Wrong Market, Wrong Investment: The Framework Co-Living Operators Need Before Choosing Where to Invest
Framework Co-Living Operators Need Before Choosing Where to Invest
By Ralph Pombo
Section 1: Why Market Selection Is the Most Underestimated Decision in Co-Living
I have spent fifteen years buying, selling, and holding real estate across multiple states and property types. I have a background in computer science and data research, which means I tend to approach investment decisions the way an engineer approaches a problem — with a framework, not a feeling. When the numbers support a thesis, you build on it. When they don’t, you walk away regardless of how compelling the story sounds.
So when I began examining co-living as a scalable business model, I expected to find a rigorous body of work on market selection. Something that told operators — not tenants, not investors broadly, but operators specifically — how to evaluate a city or submarket before committing capital. A decision model with real variables, real data, and real consequences attached to getting it wrong.
Throughout our research, no such framework appears to exist in any comprehensive, operator-focused form. What exists instead are market sizing reports full of global projections, platform marketing dressed up as analysis, and a general assumption that if a market has “housing demand,” it must be suitable for co-living. That assumption is flawed, and it is costing operators money.
The housing demand argument goes like this: America has a serious affordability problem, therefore co-living has a tailwind, therefore most markets will work. The data on affordability is real and sobering. According to Harvard’s Joint Center for Housing Studies, 43.5 million households were cost-burdened in 2024 — meaning they spend more than 30 percent of their monthly income on housing costs. That is one-third of every household in the country.1 The National Low Income Housing Coalition reports that a full-time worker today needs to earn $33.63 per hour just to afford a modest two-bedroom apartment without being cost-burdened — more than four times the federal minimum wage.2 Between 2013 and 2023, the stock of rental units priced below $1,000 per month dropped by over 30 percent, from 24.8 million units to 17.2 million.3
These numbers tell a compelling macro story. But they do not tell you whether a specific city will allow you to operate a co-living home legally, whether the tenant pool in that market can sustain your rent model, or whether the local regulatory environment will shut you down before you recoup your renovation costs. A rising tide does not lift all boats equally — and in co-living, the wrong market doesn’t just underperform. It can eliminate your investment entirely.
Consider how a hospital system chooses where to build a new facility. They don’t point to national health statistics and call it due diligence. They analyze local population density, age demographics, competing facilities, insurance reimbursement rates, and regulatory approvals specific to that jurisdiction. The national numbers validate the industry. The local variables determine whether the investment survives.
Co-living is no different, and it is time operators treated it that way.
The decision to enter a co-living market involves at least five distinct layers of analysis: demand conditions, regulatory environment, economic profile, property acquisition viability, and competitive landscape. Each layer contains sub-variables that shift depending on the tenant type you are targeting — and that tenant type fundamentally changes what a viable market looks like. A market that performs well for travel nurses may be entirely wrong for 55-plus residents. A city that actively supports workforce housing may simultaneously restrict the rooming-house classification that makes co-living financially viable in the first place.
This article is a practitioner’s framework for working through all five layers before you buy. It is not a guide to room design, amenity pricing, or tenant management. The focus is singular and deliberate — one question that most operators answer too quickly, with too little information:
Which market should I be in?
Get that right, and the operational challenges that follow are manageable. Get it wrong, and no amount of good management will save the investment.
Section 2: Know Your Tenant — Seven Profiles That Define Your Market
Understanding who co-living serves is not the first step in market selection — but it is an essential foundation for everything that follows. Before an operator can stress-test a demand signal, score the five pillars, or validate a tenant type, they need a working knowledge of the seven populations that co-living currently serves in the United States.
Tenant Type 1: Workforce and Essential Workers
This is the largest and most chronically underserved tenant population in American housing. Workforce tenants are the people who keep cities running — grocery clerks, warehouse workers, food service employees, delivery drivers, building maintenance staff, and entry-level healthcare support workers. They are fully employed, often working multiple jobs, and still unable to afford conventional rental housing in most American cities.
