📉 Common Collapse, HOAs Haunt SFR Investors, and PropVest

Lessons Learned From Common’s Bankruptcy

Though the largest co-living company in North America declared bankruptcy on June 3 and will liquidate its assets, others in the industry say there are opportunities for well-managed operators to earn healthy returns.

Clara Arroyave, the CEO of Coliving Cashflow, a platform to buy, sell, and invest in coliving properties in the US, said the difference between success and failure in the space comes down to the fundamentals: effective management, solid financial reporting, and alignment between property owners and residents.  

Common, the company that declared bankruptcy, raised some $113 million in VC since its founding in 2015. Investors in Common included Kinnevik AB, Maveron and LeFrak.

“With venture capital, they are under pressure to expand,” said Arroyave. “It’s grow, grow, grow, grow. If you don’t have the business fundamentals in place, there can be all sorts of friction.”

The bottom line is “that Common did not perform,” said Arroyave, who was also co-founder and CEO of PlaceMe, a co-living company focused on professionals and graduate students that eventually served 700 residents and had $42 million of assets under management. It was acquired by Split Spot in 2020.

Not the First Rodeo for the Co-living Business Model

Co-living, sometimes called “dorms for adults” is having a moment again, it seems. (Sample headlines: 'Co-living': the end of urban loneliness – or cynical corporate dormitories?, Guardian, September, 2019; As Housing Costs Soar, Co-Living Makes a Comeback, The New York Times, November, 2022.) 

And let’s not forget WeLive, co-living spaces that first opened in New York City in 2016, courtesy of WeWork cash-burning mastermind Adam Neumann and run by his wife Rebekah Paltrow Neumann. Neumann’s new venture Flow, appears to be foccused on branded apartment complexes rather than communal living spaces.

These days, co-living is pitched as a solution to high housing costs in major metros, and a review of available rooms from the leading operators in the space — including Bungalow, Padsplit, Tripalink, Dreamhouse, and  Cohere Network — are the big cities/hot real estate markets across the US.

The number of co-living bedrooms either available or in development across the country was 74,000 in 2022, up from about 62,000 in 2020, according to Cushman & Wakefield, a commercial real estate services company.

Common merged last year with the Habyt Group, a German company. Habyt CEO Luca Bovone said Common’s contracts and business, and high interest rates, led to the bankruptcy claim. Common operates 5,200 units across a dozen cities, and it’s unclear who will take them over.

Common’s business model relied on revenue-sharing agreements with landlords, and some traditional apartments. Tenants occupied suites with other roommates, sharing common areas, including kitchens and in some cases bathrooms. 

Arroyave said that a well-managed co-living arrangement can bring some generous returns, up to 20% cash on cash.

Pitfalls That Spell Trouble for Communal Spaces

The Daily Beast interviewed 15 former and current Common tenants in May of 2022, who outlined numerous complaints, including: uncleaned vomit, physical fights between roommates, poor corporate communication, long maintenance delays, and lax security, which allowed strangers to sneak into communal areas and sleep.

“It's been probably one of the worst experiences living somewhere I’ve ever had in my 38 years on this planet,” a tenant named Will Oliver told The Daily Beast just before moving out in April of 2022. “People always have slight grumbles with their landlord… But I think this goes beyond the pale.” He likened the living arrangement to a “nightmare.”

Founder Brad Hargreaves stepped down from the startup in August 2022, and for Arroyave, that is always a troubling sign.

“When the CEO leaves,” she said, “it doesn’t usually end well.” 

She added that there were lessons to be learned from Common’s demise.

“If you grow too fast, it can go wrong, since you are burning cash and not reaching either profitability or break-even point given the pressure of adding markets too quickly,” Arroyave said. “If you don’t think about community and other strategies for your clients to engage and stay for longer periods, it leads to vacancies and increased CAC (customer acquisition costs). Combine that with slim margins on the revenue-share model and it’s not surprising to see what happened with Common.”

Ed Zimbler, a Los Angeles-based commercial mortgage banker who has 40 years experience, learned some other lessons in his foray into the co-living space, both as a lender and the owner of a co-living house he developed in LA. 

