All Forum Posts by: Ke Nan Wang

Instead of picking a cookie cutter plan, actually hire an experience architect to design a house that makes sense for the lot. For affordable houses, efficiency is key. They don't need to be fancy and costly but they have to be efficient. Every layman thinks he/she knows design but all they know is how to make things look like Pinterest and HGTV. The real design is in the site planning, scientific floor plan and the bones and meat that's underneath the skin of the house that actually makes the house comfortable to live in. 

Once you have a solid bone + meat, you can spend some very cost effective dollar to dress up the exterior. Hire a college students/or architect from other countries who can do 3d rendering at a very affordable rate (I pay $200 for 4 first time super realistic 3D renderings of the exterior, repeats are even cheaper) and do a number of elevation studies before you down select your exterior paint and finishes.  You have an inexpensive but very comfortable and aesthetically pleasing house. 

You might spend a little more on the design but in the long run is worth it. Every dollar you spent during the planning phase will save you $10 or more during the construction phase. 

Hi James, I'm in your neck of woods a bit down south in St. Augustine. Kudos for taking the first step and getting your first deal. Real estate investing is more about taking actions and learn as much as possible along the way and not repeating your mistakes. Keep it up and stay connected. 

Jacksonville has a great real estate Facebook page called Yellow Bird Connect. You can find lots of real estate related resources (wholesalers, buyers, contractors, realtors, lenders, property managers etc.) 

Hope to see you around in local real estate events. 

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $120,000
Cash invested: $370,000

Completed a co-living new construction project in St. Augustine, FL, managing it independently (not Padsplit). Acquired a double lot for $112k after resolving title issues and paid $360k for construction, creating a 6-bed, 5-bath house designed for co-living or multi-gen use. Fully occupied, the property grosses $5,570/month with $4690 net profit after expenses. Total investment: $420k, with a 1031 exchange offsetting $300k. 

What made you interested in investing in this type of deal?

I was drawn to this investment mainly to test out the new padsplit model. Plus for its high cash flow potential, utilizing a 1031 exchange to reinvest gains effectively made this experiment a relatively low risk for me.

How did you find this deal and how did you negotiate it?

It was listed on Zillow for $110k and we made a low ball offer at $90k, ended up getting under contract for $95k. However, a surprise occurred with title that drove up our acquisition cost to almost $120k. Since we were in it for the 1031 exchange and it was still a deal, we still followed through and close the deal.

How did you finance this deal?

1031 exchange from a sale of a rental property plus HELOC to fund the remaining.

How did you add value to the deal?

Strategic Purchase: Acquired a discounted double lot below market value with a $17k impact fee credit.
Custom Design: Built a 6-bed, 5-bath home tailored for co-living or multi-gen use, maximizing tenant appeal.
Efficient Management: Managed construction, and self-managed operations to minimize costs.
Premium Marketing: Furnished the property and used multiple platforms to attract quality tenants quickly, achieving full occupancy.

What was the outcome?

Full Occupancy: The property achieved full occupancy within three weeks of listing, with strong tenant demand.
High Cash Flow: The property generates $5,570/month in gross revenue and approximately $4,690/month in net profit after operating costs.
Effective Use of 1031 Exchange: $300k of the total $420k investment was offset by the 1031 exchange, minimizing out-of-pocket expenses.
Long-Term Stability: Designed for durability and versatility, the property is expected to cash flow for decades

Lessons learned? Challenges?

How to execute a 1031 exchange build to suit
How to operate and self manage a co-living property

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Nope. I'm the real estate agent for the purchase, the contractor for the build and now the property manager for the property.

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $120,000
Cash invested: $370,000

Hi BP,

Just wanna share my recent co-living new construction project in St. Augustine, FL, or some of you might be more familiar with the term "Padsplit." Since we don't use Padsplit and manage everything ourselves, we simply call it co-living.

The capital invested in this project is not as simple as the template BP gave me so I'll explain a little bit more here:

This is a 1031 exchange build to suit. We sold a $330k rental property with almost no base so we need to do an 1031 exchange of roughly $300k to offset capital gain.

