Cold open

SPEAKER_00 0:00

Welcome to Live Let Thrive, a podcast about the Airbnb life, the share economy, and everything in between. Here are your hosts, Micah and Steve.

SPEAKER_01 0:11

Hello, hello, hello, and welcome back to another exciting episode of Live Let Thrive, your favorite short-term, midterm, long-term rental podcast in the world,

Justin King from PadSplit introduces the room-rental marketplace

SPEAKER_01 0:22

coming at you from Arlington, Texas, and Fort Worth, Texas. Actually, just Fort Worth today because Micah couldn't join us. But we have a special guest on this episode 317, and that is Justin King from Pad Split. Everybody's talking about Pad Split, especially in our world, in our Airbnb short-term, midterm rental world, as another possible way to make some income with that house or uh condo or whatever you got that you can turn into uh more bedrooms and more revenue. So I'm happy to to talk to you today, Justin, and ask you a million questions. How you doing?

SPEAKER_03 0:57

I'm doing really well. I'm doing really well. I appreciate it. I'm looking forward to a million questions. I don't know if we have quite enough time for that number, but yeah, I'll try to I'll try to talk fast.

SPEAKER_01 1:08

Um, first, first question uh can you sell me this pin, Justin? I'm just kidding. I probably could, but I think you already got one. So I got like a thousand. Um, anyways, yeah. So first off, uh, give us a quick little I mean people have heard about pad split. I've heard podcasts about pad split, and I get the gist of it, but could you do like a little uh elevator pitch on what is pad split?

SPEAKER_03 1:30

Yeah, yeah, absolutely. So pad split is a marketplace similar to Airbnb, which um a lot of your audience probably already familiar with, but we're a marketplace similar to Airbnb. The difference is is we specialize in the co-living or rent by the room model. Um, we've been around since 2018, so we've had our lumps kind of coming out of COVID and performed really well there. But effectively what it does is investors will bring properties to us, we find the tenants for those properties, and then we have additional services that help them manage their co-living portfolio.

SPEAKER_01 2:00

Nice, nice. So rent by the room thing. So I the first thing that jumps out at me is why is

90% occupancy across 19,000 rooms vs Airbnb's vacancy struggle

SPEAKER_01 2:07

your why would yours be better? Because there are Airbnbers that I know that do rent by the room, and they utilize Airbnb for that uh type of uh rental experience. What makes y'all's different than just, hey, I'm just gonna throw some rooms on Airbnb?

SPEAKER_03 2:22

Yeah, I mean, I think there's there's really two things that we do that stand out. One is that, you know, we prime, we our target market is this marketplace, right? Are these individuals that are looking for rent by the room, right? So in all of our marketing efforts are geared towards finding these tenants. We're not trying to find, you know, vacationers or anything like that, right? Which is different from Airbnb. Um, and because we have this targeted marketing kind of like uh strategy, I guess you can say, we're seeing occupancy rates hover around 90% across the platform. And we have about 19,000 rooms under management here. Um, beyond the fact that you know we're really effective at filling bedrooms, we do have additional services available to uh hosts whenever they bring a property to us that you're not gonna find on the Airbnb platform, right? First and foremost, we need to work with somebody like myself or another account executive on our team that are gonna make sure that the property is set up for co-living. Um, obviously, if you're doing Airbnb, that's a different experience. So we're gonna help you tailor the property and make sure it's it's just you know designed in a way that are it's fitting our target demographic. And then we offer additional services. Clearly, marketing, that's one. Um we do the screening on the tenants, so we take them through a long-term rental screening process. Um, you can utilize our platform to manage your entire portfolio, right? And we have hosts who have you know 200, 300 plus rooms on the platform. Um, our tenants use the platform, our members use the tap platform for communication, you know, maintenance requests, all that stuff is submitted through there. Uh, and then we also have some really valuable tools when it comes to pricing directly inside the platform as well. And on the back end, obviously we're doing rent collections. Uh, and the biggest difference between the way we do rent collections and the way you know other rental properties or other, you know, um other investors maybe doing rent collections is we're collecting rent on a weekly basis. Um, and that really does two things for you is I think the biggest thing it does is you don't run into those scenarios where you know that you would potentially have under a long-term rental where um you know you get a guy who you know they get paid twice a month, you're collecting rent once a month, and then you know, um, you know, dog gets sick, grandma gets sick, car breaks down, that's where the rent mining goes, and they don't have the money come, you know, uh rent day. By collecting rent on a weekly basis, we're meeting individuals on the day that they're getting paid. Um, and we have a best in class collections rate of about 98% on the platform.

SPEAKER_01 4:49

So that's pretty awesome. I I did notice that on a different podcast y'all's founder was on, he mentioned the weekly um rent payment.

Weekly rent collections hit 98% - meeting tenants on payday

SPEAKER_01 4:57

And I was I thought that was a great idea. Because now a lot of day uh nowadays a lot of people get paid weekly, not just bi-weekly anymore. So that's that's great. Get that rent paid before they go in and waste the money, you know. Let's keep it real. Um so or get you know, an expense jumps up. Um now I've been I've been renting long-term for for a while now, right? I've but I've I've mostly shifted my I say I'm like 95% short-term and midterm rentals, right? But I still have some long-term rentals that I, you know, houses that I can't do short-term rentals in these areas, whatever. But um, and I've I've come across renters who who've asked if they could do, you know, pay me every two weeks instead of paying me on the first of the month. And sounded like, okay, yeah, that's fine. They pay me on payday, that's fine. Uh, the only the only hiccup with that, and probably perhaps y'all have a way, uh, a solution for this, is um, let's say the first uh the first of the month rolls around, the first half of the rent's due. They say, hey, it's gonna be a few days, blah, blah, blah. And then they start getting a little bit late on that. And then next uh the the second amount is due two weeks later. And so trying to calculate the late fees and all that stuff was uh was a headache. I was like, Whoa, whoa, they just figured out a way to pay me to do two weeks late on rent on me and without me charging them late fees. And it was a weird deal. I was I I came across I didn't I didn't anticipate. Well, how do y'all do uh late fees when you're doing weekly payments?

SPEAKER_03 6:22

Yeah, I mean that's managed all inside the platform, right? So it's not something that you have to worry about. Um, you know, we have a pretty hard and fast rule. And then I say hard and fast, but it's at the discretion of the host as well. But if somebody gets $300 behind on rent, um, then we'll look to issue a notice to vacate and remove them from the platform until they, you know, make that current host whole. And that's a big caveat is like if a member wants to come back to the platform, they have to make the previous host whole financially before they can come back to the platform. But inside the platform, all the late fees are calculated. You'll have visibility through the financial reporting to see you know what what hosts or excuse me, what members are producing late fees. And the reality is, is like, you know, in most markets, the average price is going to be up for a room is like $165 to even $195 a week. So when you're talking about getting $300 behind, that's that's really like two weeks or less worth of rent, is how far people are getting behind. And we're jumping on that immediately and removing those kind of non-payers out of the property if necessary before it gets to a you know full month of non-payment.

1.2% eviction rate and the $300 automatic notice to vacate

SPEAKER_01 7:29

Cool. And and um that brings me to another thing, that notice to vacate. Because I mean I've been through um man, in the last few months I've been through two evictions, right? It's no fun, it sucks. Yeah, and and I know, and y'all mention uh the people that are living in our houses with these path splits are considered tenants, they're staying there for you know months at a time, right? Um, so at first I was gonna uh I wouldn't say attack you, I was gonna say, how y'all gonna get these people out of our places? You know, at first I was gonna say that, but but then when you when you mention it's all calculated in the platform and doing the late fees and then then automatically sends the notice to vacant, all all keeps it all nice and pretty. That actually to me, it kind of helps in court because you have it all nice and you know, easy for the judge to look at and say, okay, yeah, they missed the payments here. Here's the boom, boom, boom, the late fees. This is exactly how much they owe. I mean, it seems like it keeps it nice and clean for in case a court situation happens.