He made sure to include a full bathroom for each bedroom, large walk-in closets plan, and extra sinks. The house had a full kitchen and common areas, both with high-end finishes.

“Nobody used them,” he said. What he realized, he said, “is that people don’t really want to live with strangers.” 

HOAs: The Hidden Risk to Single-Family Investors

Some 75 million Americans, or about 30 percent of the population, live in housing that is governed by a homeowner’s association (HOA). This includes condos, co-operatives, housing developments, planned communities, timeshares or mobile home parks. Property owners pay fees and need to abide by rules set by the HOA, and increasingly those rules include limits on renting their property, either short- or long-term.

For real estate investors, HOAs are a mine field that needs to be navigated carefully; it’s increasingly difficult to avoid them when buying new homes. In 2021, some 82% of new homes built were part of a homeowner’s association, according to the U.S. Census. That is up from 66% of new homes back in 2011.

Leandra Torres, who has 23 years experience in real estate and mortgage markets, says she has noticed HOAs tightening their rules in the last few years. The most important step an investor can take is to carefully read the document known as the covenants, conditions, and restrictions, known as “CC&Rs,” which govern the HOA.

“It is important to review the HOA documents to see if there are restrictions,” she said. “There’s no point in purchasing a property if there are restrictions that reduce your ability to earn income.”

Torres, says she has seen HOAs that put a cap on rentals, or require an owner to occupy a property for at least a year before renting it out. If the cap is already reached an owner needs to go on a waiting list to put a property up for rent, which is a period when the property is not earning income.

“Anything that reduces the flexibility in how you can use your property,” said Torres, “is a problem.” She advises investors to always vet HOA-governed properties prior to the expiration of a diligence period. 

As for short-term rentals, most HOAs are not amenable. She said in her experience — she is based in Los Angeles but has been involved in deals around the country — at least 80 percent of the HOAs prohibited short-term rentals.

Specific Issues When Purchasing a Rental Property in an HOA

Potential investors should review CC&Rs before making a purchase, and be sure that they have a copy of the most recent versions. These documents can govern items such items as:

• Minimum Lease Term: These can range 6 months to 1 year, to prevent short-term rentals.

• Rental Caps: Some HOAs cap the percentage of homes in a community that can be rented. This can range from 10% to 30%, or be as low as 5%. 

• Owner Occupancy Requirements: Owners can be required to live in a property for one year to several years before renting it out. 

• Tenant Screening: HOAs may require that tenants are screened and HOA board approval is granted before moving in, including background check results.

• Lease Review and Approval: HOAs can mandate that all lease agreements be reviewed and approved by the association.

For homeowners living in an HOA-governed community, these rules do provide some controls that protect the community. But for investors, they can mean expensive delays in renting property and missing out on potential income.

And investors should be aware that HOAs can revise their CC&Rs, though some have faced legal challenges and were forced to back off rental restrictions.

Short-term Rentals Get a Bad Name

These days, short-term rentals (STRs), as Torres pointed out, are top of mind in many communities, and not for the right reasons. 

But homeowners and investors with properties in popular vacation areas have cashed in on the gold mine struck when Brian Chesky decided in 2007 to offer “Air bed and breakfast” — three airbeds, breakfast, WiFi and a desk to conference attendees — to help pay the rent on his $1,200 a month San Francisco apartment.

As of this month, Airbnb has a market cap of $93.1 billion.

Tracy Mulligan, Community Property Management’s regional manager in Columbia, Missouri, said that many associations are looking to ban STRs.

“I think during COVID it was pretty quiet,” Mulligan told the Columbia Missourian at the end of last year. “Then shortly thereafter, when things kind of opened up again, we saw an uptick of people in Airbnbs, or short-term rentals, and that’s when it really started to become a bigger issue.”

Of the 55 associations the company manages in Columbia, 11 are considering restrictions on short-term rentals, Mulligan said. Homeowners are worried that transient guests renting for short periods could negatively impact home values.

One condo association tried to crack down on short-term rentals, only to find a court eventually overruling them.

Reserve II, a condo association near Sugar Mountain, in Avery County, North Carolina, reacted to complaints about overcrowding, noise, garbage, and unauthorized parking back in 2021 and voted to ban short-term rentals during the winter months.