As we getting close to the 45 day identification deadline, we found a deal of a mobile home sitting on two 50'x200' lots in West Augustine, which by St. Augustine standard where most in fill lots are around 50' x 100' to 125', 200' deep dryland is a good lot. Typical retail lots sold on the market for $55-60k a piece, an off market lot from a wholesaler usually come in around $45k a piece. So when we had this property under contract for $92k ($95k purchase price with 3% buyer commission credit because I'm a licensed agent), it was an amazing deal.

Of course, things can't be that easy. While we were in escrow, the title company discovered that the owner didn't disclose a second mortgage on the house to neither her agent nor the title company, her plan was trying to dismiss the foreclosure in court and hope this would go away before anyone would find out about it. The owner had no money from the deal to cure the lien, and because we were already passed our 1031 exchange identification deadline, we asked what the payoff was and ended up paying out of the door $112k to close this deal. Plus the 1031 exchange agent's fee of $6500 for a build-to-suit exchange, the initial acquisition cost was close to $120k. This surprise turned this amazing deal into something like a okay deal because the lot was still good. The existing mobile also had utilities hooked up with a $17k impact fee credit that I didn't have to pay to the county. So in the end, it's still okay.

Then we ended up had to evict the ex-owner from this property after the purchase which was no fun but something we are experienced to do. The ex-owner had no legal grounds as an unlawful detainer so the eviction went through and they were out.

Meanwhile during the eviction period, we finalized our architectural plans and started the permitting process in the county so we didn't lose much time.

The design requirements are as follow:
1. 6 bedroom (maximum allowed by the septic requirement based on lot size)
2. 5 bathroom (Almost each bedroom has a ensuite bathroom)
3. Each bedroom shouldn't need to go through the common area to exit the building
4. Can function as either co-living or one large multi-generation single family house.

Permit were issued in 1/12/24. Certificate of Occupancy was issued on 8/20/24. So a little over 7 months construction period, a little longer than I liked it to be but it's our first time building a house like this so we took it slow and had to correct some issues along the way.

After we finished construction, we furnished the place as shown in the pictures. Furnished common area, furnished each bedroom with a queen bed, a dresser, a desk and a chair, then we listed on every platform that I can list and I paid every platform for their premium listing. (Zillow and its associates, Turbotenant and its associate, Roomies, Furnished Finder, Airbnb, etc.). My priced were listed at $795 for one of the two upstairs bedroom with a shared hall bathroom, $895 for the down stairs bedroom with its own hall bathroom, $995 for one of the two bedrooms upstairs with their own bathroom, and $1095 for the last master suite downstairs with a tiled shower and walk in closet. So the gross revenue with all bedroom rented would be $795 + $795 + $895 + $995 + $995 + $1095 = $5570 a month.

Every bedroom with exception of the $1095 one got rented the first week. Then we ended up renting the $1095 bedroom in the third week of listing. Right now we are over 2 months into it being fully occupied and we have a pretty good understanding of the operating cost.

Utilities altogether is about $250 a month, internet is $90 a month for the 1T fiber (we want fast internet for 6 people), 5% vacancy, Lawn care $120 a month, Pest control $30 a month, and we do bi-weekly cleaning of the common area at $200 a month. So for a self-managed investment project, our gross profit is around $4690 a month. At this point I'm not factor in any vacancy because I have more leads on this property than I have rooms. If anyone would like to move out and give me 15 day notice I should be able to place one in with minimum gap.

Our acquisition cost was close to $120k for two lots, each lot would be around $60k. Our all in construction was $360k (If we had to do it again, we wouldn't spend the $10k to install the fence where we always do for our other investment properties. For a co-living space, tenants don't appreciate the fence as much as a tenant for a single family rental property. And we don't allow pets on this property where we always allow pets on our other properties.) As a self operator the total investment into this project was $420k. The 1031 exchange offset $300k of that cost so our out of pocket expense was $120k. The property before the 1031 exchange was collecting $1600 a month rent. We were gonna raise it to $2000 a month but the tenants decided to purchase that property from us and giving us the asking price. From that perspective, this is a pretty nice exchange.

For a new construction that the house will last at least 50 years before major repairs, we were pretty happy with the current result.