SPEAKER_03 8:23

Yeah, absolutely. I mean, one of the things that like we I mean, we obviously talk through the services. There's there's going to be some leftover stuff that comes with operating the business. And one of the things that PadSplit doesn't directly do is evictions, right? Like it's still up to the investor to go show up in eviction court, et cetera. But we'll package it nicely, those documents nicely for you, provide them to you. Um, you issued the notice to vacate, like I said, through through the PadSplit platform. Uh, and I think a lot of your listeners are pretty pretty stunned to hear that our eviction rate across the 19,000 rooms we manage is only 1.2%. So we're way below the national average. Now, granted, there's a lot of strategies that hosts will use the same way you would use under a long-term rental, cash for keys, things of those nature to get people out ahead of time. Um, but with, I mean, even with those strategies, we're seeing incredibly low uh eviction rates across the platform.

SPEAKER_01 9:14

That is super low. I mean, uh, at first I would attribute that to it's gonna be a lower rental price than someone trying to, you know, squeeze into a house and they could barely afford, and then all of a sudden you get the high bills coming through and everything, and and a car breaks down and they're screwed, right?

SPEAKER_03 9:30

Yeah.

Pricing below studio apartments for one-third of the workforce

SPEAKER_03 9:31

Yeah, absolutely. I mean, the the thing to understand is like where these rooms are priced at, it's below the price of a studio apartment, right? And so whenever you're priced that way, you know, our target demographic is about one-third of the working population. I know specifically here in DFW, it's one third of the working population, but that's that's effectively who we're going after. Are those individuals that make too much money to qualify for government subsidy, but they don't make enough money to qualify for a studio apartment, right? So the income is there in a lot of cases. Um, and so you know, they can afford a place because they didn't have to pay for furnishings, they don't have these crazy high security deposits, they don't have massive utility startup costs, it's all taken care of. So we're really not only is the room more affordable, but we're reducing the barrier to entry and the financial cost to them to get into housing. So it makes it more affordable for them in the long run as well.

SPEAKER_01 10:22

And what kind of deposits do you usually look at if you're they're only paying like you know 150 to 200 bucks a month? What kind of deposits are we looking at?

SPEAKER_03 10:29

Uh yeah, so 150 to 200 a week is I think yeah, is we're referring to. Yeah, yeah. And it it takes a little bit of uh training in the mind to move away from monthly payments to weekly payments. Yeah, yeah, for sure. Um, but yeah, so we don't have uh high security deposits on the platform. We do what have what's called a move-in fee that members are charged whenever they book a room. Um that effectively works as like a non-refundable security deposit. Now, you may see like $100 and you're like, well, that's not going to cover my turn costs. Well, if you're still thinking in long-term rental mindset, then you're absolutely right. That wouldn't cover your turn costs. Like those turn costs are $1,000 plus. I mean, I'm sure you know the average one is usually two to three thousand dollars in its earn costs. But when you're renting a room, that's the only space that you're looking at turning. So the turn cost there is typically $80 to $100, right? So that non-refundable security deposit that folks are paying, which is the move-in fee of about $100, is going to cover your turn costs whenever they move out, right? And then obviously, just because we're talking about turns, the beauty of that is that because you're not turning an entire property, it doesn't take days or weeks to get it ready for the next tenant. We're talking about one day it's ready for rent, back on the platform in a day, maybe two days, typically rented out most markets within 10 days of being back on market.

SPEAKER_01 11:53

That is cool. And and so that's what another thing moving folks around.

One free transfer between PadSplit properties in three months

SPEAKER_01 11:59

I saw on your platform that if if someone's not happy at a place or something like that, since they're part of the your network or whatever, they can get they think they get one free move out to another spot or something like that. And then each time they move after that, they have to pay another fee or something.

SPEAKER_03 12:14

Yeah, that's right. So whenever members come to the platform for the first time, they're agreeing to a three-month commitment, right? To stay on the Pads Flip platform. Um, so you know, obviously with co-living, you have roommates. Um, they're not touring the property before they they book it, they're booking it in the same way an Airbnb would. So if they show up to the property and it's not representative of the photos or they're not getting along with the roommates kind of within that three-month period, then we do offer one free transfer to another PadSlip property. You know, that is a way you could lose a tenant, but that's also a way you can gain a tenant as well if they're coming from there. Uh, and you know, the way the marketplace is set up is like we've created a system where members have control over where they stay, right? And so it's important to kind of suss out in your initial, you know, discovery call with these these folks before you you allow them to book, how how close they are to their work, if they've ever lived with other roommates, things of that nature. And if you're you're getting the right answers from there, then you you have a pretty good visibility in how long they they stay. But at the end of the day, we do give them one free transfer out of the password that they first move into another PASLEP property um once they've identified it.

SPEAKER_01 13:23

And how much does it cost to transfer after that?

SPEAKER_03 13:25

That's a good question. That's something that we recently instituted. I'm not entirely sure um what the transfer fee is. I'd have to get back to you on that one.

SPEAKER_01 13:32

Because what I automatically think of if it's a young, you know, adventurous uh work uh what's it called? Um digital nomad worker, yeah, digi nomad, and wants to use y'all as a platform to just hop around, work a few months here, work a few months there, you know. I think that'd be pretty cool.

SPEAKER_03 13:47

Yeah, no, we definitely that is a demographic that we kind of see. Obviously, there's you know, the affordable housing demographic is bigger, and so we see more of that workforce housing. Um, but yeah, that that is certainly a demographic we have within the platform. And we have guys that'll stay in Vegas for six months and then move to Orlando for six months and then you know go to Baltimore for six months. You know, that's that's certainly the benefit of what we offer.

SPEAKER_01 14:11

Now, are these are these houses uh or you know, places to rent, are they co-ed or are they uh only female and some of them are only female, some of them are only men, or how does it work?

SPEAKER_03 14:22

Yeah, I mean it is co-ed. You know, obviously, you know, sex is uh protected class under

Co-ed houses and the five-star weekly rating system

SPEAKER_03 14:27

federal housing guidelines. Um, I will say that the the vast majority of our renters, uh large, I think it's 60-ish percent or so are male. Um, but yeah, we do have co-ed houses. Uh and I, you know what I typically see, honestly, just from anecdotally, like when a house begins to fit fill up with females, right? It usually gets full primarily with females and vice versa. Um, because when a member goes to book a room, they're gonna be able to see the profile of all the folks that are inside of the room, right? So they can make a decision based on what they see. Um, and then it it kind of like you know guides itself from there.

SPEAKER_01 15:04

Now, so it's it's illegal for you to make a completely female pad split.

SPEAKER_03 15:09

It is, yeah. I mean, it's uh a federal for housing, we still had to have to adhere to those guidelines. So we can't be discriminatory against um you know sex, race, uh familial status, all of those things.

SPEAKER_01 15:21

That is crazy. I mean, to me, it I understand they want to, you know, keep everything uh whatever legal, but but to me it just makes sense to have like a fully female house, you know, just they don't have to worry about dudes doing being you know bad dudes.