Property owners sued to overturn the ban, and a court ruled against the HOA in February of this year. An appeals court affirmed a trial court decision in favor of homeowners who wanted short-term rentals, “an amendment to a condominium association’s declaration which contained a prohibition on short-term rentals was unreasonable where the original declaration expressly contemplated the units being rented.”

Jeff Wells, who owns property in Reserve II, said problems started during the pandemic when short-term rentals increased.

“People weren’t following any of the rules,” Wells told WSOC-TV. “They’d leave their trash out. And they’d bring extra cars. That’s what started the whole thing.”

According to Bay Property Management Group, which is based in Prince George’s County Maryland, many HOAs are placing restrictions on landlords and renters to stop investors from buying homes to rent in their communities. Many associations are capping the number of homes that can be rented, or requiring the approval of their association’s board before rental tenants can move in. 

This movement is nothing new. Back in 2022, the Wall Street Journal reported that the Whitehall Village Master Homeowner Association in Walkertown, N.C., tried to amend its rules to require that new buyers live in a home or they must leave it vacant for six months before they can rent it out. This was part of an effort to discourage investors from buying in their neighborhood.

Other wild cards when buying a property in an HOA community are that fees can go up, assessments can be issued and new restrictions can go into effect.

HOAs Can Increase Value, Take Care of Maintenance

There are benefits to an HOA. A well-run one can ensure a neighborhood is looked after and amenities like pools or tennis courts are well-maintained. They are overseen by a board of directors, usually with the help of a management company, which handles administrative matters like accounting and business contracts and can serve as a resource for HOA board members and neighbors. 

HOA boards make rules covering such areas as architectural limitations, lawn or holiday decoration restrictions, facade or yard maintenance standards, noise complaints, home occupancy limits, parking rules, pet size and quantity guidelines, and increasingly, short-term and long-term rental restrictions.

Another benefit is that there is a premium for homes that are in HOAs to the tune of 4% higher prices than for similar homes not in an HOA, according to the Urban Land Institute. But there is a ugly history as well: ULI said that white residents used these associations in the 1960s, when HOAs were not nearly as common as they are today, to keep black residents out.

There are fees associated with an HOA that can offset the higher prices that the homes may fetch in a sale. HOA fees nationally average about around $170 monthly, but most pay around $50 or less each month, according to BankRate and the U.S. Census Bureau’s American Housing Survey. Florida has the second highest number of homeowner associations in the country (49,420), right behind California.

More recently, some HOAs have passed restrictions meant to keep out institutional investors, who are now buying up to one in seven homes in some of the most attractive rental markets around the country, including Atlanta, Houston, Jacksonville, Phoenix and Charlotte.

Last year, Charlotte went so far as to offer grants to HOAs that wanted to rewrite their covenants to bar institutional buyers, with this language: Eligible HOAs may apply for up to $1,500 toward legal services to amend governing documents to deter corporate buyers.

Ellsworth, Maine

Ellsworth, Maine, serves as a gateway to the Downeast and Acadia regions. Its strategic location, situated in Hancock County near Acadia National Park and Bar Harbor makes it an excellent option for real estate investors eyeing the Airbnb market.

Ellsworth's proximity to major tourist attractions significantly boosts its potential as a short-term rental hotspot. Acadia National Park, the 7th most visited national park in the country, saw 3.4 million visitors in 2019. In 2023, that grew to 3.88 million visitors. A significant portion of these tourists pass through or stay in Ellsworth and this steady influx creates a robust demand for accommodations, particularly during the peak summer months.

As of 2024, the median home price in Ellsworth is approximately $300,000, which is relatively affordable compared to neighboring Bar Harbor, where the median price exceeds $500,000. This price difference offers a more accessible entry point for investors, who can still benefit from the regional tourism boom.