Concerns: Although the cashflow is good, we weren't sure it's valuation and potential for appreciation since there is no good comp like this property in the area. If we had to put this property for sell, it would had to be minimum $600k even for us to consider. We weren't quite sure if there is a buyer for a property like this at that price point if the medium price is $425k. For anyone who would want to do something like this, this should be the number 1 concern. Since our plan is to hold on to this property as long as we can, so we will just let it cashflow and not think about its valuation. If this property is near the beach or near downtown area, the appreciation potential could be extremely high and it can be easily over millions.

Please share if you have similar experience in this and let me know if you have any question about this type of investment project.

What made you interested in investing in this type of deal?

We wanted to test out the Padsplit model and have it in our portfolio.

How did you find this deal and how did you negotiate it?

It was listed on Zillow for $110k and we made a low ball offer at $90k, ended up getting under contract for $95k. However, a surprise occurred with title that drove up our acquisition cost to almost $120k. Since we were in it for the 1031 exchange and it was still a deal, we still followed through and close the deal.

How did you finance this deal?

1031 exchange from a sale of a rental property plus HELOC to fund the remaining.

How did you add value to the deal?

We sold the mobile home and had it removed. Split the lot into two lots and built a large 6 bedroom 5 bathroom house on one of the lots. We will continue to observe the performance of this property and eventually will build a second house next to it.

What was the outcome?

Gross net 13% return on investment.

Lessons learned? Challenges?

How to execute a 1031 exchange build to suit
How to operate and self manage a co-living property

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Nope. I'm the real estate agent for the purchase, the contractor for the build and now the property manager for the property.

Quote from @Savelle Williams:

@ Ke Nan Wang.... What marketing strategies do you use to fill you homes?

Depends on what kind of property you are operating. A normal PadSplit is low income and for that I think the PadSplit platform is pretty good. My property is very nice and the property sells itself so I don’t need PadSplit to do marketing for me. I list on every platform I know (Zillow and its affiliate, roomies, Turbotenant and its affiliate, Craigslist, furnish finder, etc.) and pay every small marketing fees offered by those platforms to get a premium listing and I filled my 6 bedroom house in two weeks. 

Never done arbitrage myself but I have worked with arbitragers in my area as the landlord. Also I operate 5 STR's myself over 95% performa so I should have some experience in this realm to provide some insight.

1. This is a very operator dependent answer. How much confidence do you have in yourself to attract guests to your property? If you think you have average intelligence and a general hard working person, for non luxury STRs (competing with 3 star or below hotels in the area for average people who simply need a bed and a kitchen) I would use 60% occupancy rate to start in the beginning and then 80% after stabilization. For high end luxury STR where people are shooting for 65% occupancy after stabilization. Obviously if you acquire your deals based on this assumption and ended up operating better than it's more money in your pocket. Assuming the area you do arbitrage in is not a seasonal area and have demand year round with maybe some fluctuation. When we analyze deals we err on the safe side. Even we knew we can achieve above average from the get go. Also how about your STR guest policies? Do you allow pets? Do you allow single night stay? Are you willing to cut your nightly rate aggressively to drive occupancy rate?

2. Besides your rent, your cleaning fee should be the largest expenses for your normal operation. If you do cleaning yourself, you save on the largest expenses but also limit your ability to scale. If you have enough unit it will make sense to have cleaner on your payroll but to starting off, most common sense is to find a very high quality, reliable cleaner that works with your budget. You should negotiate with the landlord that you don't mind taking care of small repair items such as tighten screws, drywall and paint repairs. But larger repair items such as appliances and mechanical, plumbing, electrical, roof windows doors etc should still fall under the landlord's responsibility. In an event of emergency that in order to make your guests happy you might have to take care of things out of your pocket but make sure the landlord is agreed to reimburse you as long as the cost you incurred fall within a reasonable market rate. 

3. Look at your competitions. Pick up as many as you can and study their rates vs. their occupancy rate. You should be easily get a feel for the median price. In the operation, you should use a third party dynamic pricing platform that will adjust your night rate automatically based on the data they have in the area. 