SPEAKER_03 15:37

Yeah, being creepy dudes for sure. Yeah, yeah. I mean, one of the ways that we like say, you know, uh it's talk about how that would pop up, right? And like how does that materialize in the day-to-day operation? So one of the things that all of our members have access to is the profile of other members inside of their house. And the cool way that we leverage that is each member can rate each other on a five-star scale on a weekly basis inside the home. And so what that does for you as an operator is that becomes your canary in the coal mine for potential issues arising in the house dynamics, right? And so inside the platform, we'll actually show you all of your members. We'll show you a breakdown of how many have a high rating, how many have an average rating, and how many have a low. Common mix is like the vast majority of the members are gonna be highly rated. Um, typically we don't see you know outsized number of issues out of this. And if we did, we probably wouldn't have a business model. You might have one or two that are gonna be an average rating and typically zero to one that have a low rating. A lot of times it's just raising attention to whatever the issue is on that rating system. If it was, hey, you're being noisy during criet hours or you're not cleaning up after yourself, those are probably going to be the more common ones. Raising attention to or raising awareness to the issue with the member is gonna be enough to correct that. Um, but if we have folks that you know are not being a good roommate, then we'll look to remove them from their property. Um, I think one of the things that's the most important piece in co-living is the house dynamics. And if they go south because you have a bad member, we have to act quickly to remove that member or correct that behavior. Otherwise, we could be looking at you know potentially more vacancy from from that uh property as opposed to just one person leaving, right?

SPEAKER_01 17:19

Yeah. So I have that the house that I made. This is this is funny because I'm I'm I turned this into a podcast, and and the reason why I I heard I heard your founder on the pod on another podcast, and so I was like, this is a cool

Converting a four-bedroom Arlington house - the walkthrough

SPEAKER_01 17:32

idea. Let me just go in there and make an account. And I do have a house that's coming up for rent. And I've had I just got I just evicted a lady out of this house, right? I'll say it's not the best neighborhood, it's not the worst neighborhood, it may be right, you know, B minus, C plus area, you know. So I anticip I just anticipate having more issues at this house than uh, you know, some something in a in a higher uh ranked area. But anyways, that's why I was thinking maybe it'd be a good pad split. It's four bedroom, two uh two-bath, right? And I have an add-on room in the back that's like a second living room, you know what I'm saying? But I can it has a place where I could put an actual door and turn it into another bedroom. So so like I know you haven't seen the house. I guess you saw the the first picture if you did look at it, but um, so what would what would your advice be with my house? I have a nice size living room, little kitchen area, um, like I said, four bedroom, two bath, and then that add-on room I can make into a fifth bedroom.

SPEAKER_03 18:29

Yeah, yeah. I mean, I'll take you through like the process that I go to evaluate a property for for pad split, right? Um, and this is gonna hold water for investors as they look to get into the platform or they're considering you know bringing their property over. So the first thing that we have to identify is the type of neighborhood you're in. And you mentioned it's in like a B minus kind of high C neighborhood. That's ideal for pad split properties. And the reason is is because those are mostly investor-owned neighborhoods, right? And if you do have you know families living in that neighborhood, they're typically, and it depends on the market, but you can have a lot of multi-generational living. There's obviously not any HOA in those neighborhoods, usually, which is great for really any type of real estate investing, right? Um, and so there's just lower expectations on how your neighbors are going to kind of behave. I will say that when you talk about getting in trouble with the city or getting citations, it always stems from the neighbors first. We've yet to come across any municipality that has a specific co-living task force that's I looking for and identifying these properties to cite them and you know, um, bring trouble to them. It always starts with the neighbors first. And so if you're in a neighborhood that's low HOA or no HOA, kind of uh class B, class C, you're gonna be able to operate a lot better and a lot easier without uh um you know neighbor issues typically. So that's the first thing we look at. The second thing we want to look at is like where this property is positioned at inside of the metro, right? Um, Dallas Fort Worth, I live here in Dallas as well, so I'm happy to walk this property with you at some point. Um, but Dallas Fort Worth has high car ownership. About 70% of our workers own vehicles in DFW, right? So we need to identify do we have enough parking for every single person inside the house? If you're in an area that has great public transit, like Atlanta does, you typically want to have one parking spot for every two cars. In Dallas, we really need to have probably one parking spot for every one room. Or excuse me, uh Atlanta is one parking spot for every uh, excuse me, one parking spot for every two rooms. Dallas is gonna be one parking spot for every one room. That's what we really need to identify. So a lot of times that's gonna be your limiting factor on the number of rooms that you can put inside the house. Once we kind of identify that parking works out, right, it's gonna make sense. So we're close to the metro, or maybe we're close to a bus stop that folks could be using. Um looking at the property, understanding the floor plan is obviously huge. We have limitations, obviously, around bedroom size. We need a bedroom, you know, 80 square feet or more. I'll tell you, just operationally, having a higher square footage bedroom is going to result in longer tenure in that room. So, what I don't like to see from investors is like having all your rooms or having multiple rooms kind of right at that minimum, because then you're just creating rooms that are just gonna have higher turnover, right? Which operationally becomes a nightmare and it's gonna result in you know lower realized revenue over the year, right? So it may look good on a pro forma, but the reality is it doesn't operate the way you want it to. Um, so we look for square footage. We need to have two points of egress in every single room. So that's going to be the door you create to walk into the room, and then typically a window to jump out of in the event of a fire, right? Um, I've seen bedrooms where they've had two doors, a door on each side, but no natural light coming into the room. Again, probably gonna be a higher turnover room with that type of setup. So we want a room ideally that can fit a floor. A full size bed at a minimum that can fit uh you know fit some additional um um you know amenities like a mini fridge if you want to go that route or a desk with a chair and at least one piece of furniture for folks to store their clothes in. So that's what we're really trying to chase after when it comes to creating the bedroom. So because you've owned this property for a while, I would imagine you got a pretty good interest rate on it. Um it's likely, you know, it'll cash flow well with you know just adding one room, but for new acquisitions, what I see, you know, 99% of the time, just where interest rates are at today, we really have to be able to get two bedrooms out of a property, additional bedrooms out of a property to make it cash flow in any meaningful way. Um, and you know, usually that results in needing a foot, you know, a single story footprint of about 1700 square feet or more, is typically what you look for. Um, but if there's additional common areas in this room, like a formal dining room or anything like that, those are other spaces, or even an office, those are other spaces that we can consider for conversion.

SPEAKER_01 22:58

And and who does the conversion?

SPEAKER_03 23:00

So that would be you, the investor.

80 square feet minimum, two egress points, contractor horror stories

SPEAKER_03 23:02

That's something that Pad Split consults on, you know, me directly. I I think the beauty of it is is obviously, you know, I'll definitely want to give, you know, link credence to the fact that you've been doing this for a while. You probably have a great vendor network here in Dallas, um, or you know, Dallas Fort Worth. Um, in every core market that we operate in, we've established our own vendor network. So real estate agents, wholesalers, contractors, insurance brokers, photographers, like property managers, you name it. So anything anybody would need to get started with PadSplit, you know, depending on the process that you're in. Um, a lot of these folks own their own PadSplit portfolio. So they understand the process A to Z and their experts in their specific field. Um, so I would consult with you on like, hey, this is where we can do the rooms. I can kick you over to a PadSplit vendor, PadSplit general contractor, who's done several dozen conversions in the market. Um, or if you want to leverage your own contractor network because you think it's gonna save you money and you're comfortable with those guys, then we can just sit down and have a quick conversation with them about expectations and what it needs to look like. And I'll give you a quick go ahead. I'll give you a quick quick story. So had an investor um in another market who wanted to use their contractor, and he took the pad split guidelines that we talked about, about square footage size and you know, number of egress points, and he told the guy, hey, I need a window and a door for for every room that you're gonna create. Believe it or not, he put a door, great, facing inwards, and he put a window right next to it. Window is also facing the inside. So you walk by the room down the hallway, and you see a window into the room and the door right next to it. So it's like sometimes you gotta give give these guys a little more guidance on where things need to be. Um, so that's why I like to chat with if you have your own contractor, allow me to have a conversation with them on expectations, and we can do that in a walkthrough. Um, or again, just leverage the network that we've kind of built out.