PadSplit, the nation’s largest co-living marketplace focused specifically on this population, reports that its average member earns a median of $30,000 per year and saves an average of $516 per month compared to traditional rental options. That savings number is not a marketing claim — it is the financial reality that makes workforce co-living viable as a housing model.
Tenant Type 2: Young Professionals
Young professionals are the tenant type most commonly associated with co-living in the popular press. This population includes recent college graduates and early-career workers, typically between the ages of 22 and 35, who are concentrated in knowledge-economy job centers. Working professionals now represent the largest end-user segment in the global co-living market, holding a 55.2 percent share as of 2024.
Tenant Type 3: Travel Nurses and Contract Workers
Travel nurses work on assignment contracts, typically 13 weeks in duration, at hospitals experiencing staffing shortages. The average travel nurse earned $101,132 annually in 2024, with a significant portion delivered as a tax-free housing stipend — meaning they have dedicated, reliable funds specifically allocated to housing costs. Industry data shows that travel nurses using shared housing arrangements save between 40 and 60 percent compared to renting a whole apartment.
Tenant Type 4: Students
Students represented nearly 30 percent of total co-living tenants globally in 2024. They are concentrated, predictable, and price-sensitive. A university with 20,000 or 30,000 students generates sustained, annual, and largely non-negotiable housing demand.
Tenant Type 5: Digital Nomads and Remote Workers
As of 2025, approximately 22 percent of the U.S. workforce — roughly 32.6 million Americans — continues to work remotely. The digital nomad population reached an estimated 40 million people in 2025. The early digital nomad model has given way to “slowmadism”: stays of three to nine months in a single location, prioritizing stability and community. That shift moves this tenant type directly into co-living territory.
Tenant Type 6: The 55-Plus Resident — The Market Nobody Is Watching
The number of Americans aged 65 and older reached approximately 61 million in 2024. By 2030, one in five Americans will be a senior. The operator who figures out the right product for the 55-plus co-living tenant is entering territory with enormous demographic tailwind and almost no direct competition.
Tenant Type 7: Sober Living Residents
According to SAMHSA’s 2024 National Survey, 48.4 million Americans experienced a substance use disorder in the past year — and roughly 80 percent received no treatment. The recovery housing market has surpassed $6.8 billion and is projected to grow at 5 to 9 percent annually through 2032. Done correctly, sober living co-living is one of the most stable, mission-aligned, and financially defensible housing models available.
Section 3: The Five Pillars of Market Viability
The framework breaks market viability into five distinct pillars. Think of them less like a checklist and more like load-bearing walls — remove any one of them and the structure doesn’t hold.
Pillar 1: Demand Indicators
Rent burden is the foundational metric. More than half of all renter households nationally are currently cost-burdened. But rent burden alone is not enough. The question is not simply “are people spending too much on housing?” The question is “are there enough people in my target tenant segment, in this specific market, who would choose co-living over their current alternative?”
Pillar 2: Regulatory Environment
Regulatory risk is the most underestimated pillar — and the one most likely to destroy an investment that looked solid on every other dimension. Co-living sits in a legal gray zone in most American cities. Depending on the jurisdiction, a co-living home may be classified as a single-family residence, a rooming house, a boarding house, or a multi-family dwelling — each with different rules, licensing requirements, and in some cases outright prohibitions.
Washington State passed House Bill 1998 in 2024, requiring all cities to permit co-living housing by right on qualifying lots. Other jurisdictions are moving in the opposite direction.
Pillar 3: Economic Profile
The economics operate at three levels: the macro employment environment, the income profile of the target tenant population, and the operator’s own cost structure relative to achievable rents. Utility costs deserve specific attention because co-living operators almost universally include electricity, gas, water, and internet in the room rate.