4. The profitability is very depend on the lease you negotiate with the property owners. Don't get into arbitrage for the sake of arbitrage and seeing other people said this is easy money. It's easiest in terms of needing less capital upfront to get the business going, but it's certainly not a simple business. And tons of people are getting into this business and drive the price down (simple supply vs demand curve). In my market, the golden goose era is over. People were grossing 3x LTR rent between 2021 to 2022. Nowadays everyone has exited the arbitrage business model in my area simply because the supply vs demand is driving the revenue below profit benchmark for almost everyone. If your area is still good for arbitrage, good for you but be careful with the lease you negotiated with your property owner. I happened to be the landlord and got a very favorable lease with an arbitrage operator and I'm pretty sure they lost money over the period of them arbitraging with me. At the time of our negotiation, the market was hot, so I demanded some favorable terms with an above market rent rate. They agreed to it and operated for 2 years. In my mind I was thinking I don't think they can make it work but I thought maybe they know something I didn't. At the end of the two years, they terminated the lease and turned over the property to me as they found it. I made above market rate rent over 2 years and I vaguely can deduct how much they grossed and they were probably negative cashflow a little as the business became less lucrative but with all the nice furniture they invested, it should be either breakeven or lost money. Right now I still have arbitrage leads for my LTR listings and I always ask these prospects to run their numbers more carefully before they sign a lease with me. The right property owner you are looking for is someone who are looking for long term stable income, don't mind take a little discount and maybe waive the first month rent if you can somehow convince them. A lot of time you won't, therefore you also have to evaluate your marketing/sales strategy to partner yourself up with the right property owners that everyone wins in the end. 

Hope these pointers have provided you some help. 

There are items required by law and in general those are related to the safety and basic comfort of living. 

Then there are other items that are negotiable in terms of marketing to get the place rented or at time of signing lease between the two parties. Another factor to consider is that if you want things to get done, put it on your end; if you don't care one way or another, put it on the tenant as long as they don't mind doing it. A few common items such as:

1. Lawn: if it's in a HOA and you care about maintaining the look of the exterior, owner should take care of lawn. If it's in a class C neighborhood and you don't care about the exterior look and tenant doesn't mind it, give it to the tenant. In this case, we tell the tenants we have two requirements, one as long as we don't hear complaints and the grass doesn't touch the house that become a liability for the building, and at the end of the lease they turnover the property with the landscape in the same condition as how they moved in, then however they want to maintain the lawn to maintain that standard, we don't care. If we are start to have problem with maintaining that standard, we will send our lawn guy to mow the lawn and will bill them the invoice.

2. Pest control, this one we typically do a curtesy first treatment and then any subsequent treatment is up to the tenant whether they want to keep the service or do it themselves. 

3. Smoke alarm batteries, refrigerator/microwave filters, lightbulbs, these are default tenant responsible items. 

4. HVAC filters. This one is really a tossup. Our default is tenant's responsibility but the ones who actually change filters are about 50/50 with our experience. Often time at turnover we pull out the filter it looks black so obviously it was never changed for at least 6 months. There are AC service company offer a reasonable fee for a annual plan where they come to change the filter twice a year. If you don't want to change the filter yourself and don't trust tenant with changing the filter, having the AC company do it could be another option. 

5. Exterior maintenance such as pressure wash and gutter cleaning, these times we take care of them and usually at turnover. When I used to be a tenant, my landlord had it in the lease that at the end of the lease for move out, the tenant has to hire a professional to clean the gutter, clean the fireplace, clean the carpet, etc. I did them all because I didn't catch that when I signed the lease and I was a good tenant but I thought those are bs where the landlord should take care of. Also you don't want the tenant to start doing these items themselves and potential getting hurt, especially clean gutters.  

Those are standard practices. Some times in a slow market and we need to attract tenant to sign a lease, we throw in some of these items because the cost of individual items is less than we lowering the rent by even $50 a month ($600 a year). So if it's a slow time, and in the showing when the tenant ask, we would say if you sign a lease by this time we will throw in these items that's normally tenant's responsibility. 
 

Quote from @Joshua Darville:

Quote from @Ke Nan Wang:

Quote from @Joshua Darville:

Quote from @Ke Nan Wang:

I'm new to Padsplit as well and I don't own one yet and looking into develop my own. 

I have attended plenty Padsplit events and talked to my Account Executive (AE) and some veterans from Padsplit (the real expert, not newer sales person), and some Padsplit investors who own them and love them. 