SPEAKER_01 24:57

That's hilarious. Windows inside the house. That's that's funny. Um, so so my thing, you what you mentioned, trying to maximize the rooms. So, like I said, my mine's a 4-2. It's about 18 something, 1850 square feet, something like that. And it has that add-on, that add-on room in the back that I can make another bedroom. So that that takes me to 5'2. Now, in the hallway, there's that there's a hallway bathroom, right? It's a full bath, got a tub and everything. The other bathroom is inside the master bedroom. So I would assume that that one bathroom is only for that for the person staying in that room, right?

SPEAKER_03 25:34

Yeah, that's correct. Um, so you know, whenever you have a private, every room has a private, is a private lockable space, right? So you're typically going to install keypad locks or you know, digital locks on every door. Um, we have a maximum requirement at pad split for the number of bedrooms that can tie into a shared bath, and that's a four to one ratio. Um, so you know, this would perfectly this would work well and it fits inside of our ratio for this house you're considering. That one room that has its own private bath, that's gonna go for a higher rate because we have more privacy there, and that's an additional amenity for that that uh potential tenant or member. And then the other bedrooms that would be that that fits right in with our four to one ratio, right? All four members are gonna share that one bathroom. Um, I'll say in the event, say for example, we're able to identify another room in this house or a future house, and we're gonna kick it from a three, two or a four-two up to a six-two. The what we would need to do in that case, because if we tried to keep this primary suite as is, we would then have a five bedroom to one bath ratio. So we need to fix that. So, what we usually do there is build a hallway through the primary suite so everybody can access that primary bathroom, and then that primary bathroom becomes shared, and your your ratio is going to switch then from a uh five to one to a uh three to one at that point. So you'd be good.

SPEAKER_01 26:51

Hmm. Okay. So that that master bedroom would still be able to be used as a bedroom, you just kind of like have a hallway in between the bedroom and that bathroom. Okay.

SPEAKER_03 27:01

And there's obviously limitations on where the bathroom's located at. Um, but I've I've also seen investors like if there's a large closet attached to the bathroom, which you sometimes see in in older homes where the closet is attached to the primary suite. You know, if that hallway is facing the hallway itself, or maybe it has the back wall in, you know, against the hallway, you can just do a cutout right there. And you don't have to build a hallway through your primary suite. You just do a cutout there, and then everybody can just go through the hallway, through the closet, and then into the uh it wouldn't be a closet anymore, effectively, it would just be a space at that point, but it would allow access to uh that room without it would allow access to the bathroom without sh, you know, reducing the size of the master suite or the primary suite.

SPEAKER_01 27:45

Cool, cool. Now I'll tell you a quick story because this is the first time I ever heard of you guys was um about three years ago or so. I mean, you know how time is three or four years ago. A guy from Canada called me, right? I have my you know, our just rentals, we we manage other people's short-term rentals, midterm rentals, also, you know, ours and then other people's. So he called me out of Canada. Hey Steven, you know, I'm thinking of I have a house in Arlington, which uh, you know, I hear you talk about it on the show, Arlington. And uh I'm in Canada. I I bought it, I've never been to the house, never seen it. Um, I was it was a pad split, but we're getting out of pad split. We just had so much trouble with the city and the neighbors and you know, fines and this and that, and then um, and it kind of turned into like a halfway house on us. I mean, he wasn't here, you know, he's never even been to the house, right? He's never even seen the inside, he's just seen pictures of it. He bought it and turned it into a pad split. So I he said, could you check out the house, see if it'll make a good Airbnb? And of course I told him, first I first of all, it it can't be an Airbnb because you're outside of that zone, you know, how Arlington the zone. Arlington's got a zone, yeah. Yeah, yeah. I said, But maybe I'll check it out. Maybe it'll we could manage it as a midterm or even long term for you. And so I went and checked it out. And first of all, this house was like from the 70s. I mean, this the carpet was nasty, the the walls

The Frankenstein house: eight bedrooms, angry neighbors, bad operators

SPEAKER_01 29:01

was you know, it was wallpaper, it was just anything. The design was funky, but what I noticed, I guess it was an expat split, and I could see, and I know y'all have come a long way since. I'm not saying to me, I got a bad taste in my mouth for pad split because I saw all the like um markings from where the the divider walls used to be. And now I know y'all didn't do it because you said you're you know, vendors go in, or there he has his own vendor that goes in, hey, go make me a bunch of rooms, and out of this three-bedroom house, I think they cranked out like eight bedrooms or so. It was it was a lot of bedrooms, and you know, you could tell where a dining room was turned into two bedrooms, and I mean this house is Frankenstein, right? And so so to me, I was like, Man, what the hell is this pad split thing doing? First of all, there you know, they they jacked up this house, which the house was already jacked up, and then they put a bunch of crackheads in here, according to this guy, and and so it was just a bad situation. The neighbors hated them, you know, all this stuff. So that was my first experience hearing about you guys, but I've been hearing a lot more lately, and I know, like you said, yeah, y'all had growing pains in the beginning. So um I guess that doesn't happen as much anymore.

SPEAKER_03 30:10

Yeah, I mean, at the end of the day, like the best way that I could compare this business model is you know, that think of it like buying a franchise, right? If you spend 50 to 100K to buy a franchise, right? A franchise business, you get access to the SOPs and processes, the training manuals, the vendor network, the brand recognition that comes with that. That is not a guarantee of success, right? You still have to do the work and be a good operator. And a lot of that where I see hosts fail is they fail to realize that it's not just a push button, make money business, right? Real estate never is. Um, if you engage with a property management company like yourself, then it becomes a lot more passive and a lot more push button for you. Um and I think that honestly, like investors in the early stage may have got the um, you know, may not have potentially gotten the best advice or um, you know, had a misconception about how this was gonna operate. And so that's one of the things that we've worked incredibly hard at over the past few years is how do we improve the quality of our operator, right? Um, because at the end of the day, if all of our operators do a bad job, then you know, this this business model is not gonna go well. We're gonna get a bad taste in our mouths, or investors are gonna get a bad taste in their mouth, cities are gonna get a bad taste in their mouth, and it's gonna make it difficult for co-living operators in the future. So we've worked very diligently and we're continuing to work diligently to improve the quality of the operator, identifying potential issues that operators may have before we get to that point and introducing them to people that can fix those problems before they happen. One of the things that we recently rolled out was a PadSplit host academy, where you know, if you can go find gurus in this space, so to speak, that'll charge you thousands of dollars on how to do a pad split you know property. Um, we created something internally. So once you become a host, you can go through our PadSplit Academy and learn how to operate the business. Um, so there's probably a lot of things that that could have been said about the way the business was operated, could have been the acquisition itself and the way it was set up, obviously. Um there's a lot of a lot of unknowns there for sure, but I will say that the vast majority of PadSplit hosts that work with us, they typically within the first six months of bringing a property online, um, 40% of them are bringing a second property online. Um so things have changed pretty drastically. We've upped our standards and we've upped the quality of uh of the of the operator and the host as well.

SPEAKER_01 32:33

So from what I for sorry, can't even talk from that house particular. Um I I mean how ugly the house was to begin with. I mean, did one of your do you think one of your people actually went out and saw the house and said, okay, this will be a good pad split?

