A growing number of coliving properties are reporting bad debt levels of 11-12%, with landlords unable to cover mortgage payments when just one or two rooms go vacant, according to Clara Arroyave, Founder and CEO of Coliving Cashflow. The coliving model itself does not cause this financial strain. Instead, financial pressure often stems from investors entering the sector without proper underwriting, financing, or operational systems. Arroyave says many investors relied on surface-level research and purchased properties without understanding the occupancy levels required to achieve positive cash flow.
“Some people come to me after they’ve already made mistakes – often because they lacked systems or followed friends into coliving without doing their own analysis,” Arroyave says.
The highest failure rates are among investors who treated coliving as a hands-off real estate investment rather than an active hospitality business. Properties with poor-quality furnishings, inadequate common areas, or weak customer service are struggling with low occupancy and frequent tenant turnover. When vacancies occur, many properties cannot generate enough income to cover debt payments. This can lead to distressed sales or foreclosure.
A primary mistake Arroyave sees is investors underwriting coliving properties as if they were traditional rentals. Many assume full occupancy, ignore turnover costs, and structure financing that requires every room to be leased to break even. When even one or two tenants move out, the property’s cash flow turns negative.
“They didn’t know what the equilibrium point was or what sustainable cash flow looked like,” Arroyave says. Proper coliving underwriting requires modeling for vacancy rates, accounting for utilities and cleaning costs, and budgeting for lead generation. Investors who skip these steps often find their properties are not financially viable.
Financing also presents challenges. Many lenders are unfamiliar with coliving and base loan terms on traditional rental assumptions, such as one tenant per unit, rather than the higher revenue potential of shared housing. As a result, investors may be left with debt payments that exceed realistic income, creating a cash flow squeeze.
Arroyave points out that cutting corners on renovations or furnishings only makes matters worse. Coliving tenants expect a consistent standard. Properties that feel poorly maintained or low quality struggle to attract and retain residents. When occupancy drops, the entire financial model falls apart.
The most successful coliving operators approach their properties as hospitality businesses, not just investment assets. Tenants expect customer service, a sense of community, and convenience. Properties that fail to meet these expectations see shorter stays, higher turnover, and more missed payments.
“If you do the bare minimum, you’ll suffer from low occupancy,” Arroyave says. “But if you provide quality product, furniture, photography, and customer service, and take care of your residents, they’ll take care of you.”
Shared spaces are particularly important. Many investors convert properties into coliving without creating adequate common areas, thereby undermining one of coliving’s main attractions — community. When tenants feel disconnected from their housemates, they are more likely to leave, driving up turnover and vacancy costs.
Quality marketing also matters. Coliving tenants typically search for homes online, and properties with poor photos or unclear descriptions struggle to attract leads. Investors who treat marketing as an afterthought miss out on potential tenants and higher occupancy.
According to Arroyave, operators who invest in quality across furnishings, finishes, customer service, and community events see longer tenant stays, lower turnover, and more reliable cash flow. Those who try to maximize short-term profit by cutting costs often find that tenants will not tolerate substandard living conditions.
The financing landscape for coliving is gradually improving, but the market is still in its early stages. More lenders are beginning to approve coliving projects as they see performance data from existing properties, but most traditional lenders lack underwriting frameworks tailored to the asset class.
“Lenders are becoming more active, but there’s still a lot of room for more to enter this market,” Arroyave says. Lenders who understand coliving economics can offer better terms, but investors without a track record or sound underwriting often struggle to secure financing.
This lack of standardized financing creates barriers for some investors, but also opens opportunities for those who can demonstrate operational competence and strong underwriting. Investors who can demonstrate sustainable cash flow and market expertise are finding lenders willing to work with them, while others are being excluded or forced into unfavorable debt structures.
Arroyave believes the sector will benefit as it becomes more professional. As institutional investors enter and more data becomes available, lenders will develop better underwriting models for coliving. This should make financing more accessible and reduce the risk of investors taking on unsustainable debt.
Coliving Cashflow, Arroyave’s firm, offers education, consulting, and underwriting tools to help investors avoid common pitfalls. The firm reports analyzing more than $1 billion in properties across 500 markets in the past two years. It also advises on portfolios totaling more than $200 million. Arroyave says the company’s approach focuses on data-driven strategies that help investors structure sustainable cash flow.
“The quality of the operator is what makes or breaks a coliving property,” Arroyave says. “If you’re just house hacking and listing with multiple people, you might survive, but you won’t thrive.”
Coliving Cashflow plans to launch a coliving calculator and a 90-day coaching program. The tools aim to help investors underwrite properties correctly, secure appropriate financing, and build operational systems. The aim is to raise the quality of operators and reduce the number of distressed or underperforming coliving properties.
As coliving expands, the market is separating serious operators from amateurs. Investors who treat coliving as a business, focus on quality, and underwrite carefully are seeing success. Those who do not are increasingly facing financial trouble and serving as warnings for others entering the space.
The rise in bad debt and distressed coliving properties is a clear warning for new investors. The days of easy profits from simply adding beds to a house are over. Today’s coliving market rewards those who approach it with a hospitality mindset, invest in quality, and build resilient financial models. As more data and institutional capital flow into the sector, financing will become more standardized, and the gap between professional operators and opportunistic investors will widen. Coliving can offer strong returns for investors who treat it as an operating business rather than a shortcut to passive income.
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