In this episode, we meet Frank Furman from Atlanta. Frank is currently the COO of PadSplit. His business partner is his brother in law, Atticus, who’s been in the real estate investing business for many years. Just four years ago, Frank met with Atticus about a new business opportunity, which they ended up launching two years later.
Frank was previously in the Marine Corps. When he left the Marines, he moved to London to work at a consulting firm. But upon having kids with his wife, they decided it was time to move to Atlanta.
Developing a Marketplace Focused on Affordable Housing
Developed just two years ago, PadSplit is a platform for affordable housing. It provides an opportunity for homeowners to rent out vacant rooms, while also offering safe and affordable housing for renters. On average, renters stay around seven months. However, some stay short-term (from 1-3 months), usually for work. Other renters stay long-term (from 1-2 years); these are usually older renters.
This Investor’s Best Deal Ever
Frank’s best deal at PadSplit was his first. It was actually a house owned by Atticus, located in southwest Atlanta. It was a bigger house that included five bedrooms and lots of extra space. It served as a Section 8 rental for several years.
Atticus bought the house in 2011 for $30K. In 2016, an older tenant moved in under Section 8. Everything was going well until… he got a call from the Atlanta Housing Authority, suggesting he look into what’s going on at the property.
Apparently, the house was being featured in several videos online consisting of drugs, guns, etc. Sure enough, it was true! The sweet little lady was not alone. Family—and even extended family—were living with her, and some of them were producing (not-so-appropriate) videos at the property. They’d caused an extensive amount of property damage, angered neighbors, and had the cops called on them.
Frank says that one of the disadvantages of owning Section 8 is that you don’t have great control over what’s going on at the property. Plus, you don’t get a lot of incremental value if a house has extra rooms. Due to all the issues, Atticus did what any landlord would do and evicted the tenant.
That property then became the first PadSplit. They used insurance money from the damages to turn it into a six-bedroom home, invested in utility efficiency, furnished the house, and updated it. When all was said and done, the outside was appealing—much more desirable than rentals across the street. The property was ready for rent in December 2017, and they were able to fill occupancy through Craigslist ads.
Now, instead of getting $1,200/month through Section 8, the total rent collected is $3,600/month. By the time they cover expenses like utilities, wifi, furniture rental, etc., they still have a cash flow of around $2,400/month.
- Purchase: $30K
- Rehab/Addition: $20K
- All-In: $50K
- Previous Section 8 Rent: $1,200/month
- Current PadSplit Rent: $3,600/month ($600 x 6 rooms)
- Operating Expenses/PadSplit Fee: $1,200/month
- CASH FLOW: $2,400/month
The PadSplit Model
Properties collect rent on a weekly basis. Frank says this helps tenants budget better and makes it easier to remember when rent is due, as it typically falls on the same day they get paid.
Renters through PadSplit are not signed as tenants; they are members. So when they apply, they sign a membership agreement with PadSplit.
Because the company rents furnished rooms, they operate under the innkeepers exclusion in the state of Georgia, much like a hotel does. For instance, if you go to a hotel, fail to pay, and don’t leave, you won’t get evicted. The hotel would call the police and ask to have you removed. Since PadSplit operates on weekly rentals, they can remove tenants within a week as opposed to going through a lengthy eviction process.
That said, they do offer other payment plans for these types of situations. In fact, PadSplit even assists with job placement through their relationship with a staffing agency.
Most of their properties are owned by buy and hold investors. The investors sign a lease with PadSplit. This longer-term lease allows investors to get financing on their homes easily—unlike an Airbnb investor, for example. For all of their services, PadSplit gets a 12% cut of revenue.
While not for everyone, the PadSplit model is definitely proving to be something investors should pay attention to. And as evidenced by their growth so far, this could very well be the next big trend in real estate investing.
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What was your best deal ever or the best deal you’ve ever heard about?
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