To answer your questions quickly first:

1. Padsplit is simply a technology platform. View it as Airbnb. So the 14.75% (15%) is just their cut. If you hire a PM, usually from what I'm hearing, Padsplit PM charges about 8% and some just charge a $800 per month flat fee because it's relatively easy I guess. Keep in mind it's still new so the industry is trying to figure it out. 

2. Yes it's recommended you put keylocks on each bedroom.

3. Padsplit gather tons of data so you can ask your AE to provide the Orlando market data to you so you can make a relevant decision. 

Now we got your questions out of the way, here are my thoughts so far:

1. Hearing from many testimonials by talking to real Padsplit owners in person, it seems to be a true cashflow machine coming from a single family residence. One of the concerns would be, how long would this last until regulations catch on? Padsplit's answer is that no politician will attach the affordable housing industry because this is the only private solution to solve the housing crisis now. Obviously they are running against the zoning policies, always feel like doing something in the gray. Is it a stable long term strategy? I'm skeptical but I'm willing to test the water to something small first. My thought would be, if the city is okay with letting owners doing padsplit, why not just letting them rezone the property to multifamilies and build a multifamily apartment, which is a more legitimate solution. 

2. Most padsplit properties give me the opposite impression of what an airbnb properties give you. They look rough on the exterior and most of them are located in the class C neighborhood. Needs to be in a rental area because no homeowner neighborhood would like to have tons of renters going in and out of a property. So for sure it's a cashflow play, but don't expect much on the appreciation side. It's probably something that rides on top of the inflation but not very likely to double or triple your initial investment opportunities for sure. I think it's a great strategy to replace the BRRRR strategy for entry level investors who need number of cash flowing property to replace their 9 to 5s.

3. Eviction experience is still similar to your SFR experience. Still have to pay attorney and fight it through court. Padsplit people try to sell you that it's only a small portion of your income (1 out of the 6-8 members) vs if you do long term, you are losing 1 of 1 income.

4. Refinancing game is tricky. They recommend owners to refinance it as a normal house (4 bed 2 bath). After inspection/appraisal is done, then you do the Padsplit conversion. 

5. Just be aware of there are many Padsplit salesperson or Padsplit affiliate businesses that would love to grow rich out of Padsplit owners. So owners should talk more to owners to get real feedback. 

6. I'm piloting a new construction program that's building a generational style home 6 bedroom 4 bathroom, 2500 sq ft house in a class B/C area. Our goal is to design/build a house that can legitimately be a big SFR or a Padsplit property. Number makes sense on paper but let's see how we perform at the beginning of next year.

I though the benefit of having this membership structure was to cancel the subscription (eviction) without have the traditional lengthy process. Why do this instead of separate leases? If there are no boarding house limitation to the number of unrelated persons, does this structuring matter?

 Each jurisdiction has its own laws but I know from a padsplit operator's testimony in Jacksonville Florida that she had to go through the eviction process. 

In our county, boarding house limitation is for lease 1 week or longer and that's another reason why padsplit it's operating on a week by week lease. 

Thanks for the fast response. I have also seen leases with weekly collection schedules. Does the monthly verbiage in a traditional lease need to be updated to reflect the weekly collection? (e.g., leaving notice becomes X and non-renewal notice becomes Y instead of 60 days)

I’m not qualified to give you any advise but that’s what we do. Lease automatically renew week to week and need 15 day notice to terminate. 

haven’t running into issues. Oh btw we don’t use PadSplit. We place our own tenants and save 15%. Once the tenants are placed PadSplit aren’t really offer that much value to justify the 15% expenses. 

I can see if you are someone doing this at a scale then let PadSplit handle the marketing. But we are only a handful properties and it’s completely doable to do your own tenant placement. 

Quote from @Joshua Darville:

Quote from @Ke Nan Wang:

I'm new to Padsplit as well and I don't own one yet and looking into develop my own. 

I have attended plenty Padsplit events and talked to my Account Executive (AE) and some veterans from Padsplit (the real expert, not newer sales person), and some Padsplit investors who own them and love them. 

