority in the house, right? The beautiful thing is, if nobody is then this is what I learned from this wonderful hippie coop I was in. I said, I said, Hey, I moved in. I go, who’s, who’s in charge? And they said, nobody. So everybody, everybody’s responsible, right? And but what’s, what’s great is there’s no seniority. Everybody’s equally responsible. If somebody is causing a problem, or say their their motorcycle is too loud, you know when it comes in, or all of the millions of things that can actually bond us together, if we if we handle them well, the what we do then is it’s nice, because the longer somebody lives in a place they got their eye on, maybe the room they want with the big bay windows, or the room they want with the en suite bathroom. So it, it kind of is a nice little reward that, being said, the rest of my property management team are like, Hey, we could make more money if we charge more for the bigger room. So we’ll probably eventually get around to it.

Yoni Schmidt 46:13

Yeah, yeah. Because when the person who has their eye on the house with or that room with the en suite, you know, do everything in their power to get that other person to move out, you know, so they can get that room. I mean, I guess we should all assume positive intent.

Grant Shipman 46:30

It, it’s an interesting question. We, I mean, we’ve just had such good experiences with, with people we really, just, we just really copied the, you know, the the the intentional living people on you know, how do adults live together and thrive and and what I think, what’s most surprising about it is, if you would go into a house and you would pick out your favorite bedroom, and we would have five other people, almost all other people would pick out a Different bedroom. And it’s a really odd thing, like somebody like this. This one guy, he’s, we’ll just call him Hank, but his name is not Hank. Hank is a he loves his room. It is. He doesn’t. He’s been there for seven years and and there, his room does not have a bathroom in it. He’s had a chance so many times to move into that, but he loves his room for this, that, and the other reason, and, and this is kind of how, this is kind of how houses are. So somebody might have their eye on a certain room, but, but other people have their eye on a different room. So, yeah, it’s exciting, yeah, yeah, it’s, it’s a lot different from, from what kind of what, from those of us, you know, with just the real estate, like, hey, there’s a focus on square footage, amenities, all of this stuff. It’s, it’s a lot different from that, that, that perspective. It was very enlightening being around these, these people, that this is where they’ve lived for forever. You know.

Yoni Schmidt 48:06

Yeah, sounds like the modern day kibbutz. Soon we’ll have residents, I guess, also farming and gardening, putting putting their, you know, fruits and vegetables in the backyard. Grant. What’s the last thing that you wanted to leave us? I want to be conscious of our time here. What would be last thing that you would leave our listeners with? It could be anything. What inspires you? What book are you reading today? You know, maybe some pour your wisdom on us.