Tourist demand

→ Average nightly rate for an entire home rental ranges from $150 to $250
→ During peak tourist season (June to October), occupancy rates can reach as high as 85%
→ Ellsworth has a relatively favorable regulatory environment for short-term rentals compared to some other tourist-heavy regions in Maine. 
→ The city's population grew by 5.2% from 2010 to 2020
→ It has well-developed infrastructure, including proximity to Hancock County-Bar Harbor Airport and major highways such as U.S. Route 1 and U.S. Route 3

Moving Up in Rank of Investability

“Ellsworth, Maine was on our 2023 Best Places to Invest list and has ascended in ranking from number 8 to number 2, with a renewed AirDNA Score of 89.1”, explains Airdna in its 2024 list of best places to invest for Airbnb. 

38 Johnson Cove Road

With a large paved driveway, parking is never an issue, making gatherings with friends and family a breeze. Plus, the right of way (ROW) to the pristine Beech Hill Pond offers an opportunity for endless waterfront adventures for guests, from swimming to kayaking and beyond.

The Investment Thesis

→ Right outside of Ellsworth, ME
→ 47 min drive to Acadia National Park the 7th most visited National Park
→ High occupancy during peak summer season (85%)

 Property Details

 Financial Projections

Interested in Learning More?

*Appreciation based on 4.5% growth rate. 

Don’t Let Biased ‘Experts’ Mislead You

David Howard, the CEO of the National Rental Home Council, shared a study on June 2 that highlighted how greater access to single-family rental homes improves educational performance, especially for low- and moderate-income families.  

Sounds great, right?  We thought so and decided to actually read the 49-page study by the University of North Carolina, Charlotte.  This is the link to the paper. 

What did we find?  This is at best a misleading piece of content shared by an organization with an agenda.

Details of the Study

The study aimed to determine whether more accessible rental homes in areas with higher quality school systems improved education outcomes for families that would otherwise not be able to access those schools.  

The study itself was pretty good, with the following highlights:

→ Custom Database: they combined statewide student-level education records with housing data from ZTRAX (Zillow), an effective way to analyze trends.

→ Methodology: Employed a (2SLS) two-stage least squares approach to reduce endogeneity, which helped but did not prove out in our opinion. 

→ Findings: That one standard deviation increase in school quality leads to a .5 standard deviation increase in student achievement.  

The Red Flags 🚩

If the headline and abstract were all you read, this sounds like a positive outcome and reason to preach from the top of the mountain why we need more rental homes, especially if you happen to be the CEO of some randomly formed group designed to advocate for more rental homes.  

But about those red flags:

🚩 Data Quality: The study used data from 2006-2016.  Yes, you read that right. 13+yr old data on average during a period of time where housing collapsed.  🙄

🚩 Policy Impact: Given the period of time, it’s important to acknowledge how the US administrations of both George W. Bush Jr. and Barack Obama pursued educational reform by linking school funding to standardized test scores.  The ethical implications behind gamed scores across the country are being taught in business schools today. 

Don’t take our word.  Here is an article highlighting the worst standardized test cheating scandal in the history of Atlanta public schools.  Guess when it started? 2006. 🧐

🚩 Endogeneity Concerns: This comes up in studies often when the thing researchers are trying to measure or understand is mixed up with other things that can affect it. Imagine you're trying to find out if eating ice cream makes people happy. But if sunny days make people happy and people also eat more ice cream on sunny days, it's hard to tell if the happiness comes from the ice cream or the sunny weather. This mix-up makes it tricky to know what is really causing the happiness.

If you read this study you will see how multiple factors overlap making it very difficult, even with 2SLS to prove out. 

The Biggest Red Flag of it All: People Positioning

Studies like this typically pass like dust in the breeze, but this one stuck on us for three very important reasons.

1. David Howard censors - We tried to open a professional dialogue on the original post with the facts above, but he quickly deleted the comments.  Mr. Howard is so biased that even a couple random questions like “do you think data this old is reflective of our current economic environment” were DELETED.  

2. Levering a disenfranchised group - There isn’t even a reason to do a study about how better schools equal better scores.  How about a study on whether the sky is blue on a sunny day?  But when you take a disenfranchised group, already socioeconomically blocked from that access, and frame it as if more rental homes are part of the solution is wrong on multiple levels. 

We all know this is bull$#**.  Middle America can barely afford rent in areas with good school systems; low-income families face multiple barriers.   At a minimum,  David could’ve framed his notes on Linkedin about how this study shows why we need radical housing reform to create a sustainable tomorrow. But no, he opted to paste comments from the abstract.  Dare we wonder if he even read the study?