SPEAKER_03 32:50

Or potentially. I mean, in the Dallas market, we haven't had, we've had a couple of account executives here, um, but they've kind of churned through a couple times trying to find the right person, just like any business, right? You know, finding the right person can be difficult. I will tell you from my experience and like what the way I interact with hosts nowadays is like I will go and walk a property with people in my market just to make sure we're all on the same page. And then, you know, I definitely want to advise you on how to be successful. Like, for example, I just walked a property yesterday in Richardson, and the guy I showed up and the guy had already had masking tape all over the place where he's gonna put his rooms, right? Which is great. All right, cool. Self-starter, I love that. Man, this guy is he's ready to go. But, you know, one of the he was trying to do six bedrooms in this house, but he had two rooms that were 80 square feet, you know, small. And I said, hey man, instead of doing two bedrooms here, you know, let's let's get rid of one of these. Let's just keep it as a the dining area and let's move the wall out on this other room and make it bigger. You know, let's let's get a better experience for the members. And I think that the member experience is something that Airbnb operators certainly understand, right? They understand how important it is to provide a really good member experience, one for ratings and reviews, but also to um ensure that people continue to book their place, right? And the same holds water with Padspit, um, right? Like if you don't prioritize the member experience, they're gonna go somewhere else, or it's you're gonna have a failed operation overall. So it's tough to exactly say like how that would have happened um, you know, back then. But I will tell you like today, that's one of the biggest things I push is is member experience. Let's let's think about the members, think about the person that's gonna be in the place because they're the ones paying your rent at the end of the day. They're the ones paying your mortgage, they're the ones that are gonna allow you to continue to operate.

SPEAKER_01 34:39

That's what's cool. That's what I like about you guys, because just from what I know briefly, is you do have someone here in Dallas Fort Worth. And I assume every major city has a a PadSpit person there that can go out and and walk the properties.

SPEAKER_03 34:53

Yeah, absolutely, absolutely. That's it's not, I would say property walks is not something that happens all the time, needs to happen all the time either, right? So if we're looking at the photos, if I'm looking at the photos online and and you know, I can tell right away, like, oh, we can do a bedroom here and here. I'm gonna partner you up with, you know, Jose, who's my contractor in this market, he can go and walk the property with you. And he's done dozens of pad split conversions, so he has all the knowledge we have. We downloaded him with that knowledge. If there's any changes in our platform, he's up to date on it, he'll be able to advise you as well as well. So it's either us or a vendor partner that can do that.

SPEAKER_01 35:33

That is cool, man. And I did have a a bunch more questions. Um I'm assuming that like I said, I do a lot of

No couches in living rooms - hard-back chairs and the no-guest policy

SPEAKER_01 35:41

Airbnbs, right? And so you get a lot of people from the Airbnb world wanting to say, hey, I'm not making enough money at this Airbnb. Can you turn it into a pad split? And what are the what differences, um, I guess furnishing-wise, would it would differentiate someone's Airbnb than what what makes a good pad split? And I'll and I'll and I'll say this because I heard your your founder talking about, okay, sofas are usually not a good idea. And that's like we always think put sofas in the living rooms, right? And the TV and this and that, but uh and I started thinking about that too. You don't want someone crashed out on the sofa, right? And just being a uh couch potato, and then everybody feels awkward going through that living room. Uh yeah, how do you how do you address things like that or create uh spaces like that that aren't for someone to just lay down and fall asleep on?

SPEAKER_03 36:28

Yeah, yeah. I'll I'll give you another property example in Richardson. So we have an Airbnb host, and and to be very frank, I love it when Airbnb hosts decide to get into this model because they understand they're already coming with a very high hospitality mindset, right? And so now we're just kind of working it down towards kind of the standard and expectations for our members. And it's easier to go that way than it is getting long-term rental investors up to the standards, right? So you're used to a lot of work providing an amazing experience, and now we're gonna tell you to do slightly less work and you don't have to spend as much on furnishing. So, like, okay, I got this. So I have a property in Richardson where this investor was Airbnb. She crushed it for many years, and then she kind of you know fell prey to what everybody else did with it with uh short-term rentals, low occupancy, you know, struggling assets, things of that nature. Um, so she came over to us and she's created some wonderful spaces inside of the house that make sense for co-living, right? So instead of just trying to pump out as many bedrooms in the house, and she left the living room as is. But what she didn't put in was a couch, right? Because we have a no-guest policy at Patsplit. And what you don't want is to create an environment where, you know, room one, Joe, invites his buddy over to watch a game on this 70-inch TV that you that you bought and put in the living room. Well, Joe's friend Jack falls asleep on the couch, and now he's there for three or four days, and he's like, hey, nobody's gonna say anything to me. So what she did in that space is she created it like a lobby, right? So there's four hard back chairs that are comfortable enough to sit in for 30 to 40 minutes, have a cup of coffee, chat with your roommates. There's no television in that space. So it's comfortable enough to sit in that and relax and have a conversation, but nobody's taking a nap in there, right? Nobody's staying the night in the living room. And so if you are gonna create these common areas, you want to create a space that is comfortable enough for people to kind of socialize in for a short period of time, but you're not creating an environment where people are gonna hang out for hours on end and potentially create an environment where you know unexpected or unwanted guests think that that, oh, I'll just crash here on my buddy's couch. Right.

SPEAKER_01 38:35

Now, I don't know if you already do or not have a section in your in your uh website. Uh these are like really good examples of pad splits. Do you have something like that? Like these properties here make like Yeah, absolutely.

SPEAKER_03 38:49

So we do have uh well, the the beauty is is like we have you can obviously go into the platform from the members' perspective and see what's available for rent. So that's just great market research right there. But even further beyond that, you can actually go into the platform and drill down on a zip code by zip code basis in the markets we're operating in and see price, you know, uh rental rates based on properties that have rented, the number of units or rooms inside of that zip code. And then you can also see occupancy rates and booking velocity too, right? So, how quickly are we getting the first booking in that zip code? How long is it taking for those assets to get to 80% occupancy? So it really gives you a really good idea of where to invest. Um, I will say that like when you're working with an account executive, like you're not gonna be able to see the properties that um are obviously all the way booked, right? But we have the ability to kind of take a deeper dive and provide, you know, kind of like comps, if you will. Like if you're going into a zip code where there's a lot of competition, you obviously want to make sure you stand out, or you're gonna have chase higher rental rates. How does that compare to other properties that are that are achieving those higher rental rates? And we can take a look at that. We can take a look at the photos, we can take a look at the furnishings, we can identify all the potential uh you know expenses that you need to invest in to make sure you're you're operating um in the same way. Throughout the website as well, we obviously are we have a PadSplit guidelines section where you can understand exactly what it takes to bring a property online and the things we look for from a minimum requirement uh standpoint. And we do have recommendations on the furnishings and the type of um you know uh you know furnishings that you would need to buy for each room and in just in the general area of the house as well.

SPEAKER_01 40:31

So now a dining room, a dining room table and chairs is pretty much a necessity. People need a place to eat. You don't want them eating in the rooms, right?

SPEAKER_03 40:39

Yeah, absolutely. I mean, you're gonna have folks that do that anyways for sure. Um you're not gonna be able to get around that. But yeah, providing a dining room table with chairs is a necessity, right? Um, I've seen other folks even do like, you know, I'm sure you've been to a Chipotle before, how they have the elevated seating on the exterior of the restaurant there where it's like high top bar, right, with high stools. I've seen people install that in the walls on in the kitchen so like folks can sit there and eat. Um, people have utilized the existing like large island space is like the table and chairs area. Um, you can go a variety of different ways, but ultimately, like, we do need to have a place for people to sit in the common area and eat. Um, so dining table and chairs is the more common one, though.