Pillar 4: Property Acquisition and Conversion Viability
HOA exposure deserves serious caution that goes beyond reading the current covenants. An HOA’s rules are not permanent. A single motivated homeowner can organize a campaign, bring a rule change to a vote, and effectively destroy the investment’s viability without the operator having any meaningful recourse. For most co-living operators, the correct posture is to avoid HOA properties entirely.
Pillar 5: Competitive Landscape
The practical question is not “is there any co-living here?” but “is the co-living supply in this market adequate for the tenant population that exists, and is it specifically targeting my tenant type?” Competitive analysis has to be segment-specific, not just supply-count specific.
Section 4: Market Killers — The Non-Negotiable Disqualifiers
These are not weaknesses to be weighed against strengths. They are conditions that make a market unworkable regardless of how well it scores on every other dimension.
MK-1: Outright Zoning Prohibition or Active Municipal Hostility. Shawnee, Kansas enacted an ordinance prohibiting four or more unrelated adults from living together — a direct co-living ban — despite rents in surrounding Johnson County having risen 13.3 percent. In St. Petersburg, Florida, Docked Living operated legally until fire officials reclassified their properties as rooming houses, subjecting them to a stricter code standard that resulted in shutdown.
MK-2: Unresolvable Rooming House Classification. In some markets, rooming house licensing requirements — commercial fire suppression systems, separate egress requirements, minimum square footage per occupant — functionally eliminate the model’s financial viability.
MK-3: Hostile HOA Saturation. In markets where the dominant housing stock is concentrated in HOA-governed communities, the operator’s practical acquisition pool shrinks to the point where the market becomes unworkable at scale.
MK-4: Unsustainable Cost Structure. The average annual homeowner insurance premium increased by 14 percent in 2024 to $1,761 — up 62 percent in five years. In Florida and California, insurance costs for multi-occupant residential properties have risen sharply. An operator who underwrites a deal at 2022 insurance rates in a 2025 environment is carrying unacknowledged exposure.
MK-5: Shrinking or Unstable Population. Inexpensive housing in a declining market is not a co-living opportunity. It is a value trap.
MK-6: Absence of the Target Tenant Population. The test is not “does this population exist in this market?” It is “does this population exist in sufficient concentration, with the specific characteristics that make co-living the right solution for them, in this specific place?”
Section 5: Scoring a Market — A Practitioner’s Framework
The framework moves through five sequential steps — each one a gate that a market must pass before the operator invests further time or capital.
Step 1 — Find the Demand Signal
Three categories of signal are worth tracking: housing cost pressure, employment concentration, and housing supply gap. When two or three of these signals are present simultaneously, the market earns a deeper look.
Step 2 — Stress-Test the Demand
You have identified a demand signal. Before going further, you need to understand that demand well enough to answer one foundational question: if conditions change, does this demand survive?
Consider West Texas. The demand for worker housing in the Permian Basin is real and visible. But what happens to that demand when WTI crude oil prices drop below the drilling break-even threshold? The Permian Basin has experienced dramatic boom-and-bust cycles within living memory, and an operator who enters the market at the top of a cycle without understanding that history is not making an investment. They are making a bet.
Step 3 — Run the Market Killer Screen
Six binary questions. A single failure stops the analysis. The market failed. Move to the next candidate.
Step 4 — Score the Five Pillars
Each pillar is scored on a scale of 1 to 10 across sub-variables, averaged to produce a pillar score, then multiplied by its assigned weight. Maximum total score: 100 points.
| Pillar | Weight |
|---|---|
| 1 — Demand Conditions | 25 points |
| 2 — Regulatory Environment | 25 points |
| 3 — Economic Profile | 20 points |
| 4 — Property Acquisition Viability | 15 points |
| 5 — Competitive Landscape | 15 points |
Interpreting the Score:
- 85–100: Strong Entry Candidate. Proceed to property-level due diligence.
- 70–84: Viable with Identified Risks. Identify which pillar is dragging the score.
- 55–69: Proceed with Caution. Do not proceed without a clear mitigation plan.
- Below 55: Do Not Enter.