3. Jay Parsons can be such a 🤡 - Jay Parsons found his way into the comments early and often.  His first contribution was to not show this study to the “anti-renter crowd” — whatever that means — because they don’t believe in facts.  His words.

Jay is a long-tenured, respected pro in real estate with a lot of valuable insights on LinkedIn.  80k+ followers to influence.  The problem is that he is beginning to look a lot like our political system and possibly our country as a whole.  Zero discourse.  A clear inability to engage in a dialogue.  The vast majority of us are non-partisan.  Let’s learn how to debate again.

Where We Stand and Why Investors Should Care

How great would it be if we could find a way to provide access to better education for low-income families?  Instead, people within the rental investment profession use half-baked studies to communicate a hollow agenda, with zero solutions-based advocacy.  

It’s vaporware. 

What it does continue to reflect, which is something no real estate investor didn’t already know, is that location matters.  Homes in better school districts shouldn’t be the primary underwriting metric in your buy box, but it absolutely deserves a place among the positives. 

PropVest

🚨 Self-Promotion Alert 🚨

The journey into real estate investing can be daunting, with significant upfront investments and the complexities of managing tangible assets. Despite these challenges, real estate remains unparalleled in its potential to enhance net worth and achieve financial independence. 

PropVest was established on the principle that expertise and execution are crucial for success. We believe specialized service providers offer superior outcomes to all-inclusive solutions. Our mission is to unlock multiple strategies that enable individuals to invest freely and with confidence.

How It All Started

From swinging a hammer to managing nearly $600M in individual investor acquisitions, Thomas Stepp, founder and CEO, embodies a unique blend of blue-collar work ethic and white-collar strategy. He is driven by a passion for building meaningful ventures that enrich lives. He started with a residential design-build masonry business in Newport, Rhode Island, moved into sweat equity investing in fix & flip, then employed buy & hold strategies. With nearly a decade of experience in venture-backed proptech companies leading SFR investment sales, Thomas has personally invested and assisted over two thousand individuals to start or advance their real estate investing journeys.

Two recurring themes have emerged from his 18+ years in residential investments: strategic risk-taking and the exponential benefits of real estate when leveraged correctly.  PropVest minimizes risk and identifies creative opportunities for yield, helping customers build durable, long-term rental portfolios that offer greater financial independence.

What Makes PropVest Different?

PropVest leverages best practices from nearly a decade of venture-backed retail investment support, removing bottlenecks and pain points to deliver streamlined expertise. While many venture-backed organizations are pivoting toward institutional investors, we remain committed to individuals. With over 60 years of combined real estate investment expertise across the team and $100M+ in venture-backed insights, we prioritize a customer-first mindset.

Our team is uniquely equipped to help aspiring real estate investors acquire properties in prime markets, combining strategic planning with local investment support. We offer institutional-quality acquisition guidance and asset management tailored for individual portfolios, provided by a dedicated team of professionals.

How to Get Started?

Our platform is invite-only, limited to 100 investors. If you're interested in joining the 35 others already committed, please fill out the form below.

Why 100?

• We are a small team with incredibly high service expectations.

• We prioritize the durability of returns and relationships over scaling.

• We are selective about the investors we work with.

• With an initial base of committed investors, we have the opportunity to grow at a measured pace, refining our business products and processes along the way.

We are fortunate to have built a community of investors who trust us to shape the early stages of this venture. We look forward to helping the next 100 investors leverage real estate to transform their financial futures.

Join us!  If you’re interested in receiving updates on membership requirements, investment strategies, and active locations, please fill out the form linked here.

Refer and Earn

You can earn free prop.text merch for referring investors to the newsletter

25 referrals - hat 🧢
 50 referrals - tee shirt 👕
100 referrals - weekender bag 🎒

Copy & paste this link: https://www.proptext.co/subscribe?ref=PLACEHOLDER

Buy prop.text Swag 🛒

You can buy your own prop.text merchandise
Coming Soon

100% of the proceeds go toward making this the best real estate investment newsletter for our valued readers.