SPEAKER_01 41:24

Oh, that's cool. Now, you did mention no guests. I was gonna ask you, that was one of my questions. And you know, and it goes without saying, probably no kids allowed, right?

SPEAKER_03 41:34

Yeah, I mean, again, you know, you talk about family being a protected class. Um, you know, if if if a mom with a child comes, there's they can certainly rent the space, right? But you as the host make the determination on whether or not you can approve or deny that booking. Um, I think there's increased risk for sure for a child to be in a co-living environment. That's just a dead given. Um, I have the way I've seen hosts execute this and and obviously staying in line with federal fair housing is whenever you create your listing and you go on a per room basis and you're entering all the details, you can select single room occupant or multiple room occupant. So that right there could potentially screen out that. And obviously you would you would want to adhere to whatever the local municipality says is the maximum or the minimum number of people that can, you know, live in a certain square footage, right? So if you have a hundred square foot room, most municipalities say you can only have one person in that. Typically it's like 150 square foot, then you can have two occupants in the room. So no kind of know what that is before you select that single room occupant or multiple room occupant. But for the hosts that have accepted, you know, a parent with a child in the room. Um, and again, I don't know if legally standing, if this is right or if this is wrong, this is what their attorney advised them is they created effectively a separate document, which is, you know, works in a way, it's supposed to be like a release of responsibility to the landlord or the investor, basically saying, like, hey, this kid can't be, you know, uh unattended at any point in time, always has to have an adult with them. You understand, you know, these additional risks that come with having a child in a co-living environment. So again, I think the single room to multiple room occupant can screen some of that out. You have to be careful because uh we're we're we are kind of you know looking at federal fire housing there and what constitutes a family. Um, and then if you do have to go that route, it's it's certainly worthwhile to talk to an attorney and understand what your potential risks are and then how you mitigate or eliminate those risks. All that being said, we don't have a lot of rooms like that. Most, I mean, you know, the vast majority, 90 plus percent, probably even beyond that, are going to be single room occupants.

SPEAKER_01 43:46

Yeah, that was a big one. I'm like, the other um guests might not like want want to have not like so much having a screaming kid in the house, you know, it'd be make it rough.

SPEAKER_03 43:56

I've got four of them, man, and I've been looking for somebody to take them for a while. Because they they they tear stuff up, they're loud, and they're loud. I mean, I love them to death, of course, but man, are they noisy?

SPEAKER_01 44:07

Yeah, I got little ones too, man. It's um yeah, I wouldn't want to co-live in another place with my little ones. That'd be it'd be crazy, you know. Um, so y'all all all over the world or just the United States right now?

SPEAKER_03 44:19

Just the US right now. We're pretty much got the Sun Belt and the Eastern Seaboard pretty well covered. We're expanding into other markets as well. Uh LA is probably, you know, LA and Denver are two newest expansion markets. Uh working on Nashville as a as a core market, but you know, we can do a pad split anywhere in the country, right? Um, it's our core markets is where you're gonna get that marketing support at, where we actually spend advertisement dollars to go find tenants. So if you're in outside of a core market, it's gonna be much more um you know, host driven marketing through you know, Facebook marketplace posts, Craigslist posts, things of those nature, or you build a really good relationship with a local employer, right? That's a good way to find tenants. Um, so it's much more host driven in those emerging markets. Uh, but all of our core markets, yeah, we we we offer the marketing support. And you know, there's about 30 plus of them right now across the country.

SPEAKER_01 45:13

So yeah, I had um, you know, friends in LA, and even way back when I was going to LA a lot, let's say about 10, 15 years ago, people were renting people renting out of rooms was like a common thing because it was so expensive over there. Still is more so.

SPEAKER_03 45:28

Yeah, yeah, yeah. I mean, people have been doing it for a long time. Uh, other parts of the world, this is just a common way to house folks anyway. I mean, if you look at London, I know I've got one of my realtor partners here, is is from London. Um, and he's like, Man, we've been doing this business model for decades. He's like, so it's great to see that the US is kind of moving in this direction because he already understands it really well. Um, so yeah, I mean, the US is, and if you think about it, even all the way back, like boarding houses were very common. I mean, I'm sure you've seen houses in and around DFW that were clearly boarding houses at some point. They usually have massive, they're older homes built in the 20s or so. They have massive entryways into all the rooms. Sometimes you can still find room numbers above the door in some cases. So this was very common. Um, things changed, and then now it seems like we're kind of moving back towards this this housing model across the country as a necessity.

SPEAKER_01 46:21

Yeah, Forrest Gump's mama ran a boarding house. There you go. She sure did. Yeah, tell him that uh Elvis. Elvis, yeah, and he taught him his moves. Um no, that's that's man, that's cool because like you know, in Europe, it's it to me, it's cool. Everything's smaller in Europe as far as you know, uh places they they live in and stay, fridges are smaller, everything's smaller, cars are smaller.

SPEAKER_03 46:44

But yeah, wash and dryer is one gene.

SPEAKER_01 46:47

Yeah, I went with some buddies to Europe one time and we stayed, we hopped across um uh hostels. And it's like, dude, why don't we have these here, man? These are freaking cool, you know. Youngsters meet you meet people from all over the world, you know, you're sharing rooms, you know. You can get your own room, but you can share rooms with people, bunk beds, and just and you meet people and you and you, you know, you save a lot of money and you get to go enjoy the city, you know. I thought this is a great idea. Over here, we spend a crap load of money on a hotel, and then after that, you don't have much to spend on your vacation, you know. But uh, it's it's just uh yeah, it's a it's a cool model. I like it a lot. As far as okay, so yeah, uh you had mentioned okay, 150 to 200 uh a week. You can make one of these. Uh, of course, you have to look at the house, I mean, walk it or get the pictures and stuff like that for it, right? What amenities could I could I put in my place? I automatically thinking I'm coming from the Airbnb world, a nice coffee bar. Maybe maybe the guests, uh, the tenants would appreciate like a nice coffee bar, you know, where I stock it with with nice coffees for them, something like that. I mean, what do you think about adding these little amenities?

SPEAKER_03 47:54

Yeah, I mean, the amenities are really like going to be in the room themselves, right? And if you think about it, you know, these are folks that are vacationing, right? They they they live in the area, they work in the area, right? So that's where you have to reframe it, um, kind of on who the who the tenant base or the member base is. And so the amenities inside of the room are kind of similar to a hotel, honestly, right? Like if you can do a mini fridge, that's an added, you know, you know, uh potential increase in the rental rate. Um, a common one that I see a lot of hosts install is you know a desk with a chair, right? Just like you would find in a hotel. So people can sit down and work. Um, I would say the vast majority of our hosts don't even have TVs in the rooms, right? Uh, most folks can watch TV on their phone through Netflix or something like that. And they have access to the Wi-Fi, which is paid for, so that's enough for them. But we do have hosts that will put you know 40-inch TVs at a minimum in every room. Um, but like common area amenities, you know, one thing that I see some hosts kind of skimp out on sometimes, which you know kind of frustrates me, is like just artwork on the wall. You know, make it nice, make it comfortable. That's a good one to have. You don't have to do crazy expensive coffee bars or anything like that. I have you know guests that are or hosts that um, you know, bearer they just provide pots and pans and basic cutlery, and that's it. And that and uh you know, a single coffee machine, and and that's it, right? And that's all you need to provide. I think that, you know, considering considering like we have a house in Richardson, you know, going back to this host that came from Airbnb, she wants to provide an elevated experience. And you know, in all honesty, her rental rates are some of the highest, or probably are the highest in DFW. Um and she doesn't do anything crazy, right? She has that little sitting area, she has artwork on all the walls. Every room has a full-length mirror, which is something you kind of don't think about. But if if I'm sharing the bathroom with somebody and I'm getting dressed in the morning, I don't want to have to walk in the bathroom to see, you know, how I'm looking. I definitely don't want to have to wait for somebody to finish using the bathroom and then walk in and make sure my shirt looks good. I can do that right in the room. Um, and then she just has like basic, you know, appliances, right? She has a toaster in there, she has a coffee machine, um, I think she has an air fryer in there. That's pretty much it. Like you don't really need to go too far above and beyond as far as amenities are concerned to uh to provide people. Now, again, you certainly can. Um but again, just to understand what that means in rental rates, probably doesn't move the needle that much.

unknown 50:25

Yeah.