Step 5 — Tenant-Type-Specific Validation
If the market passes every prior test, this final step confirms the market’s specific characteristics support the demand type you identified at the depth required to sustain long-term occupancy.
Section 6: The Framework in Action — Four Market Profiles
Market Profile 1: Atlanta, Georgia
Framework outcome: Viable with Identified Risks (Score: 73.8/100)
Atlanta’s demand signal for rent-by-the-room housing is among the clearest in the United States. The metro produces more than 40,000 college graduates annually while maintaining a large and growing population of essential workers who cannot compete for conventional rental housing. Employment is diversified across healthcare, technology, logistics, film production, and professional services.
The identified risk is competitive density — PadSplit’s significant presence means operators must differentiate through property quality, platform partnership, or targeting a specific sub-segment such as healthcare workers near Emory.
Market Profile 2: Indianapolis, Indiana
Framework outcome: Viable with Identified Risks, approaching Strong Entry Candidate (Score: 78.1/100)
Indianapolis does not generate the headlines that Sun Belt markets attract, which is precisely what makes it interesting. In Marion County, half of all renters are cost-burdened. The rental vacancy rate reached a 15-year low of 3.9 percent in 2024. Indiana is one of the most landlord-friendly states in the country. Median home prices are approximately $260,000, with entry-level investment properties available well below that figure.
Indianapolis is arguably the most underrated co-living market in the Midwest. The operator who applies this framework without regional bias will find a market that scores comparably to markets receiving far more attention.
Market Profile 3: A Rapidly Growing Sun Belt Suburb with High HOA Penetration
Framework outcome: Proceed with Caution (Score: 67.25/100)
Strong demand, favorable economics, and permissive regulation — but HOA penetration of available single-family inventory exceeds 85 to 90 percent of the suitable acquisition universe. The market cannot support a scalable portfolio. A small, opportunistic portfolio is possible. Expecting to scale to fifteen properties will exhaust viable inventory.
Market Profile 4: A Single-Industry Secondary Market
Framework outcome: Do Not Enter
When a market’s housing demand is generated primarily by a single industry or employer, the durability question becomes existential. Oil field operations fluctuate with WTI prices. Defense contractor workforces expand and contract with federal budget cycles. This market does not advance to the Market Killer Screen. Step 2 produces a disqualifying conclusion.
Conclusion: The Market Is the Foundation
Every investment decision in co-living ultimately rests on one variable more than any other: the market. Not the property. Not the renovation plan. Not the room count or the amenity stack or the lease structure. The market. Get that right and the rest of the work, while demanding, is manageable. Get it wrong and nothing downstream saves you.
The best markets in co-living are not always the most obvious ones. Indianapolis scores nearly as well as Atlanta on this framework, and Atlanta gets ten times the attention. The fast-growing Sun Belt suburb with strong demand indicators may fail on property viability the moment you survey the HOA penetration of available inventory. The single-industry secondary market that looks compelling in a strong cycle looks very different when you apply a durability stress test.
The framework does not just confirm opportunity — it reveals where apparent opportunity is actually concealed risk, and where overlooked markets are compelling investments hiding behind an unfashionable zip code or an unfamiliar city name.
Co-living as a housing model is sound. The demand is real, the demographics are favorable, and the national affordability crisis is not resolving itself on any timeline that reduces the need for affordable shared housing. The operators who build durable, scalable portfolios in the years ahead will not be those who moved fastest. They will be the ones who chose their markets with discipline.
Ralph Pombo is a real estate investor, computer scientist, data researcher, and mechanical engineer with fifteen years of experience across multiple states and property types, including active co-living operations in Texas.
Harvard Joint Center for Housing Studies, Housing Unaffordability Soared to New Highs in 2024, February 2026. ↩︎
National Low Income Housing Coalition, Out of Reach 2025: The High Cost of Housing, July 2025. ↩︎
Enterprise Community Partners, Four Key Findings from the 2025 State of the Nation’s Housing Report, June 2025. ↩︎