Grant Shipman 48:40

Yeah, thanks. I would love to share a story, and it’s not, it’s it’s not a happy story, because a lot of people that see the profits of co-living are not having a happy time right now. So I want to tell you this story and but to encourage you how you can have an absolutely wonderful time. We call it the co-living gold standard as an investor and and investors, if you’re interested in this, I mean, whatever your path is, do that path, because there’s tons of money in real estate. Just learn how to do awesome. But if you don’t know what your path is, you’re looking for it. Renters need this kind of housing. Society needs this kind of housing. This solves the skyrocketing rents, the housing shortage, the loneliness epidemic. You know, covid hit the news big time. But in in in 2019 the Surgeon General said, we have a loneliness epidemic in this country, and it’s equivalent to people smoking two packs of cigarettes a week and so. So this is a major thing, if you as an investor, are called by the profit, the the revenues, the profits, all of this stuff. So listen to this story. Is back in 2018 I was at the bigger pockets Christmas party headquarters in Denver and and at that time the the. But the movement didn’t even have a name. It wasn’t co-living meant like hostels or something, right? Like, all these words get moved around, but it’s the same movement. And this one gal, she was architect, she had a number of multi family, single family, small, multi family properties. She said, Grant, like, this sounds great. I love this. Why don’t I just do it on my own. I said, of course, you can do it on your own. I go, but you really need to learn how to do it. She’s like, I’m the very capable person I’m, I’m great with it. And I was like, that’s, that’s awesome. Like, you know, let me know if you have any questions anybody. A year and a half later, I got a call from her. I didn’t know I had a number in my phone. I think it was, this was, this was well before I met my wife, and I think I was thinking she was pretty or something, right, but, but I get a call from her, she’s like, Grant, she was okay. Listen, listen, one tenant, I did what you said. I did what you said. I was I did what I said. We had, like, one conversation, like, you know, 18 months ago, she goes, I did what she said. And one tenant got in a fight with the other tenant, like, hardcore fist fighting and and so the other tenant called the cops, and the cops showed up, but these two tenants fighting, they decided to team up, and then they were beaten up a cop, so the other cop showed up. She goes, okay. She goes, I’m sitting in my car outside this house. She goes, I’m sure you’ve had this happen before. What should I do? And, and, and I I said, we’ll, we’ll call her Angela. I said, Angela, I go, I’ve, I’ve never had this happen before. I go, I’m really sorry. I go, I really hope you the best. But I don’t have anything to add in. And it was at that moment that it sunk into me that the that the property management side of co-living, because your risk, your risk profile, should really shrink with co-living. But if you’re interested in this, you can learn the gold standard side of property management. We will have a link, but there’s, there’s a free anybody who’s listening to this, a free book to download on it, you can schedule a call with one of my teaching teams, and we’re even going to be doing a free five day co-living challenges. So anything that helps you all, but like anything in real estate, if you assume you know how to do it, but you never learned, um, you know, don’t, don’t be, don’t be, Angela, have it where it’s like, This is amazing. So that’s my wisdom I want to share, because co-living is powerful if you follow the recipe.

Yoni Schmidt 52:36

Yeah, I will say real estate is in rocket science. You can learn it. You can learn it. You know, it’s always best to lean on those with experience who have done it in the past and learn from their mistakes, right?

And that’s why we exist. That’s what we exist for. You for co-living in Essex, Essex County, Essex County, Colorado and us, and you know, all of our markets, and this was enlightening and very interesting. Thanks so much for joining us today and sharing all of this

Grant Shipman 53:15

Well Yoni thanks to you and Mat putting together this thing that actually helps people learn how to do this right? Like you said, Not rocket scientist and, and, and that’s it’s a powerful show. So thank you. Thank you again.

Yoni Schmidt 53:29

Now, of course, all about adding value and benefiting other people’s lives. Thanks for listening and or watching.

Outro 53:41

Thanks for listening to The Same Day Podcast. Tune in to a new show each week and be sure to subscribe to get future episodes.

Recent Podcast

From Home Builder to Real Estate Private Equity With August Biniaz

In this episode of The Same Day Podcast, host Mat Zalk talks with August Biniaz, Co-founder and CIO of CPI Capital, about moving from home building into real estate private equity. August covers syndication, shifting from operator to sponsor, and disciplined...

AI Solutions For Real Estate Efficiency With John Ledesma

In this episode of The Same Day Podcast, Yoni Schmidt sits down with John Ledesma, Founder and CEO of LeasIQ and LandClear, to discuss AI-driven real estate efficiency. John explains where automation delivers the strongest ROI, how landlords can streamline leasing and...

Scaling Smart, Not Just Fast With Natalia Zacharin

In this episode of The Same Day Podcast, Yoni Schmidt talks with Natalia Zacharin, Founder and CEO of Zacharin Consulting, about scaling without sacrificing profitability or cash flow. Natalia explains why profit differs from cash, how forecasting supports smarter...

Scaling Property Management in Chicago With Jason Marcordes

In this episode of The Same Day Podcast, Yoni Schmidt chats with Jason Marcordes, Founder and Managing Broker at Landmark Property Management, to discuss scaling property management in Chicago. Jason explores defining your ideal client, tackling market-specific...