SPEAKER_01 50:25

Now, what about like um have sending a cleaner once a week or once every two weeks to go take care of the common areas?

SPEAKER_03 50:33

Yeah, there's a couple different ways to tackle that problem. Um, I'll tell you that our best hosts, and we just completed a massive survey of hosts to figure out what

MCL cleaning system: members rotate mail, cleaning, and laundry duties

SPEAKER_03 50:42

the bottom performing hosts do and what the top performing hosts do. And the top performing hosts have a system in place when it comes to cleaning. Now, that can be a variety of different things, and Patswit's obviously agnostic to the way you handle that. Um, you do have some hosts that just they'll send the cleaner out once a month, and that's a really good way to make sure the property is maintained, cleaned, and you get a set of eyes on it on a regular basis. Um, one of the one of the things that I actually like more than that, because folks are staying in the home, I like the idea of kind of like making them a little bit more responsible and having more ownership into the to the house dynamics and the quality of living they have. And so I have one of our property managers here, what he institutes for every property that they manage is they set up what's called MCL days. And so every host or every member, excuse me, um, they have an assigned day where they're gonna take care of three things. One, they're gonna grab all the mail from the mailbox and put it in the mail sorter. That's also their day for C, which is cleaning. So they're gonna do light swimmering of the property, wipe the countertops down, light cleaning of the bathrooms. And then L, that's their day to laundry as well, right? So that's their their specific assigned day to use the laundry machine. And if any other member wants to use it on that day, they have to ask for their permission. So it kind of like keeps everything organized, charges them with a little bit more ownership in the property and the quality experience that they have. Um, and then if any, if they need to miss their day or something like that, they got to find a replacement for it. They have to talk to somebody else and get them to do it. So I like that model. Um, I also have models where you just charge uh, you know, one person in the house with doing all those things every day or on a weekly basis and you just reduce their rent as a compensation. But at the end of the day, you you need to have some sort of process or system in place, right? You just can't leave it up to folks to be a free-for-all because that's not it's not gonna work well. Um, you know, you gotta have some sort of system in place to allow that to uh you know, allow those cleanings to happen and and things of that nature.

SPEAKER_01 52:44

Just like picking up after your kids, right? It's the lazy parent that cleans the kids' rooms for them.

SPEAKER_03 52:49

Yeah, yeah, absolutely. No, that's uh I'm guilty of that sometimes.

SPEAKER_01 52:53

I am, we all are, you know, we all are, yeah, for sure.

SPEAKER_03 52:56

But you've got to make them responsible, you know. And um, yeah, I think that's the way to go. Have some ownership in the space that you occupy, and and things typically go smoother. Then you have more appreciation for the other people inside the house as well, right? If they're cleaning up on a daily basis, you're gonna appreciate that person more because they're doing their duties also, right?

SPEAKER_01 53:16

And if they don't clean, you cut off their internet. Yeah, yeah, just cut it off altogether. Yeah. Man, yeah, I've uh this is really enlightening. I I do look forward to walking the property with me if you could, if you don't mind. Absolutely. Um, Arlington's not too far. Are you where at where exactly are you? I mean, not your address, but you know, where what city exactly?

SPEAKER_03 53:39

I'm at 123 Main Street now. Uh no, I live in uh I live in North Carolton, kind of Castle Hills area. Okay. Familiar with that, yeah.

SPEAKER_01 53:48

Yeah, yeah, I know Carrollton. That's not too bad. I'm in Fort Worth, kind of like Hearst area. That's where I live in.

SPEAKER_03 53:53

Oh, I know where that's at. Yeah.

SPEAKER_01 53:54

My my house is in um central Arlington area. Yeah, it's great. It's a great area for sure. Great area for Pad Split. We perform well out there. See, there already are Pad Splits out that way.

SPEAKER_03 54:05

Oh, yeah, absolutely. Yeah. We've got, I mean, we've got over a thousand units or a thousand rooms in the Dallas market.

6,500 rooms in Atlanta at 90% - Dallas tripled to 1,000 in six months

SPEAKER_03 54:11

And for context, when I started with Pad Split back in June, we only had 350 rooms. So we've tripled in size in the Dallas market within less than a year. Um I I'll tell you really quickly, the thing that really got me excited about working with Pad Split, and I did Section 8 rentals, I've managed portfolios um, you know, at 150 doors at one given time in my real estate journey here. And uh I saw the impact that affordable housing has on families. We used to do three-month interviews with people after they moved in, make sure they was good. And I was really blown away at like how much stability it provided to folks and how it improved kids' uh you know, ability to operate in school, how it just took takes such a burden off the family when you're able to house them. And it does the same thing for single room occupants. Um, but when I joined the company, or when I got was thinking about joining the company, the Atlanta account executive showed me Atlanta market, had 6,500 rooms at that time, or 6,000, something like that. And I was like, that's cool because I was curious about saturation, right? Especially knowing what I know about Airbnb. And they're 90% occupied at that time. I was like, okay, well, show me Dallas. And I know a lot about both markets. I've done real estate in both, they're very similar as far as purchase price, overall demographic, you know, relative size. And then I saw a Dallas had 300 rooms, and I was blown away. And I was like, holy crap, we have a huge runway here, and we're gonna have massive demand. We already have massive demand for this. So, and then most markets are like that, right? Like Atlanta is the most mature, and they see 90% occupancy rates. Our next biggest um, you know, market is Jacksonville, and they only have 1700 rooms and they sit at the same level of occupancy rate. So there's massive demand for this in almost every single market across the country right now.

SPEAKER_01 56:02

I like that. The um now, now you did mention earlier that that it is the neighbors that usually start getting these houses in trouble. Now, if you're in an area where the neighbors aren't gonna be such a problem, there's no HOA, then you might be, you know, doing all right. City ain't gonna bother you. They city don't want to go out there and be bugged by they don't want to be bugged by Airbnbs. It's usually a neighbor on that crap, too. But but anyways, um I don't see, you know, and and they mentioned it on and it was Brandon Turner's podcast where your founder went on, and and and I I see it as like something the cities don't look to ban because it's actually helping the you know the housing crisis.

SPEAKER_03 56:42

It is massively, and you know, at the end of the day, like governments always take a long time to adapt to markets, right? Like it just that's just the nature of the beast, you know. I don't know when the last time you saw a government move quickly on anything was, right? So so I think that there is a potential in the future, and it would be foolish not to think this way, that there is a probably a time in the future where there is a level of regulation. Um, I don't necessarily think that that's a terrible thing for this space because there's a lot of bad actors in co-living, right? Who who create these 15-bedroom houses with no egress points, and it's a man massive safety hazard, and they don't care about their tenants. And and very frankly, like PadSplit, we're working with municipalities across the country to build a moat around co-living so that if you want to do co-living, you have to do it the PadSplit way, right? Because we have these minimum standards in place to ensure that people have a safe, clean, and affordable place. Um, and you're right, you know, like you know, there's nobody the city isn't out looking for these things, but when you talk about the neighbors, it's so vitally important to be a great neighbor first and a good host second, right? If you're just a great neighbor first, you're gonna be able to operate with no issues. And if you do have an issue, hopefully you built a good enough relationship with that neighbor that they contact you first and let you know, hey, there's a problem happening at the house, right? Like, and is this something you can address? That's a best case scenario, and it doesn't always work like that. That's why I say it's very important to choose the type of neighborhood that you get into.