To answer your questions quickly first:

1. Padsplit is simply a technology platform. View it as Airbnb. So the 14.75% (15%) is just their cut. If you hire a PM, usually from what I'm hearing, Padsplit PM charges about 8% and some just charge a $800 per month flat fee because it's relatively easy I guess. Keep in mind it's still new so the industry is trying to figure it out. 

2. Yes it's recommended you put keylocks on each bedroom.

3. Padsplit gather tons of data so you can ask your AE to provide the Orlando market data to you so you can make a relevant decision. 

Now we got your questions out of the way, here are my thoughts so far:

1. Hearing from many testimonials by talking to real Padsplit owners in person, it seems to be a true cashflow machine coming from a single family residence. One of the concerns would be, how long would this last until regulations catch on? Padsplit's answer is that no politician will attach the affordable housing industry because this is the only private solution to solve the housing crisis now. Obviously they are running against the zoning policies, always feel like doing something in the gray. Is it a stable long term strategy? I'm skeptical but I'm willing to test the water to something small first. My thought would be, if the city is okay with letting owners doing padsplit, why not just letting them rezone the property to multifamilies and build a multifamily apartment, which is a more legitimate solution. 

2. Most padsplit properties give me the opposite impression of what an airbnb properties give you. They look rough on the exterior and most of them are located in the class C neighborhood. Needs to be in a rental area because no homeowner neighborhood would like to have tons of renters going in and out of a property. So for sure it's a cashflow play, but don't expect much on the appreciation side. It's probably something that rides on top of the inflation but not very likely to double or triple your initial investment opportunities for sure. I think it's a great strategy to replace the BRRRR strategy for entry level investors who need number of cash flowing property to replace their 9 to 5s.

3. Eviction experience is still similar to your SFR experience. Still have to pay attorney and fight it through court. Padsplit people try to sell you that it's only a small portion of your income (1 out of the 6-8 members) vs if you do long term, you are losing 1 of 1 income.

4. Refinancing game is tricky. They recommend owners to refinance it as a normal house (4 bed 2 bath). After inspection/appraisal is done, then you do the Padsplit conversion. 

5. Just be aware of there are many Padsplit salesperson or Padsplit affiliate businesses that would love to grow rich out of Padsplit owners. So owners should talk more to owners to get real feedback. 

6. I'm piloting a new construction program that's building a generational style home 6 bedroom 4 bathroom, 2500 sq ft house in a class B/C area. Our goal is to design/build a house that can legitimately be a big SFR or a Padsplit property. Number makes sense on paper but let's see how we perform at the beginning of next year.

I though the benefit of having this membership structure was to cancel the subscription (eviction) without have the traditional lengthy process. Why do this instead of separate leases? If there are no boarding house limitation to the number of unrelated persons, does this structuring matter?

 Each jurisdiction has its own laws but I know from a padsplit operator's testimony in Jacksonville Florida that she had to go through the eviction process. 

In our county, boarding house limitation is for lease 1 week or longer and that's another reason why padsplit it's operating on a week by week lease. 

I started with Guesty for Host (non-pro version) and transitioned to Hostaway and now we are with Hostaway for over a year and half and no complaints. Plus their customer service is always on point, I can always get ahold of someone quickly and resolve an issue when I needed 24/7, so far I haven't come to one incident where they couldn't resolve an issue for me. That's huge. 

Guesty they have Guesty for Host and Guesty for Pro. At least that's how it was a year and half ago. Guesty for Host is a nightmare. You cannot get ahold of someone if there's problem. All you get is to submit a ticket. And we are talking about 1 day turnaround time back and forth. That's no way to resolve an actual issue. For us to go to Guesty for Pro, we will have to pay the minimum 4 unit fee. I have a friend who's a professional vacation rental property manager and he uses Guesty for Pro to manage 100+ units. So I think if you have 4 units or more, it doesn't make any difference whether you choose Guesty for Pro or Hostaway. But for those who have 4 units or less, Hostaway is way better than Guesty for Host. 

Cost wise they are all very comparable, maybe $5 difference per unit per month and in exchange you may have a little more or less features.

They all have similar features (comparing the pro version). You shouldn't pay any onboarding fee. Some company markup their onboarding fee to like $1600 that's absurd, then they said they have a promotion and now it's $300.