Overview of the Model
PadSplit was founded four years ago in Atlanta and is now spreading across the southeast. Furman notes that they are an affordable housing company for a mission-driven marketplace. They demographic they serve are singles in the workforce who need affordable housing. PadSplit does resemble the Airbnb model; however, while Airbnb is fractional in time, Furman says that PadSplit is fractional in space. He says you simply take a furnished property, list it on our platform, and then it is rented out by the room. It has been so successful because we are able to generate well-above market yields for investors. Plus, it’s providing affordable housing for the communities where it’s needed. PadSplit runs the credit check, income check, and does a thorough background check on incoming renters. For working people that are unable to afford rent for a whole apartment, PadSplit offers very clear benefits for both the landlord and the renter.
The History Behind the Concept
Frank Furman says his brother-in-law Atticus was a commercial real estate broker who stumbled upon the PadSplit idea by happenstance. About a decade ago, he owned a large house with a unique set-up, and people had approached him to rent rooms in the space. This happened in 2009 and again in 2012. Frank says the thing that was so easy about it is that there was so much unmet demand. Affordable housing issues abound in top-tier cities, secondary cities, and even in places that aren’t very urban at all, says Frank. It’s a challenge for many working folks, and Furman says he even rented a room himself when he was in grad school. He says it made a lot of sense for him at that time, and it helped him save a lot of money.
James Prendamano says he doesn’t care what side of the real estate business you’re in – in order to scale (as PadSplit and Casandra Properties have both successfully done), you have to become a tech company too. Prendamano says this is what he has done for the last decade, and you have to do this to find the best deal makers. James goes on to say, “We had to become marketers quickly. And, as a result, we had to become a tech company. We’ve done this under the expertise of our CMO Peter Gambino who came over from Apple; it has profoundly changed the way we conduct business.
The Affordable Housing Crisis
Here where we are, says James Prendamano, there is a big push against upzoning. In fact, there is a lot of downzoning. As a result, you get big houses that many people cannot afford. Additionally, wages are not increasing enough to allow for home ownership. To say building affordable housing here in New York is a challenge is putting it mildly; it’s a very specialized field with rigorous requirements. James Prendamano reiterates, “Again, we are seeing the decentralization of real estate take place because of this.
The Logistics
Frank Furman says we have big time investors as well as mom and pop investors who use the PadSplit platform as a part of a side hustle. The home can be a one-family or a multi-family. PadSplit aims for investors to have a good outcomes. When that happens, Furman says investors tell their friends and then they get more investors. PadSplit gets very involved with their investors early on. We’re looking at assets the investor already has or assets they might want to buy. We also help our investors build a pro-forma to see if it’s a good fit for them or not. PadSplit prefers larger homes with a lot of bathrooms and bedrooms and that are reasonably close to public transportation and/or have ample parking. Utilities are paid by the landlord, although PadSplit offers great ideas to cut down on costs. They also investors to contractors to help them ready the space. PadSplit does all the marketing, screening and checks, offers a 24/7 call center, and electronically collects the payments weekly or biweekly from renters. PadSplit then pays the investor the aggregate at the end of the month. Frank Furman again notes how this is long-term, unlike Air bnb, with the average tenant staying 10 ½ months. PadSplit has all the right supports in place very early on for investors, leaning in from the very beginning. Frank explains that having a long-term lease in place isn’t extremely conducive to having people stay there for years; folks appreciate the flexibility. He also notes that single folks in the workforce are the ideal renter. Introducing couples and families to the mix complicates things, although there are some that have been grandfathered in. Additionally, Frank notes that with weekly electronic payments folks are making, it helps them bolster their credit score, which can help them one day become home-owners. PadSplit has a pricing tool on their site for pricing suggestions, but ultimately the pricing is on the host.
Tackling Issues with Tenants
PadSplit has certain mandates in place – like a minimum for 1 bathroom for 4 bedrooms. Of course, a higher bed-to-bathroom ratio and preferable geographic location will yield higher rents and income. Frank Furman says that most issues arise with the kitchen because everyone in the home is using it. At around nine bedrooms, we usually see some issues with the kitchen. Again, PadSplit directly tries to solve issues with tenants and is also very flexible with them within reason.
PadSplit is currently available across Georgia (its flagship market), Florida, Texas, New Orleans, Virginia, and Indiana. Frank Furman says over the next few months they will likely be expanding into Las Vegas, Ohio, Phoenix, Chicago, and North Carolina. Frank says, as many of us know, it’s incredibly hard to be a landlord in markets like New York and California. In general, PadSplit is looking to grow in the sunbelt and the Midwest, where Furman says it’s going to provide much bigger yields for investors.
Want to find out more about PadSplit’s incredible operation, platform, and how they come to boast a 97% collections rate? Listen to this episode of the Casandra Properties real estate podcast on any device – and don’t forget to subscribe!
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