SPEAKER_01 58:18

Great advice. And and the government does move fast on one thing, it's it's tariffs. One day we have them, one day we don't have them, and maybe tomorrow we'll have them again. You know, it's fun, it's a great time to be alive.

Background checks, eviction history, and the phone call 100% of problem hosts skip

SPEAKER_01 58:28

Uh yeah, so yeah, man. I'm I'm excited. I I think I I want to go ahead and try this house as a pad split, man. And um I, you know, I had a million more questions, but we we are coming up on time. Uh, one more I was gonna ask you. Oh, yeah, the the screening of the tenants, I guess that's one thing I didn't cover. How do y'all screen the tenants?

SPEAKER_03 58:51

Yeah, we do long-term rental screening, right? So we're gonna do a background check on them. So anybody that has a felony conviction over the past seven years is automatically out, disqualified. Um, we do eviction history reports. So if you have more than one eviction over the past seven years, you're automatically out. And then we do income verification where we'll actually connect to their bank account through plaid to see the you know who their employer is, how much they're paying with, how much they're paying them. And then we validate that they can, you know, that they have the the income to meet the rental amount. I will certainly say when we talk about best practices as a host, um, this is your opportunity, kind of at the first step in engaging with tenants to ensure you're operating your business correctly. Right. So we're gonna take them through the standard background screening. It's a really good idea as a host to not approve that booking until you've had a conversation with this person, right? I will say, in my experience in managing Section 8 rentals, it's very easy to just take the first person that comes your way because they pass the background and then they obviously have guaranteed money. I learned really quickly that you got to get to know these people a little bit because you're gonna have six approved applicants, right? You can't just take the first one. You got to figure out who these folks are and then make sure that they're the right person for the property and they're gonna take care of it and they're not gonna destroy it, right? And so, same concept here. Have a 15 to 20 minute conversation with this person before you approve that booking. And I will tell you for the hosts that come to me, you know, after they've been on the platform for two months, they say, Justin, I got a problem tenant, what do I do? My first question is always going to be Did you pick up the phone and talk to this person before you let them in? And the answer 100% of the time so far has been, no, I did not. Okay. Well, this is a good learning curve here. Let's not do that in the future, right? Now let's talk through how we how we work this out, right?

SPEAKER_01 1:00:45

Oh, yeah. Well, I mean, yeah, I learned that the hard way with long-term rentals. Yeah, as soon as you talk to someone on the phone, you kind of really all your spidey senses start going off. You you get a better feel for it, you know. Trust your gut all the time. And when you talk to the previous land or their current landlord and previous landlord, that that's a whole funny situation, too. Because the previous the current landlord will be like, Yeah, they're good, they're cool. You know, you can tell they're lying. Get them out and then the previous landlord, yeah. The previous landlord, no, stay away, bro, stay away. Um, and a couple more questions. I I did I did hear your um um founder talk about the 50 plus. Uh there's there's ones that you um pet splits that are 50 plus, like 50 years old plus to stay at these particular past, but that's not illegal to do that.

SPEAKER_03 1:01:28

Uh to be honest with you, I don't have any hosts who execute that strategy, so I'm not super familiar with it. Um, yeah, I I really don't know how to, yeah, I I don't I don't have anybody who does that. Um, but you know, age is a protected class. Again, I think at the end of the day, there's probably a space to do that type of house.

SPEAKER_01 1:01:46

Because there's senior live, they're senior living living housing.

SPEAKER_03 1:01:48

Senior living, there's senior living housing uh for sure. I'm not entirely sure what the guidelines are on that. Again, I've I've never had a host come to me and say, hey, this is what I want to do, right? It's usually usually when hosts come to me in the Dallas market, it's they're near a university or something like that. They're like, hey, I just want to target student housing, right? And we have to talk through kind of what that means a little bit. Um, but I haven't had anybody come to me and say, Hey, I only want to do a female house, I only want to do a male house, I only want to do you know, moms with kids. I haven't had that that quite yet.

SPEAKER_01 1:02:18

So okay.

HOA risks and adding a window facing the hallway

SPEAKER_01 1:02:20

And and one more selfish question because I have a condo that I own over here, uh kind of where the Channel 11 tower is, stop six area, for one. Okay, yeah. Yeah, yeah. Not the best area, of course. Probably not, yeah, very not the best area. And um I I converted, I did a little pat's foot thing myself, except for there's no window in the in the middle bedroom. The middle bedroom is kind of like where a dining room was, but it's kind of closed off. So I just added a little door and made it another bedroom in case in case a family with a kid, a kid wants his own room. Hey, throw them in there. Um, so it I made it from a two-bedroom to a three-bedroom. It's so it's a three-bedroom, two-bath, I guess you could say. And um, but it's in it's in a condo community. It's with the hoa and all. Did is the pad splits work in that situation?

SPEAKER_03 1:03:04

Yeah, I mean, at the end of the day, uh, first of all, my question is why didn't you just put a window facing the hallway on the inside? Right?

SPEAKER_01 1:03:12

Genius!

SPEAKER_03 1:03:13

Yeah, check that. Yeah. No, um, yeah, when it comes to HOAs, like PASP, we'll take a property, right? If it's in an HOA, but one of the things I I always try to stress to investors is like, what are the risks based on the decisions you want to make? What are the additional risks here? Now that we've outlined those risks, are you willing to accept it? Okay, you're willing to accept it. Okay, let's talk through how we mitigate that risk a little bit, right? So if you're gonna be in an HOA, let's talk through how we mitigate the potential risks of that. First of all, we need to understand what the you know the covenants and restrictions are of that HOA because they're gonna be very fast to act in most cases if you're breaking those very quick. I'll tell you, my HOA, I mean, as soon as my shutters start looking a little off, I'm getting notices to paint those things, you know. So they're very quick to react. So we have to talk through that stuff. And again, if you're comfortable and we talk through the risk and you're willing to accept it, then absolutely we can do it on the platform. But I always want to make sure that we've identified the potential risk up front for sure. And so we can do a pad split in a class A property if you want, but there's risks involved, right? So let's talk through that and figure out if you're willing to swallow that and move forward.

SPEAKER_01 1:04:24

Cool, man. Well, thank you for hopping on the show. You answered uh a ton of my questions, and I'm sure there's a ton more questions from our listeners are going to be asking me to ask you. So I'll I'll follow up with you again, maybe on another episode in the future, but for sure. Um yeah, email and all that fun stuff. So um, yeah, padsplit.com is where they can find you guys, right? Any any uh any anything you want to say to my listeners?

SPEAKER_03 1:04:49

No, I would just say that like if you're interested in kind of exploring this, you know, you can reach me at Justin.king at padsplit. Um feel free to shoot me an email. I'm happy to answer any questions as well. Um and yeah, we go from there.

SPEAKER_01 1:05:01

Cool, brother. Thank you for hopping on, and um, thank you for all you're doing out there for for this housing crisis situation and and helping uh us make a little money in the process. So see you on the flip side, man. Thank you. And to all your listeners, peace out. Later. Yep, thanks. Thanks for having me.

SPEAKER_00 1:05:20

Thank you for tuning in to this week's episode of Live Let Thrive. Be sure to tune in next week for all the latest in the world of Airbnb and all that entails. Bye-bye.