Episode Transcript
[00:00:00] Speaker A: And by co living, we mean multiple people living in one house, having their own bedrooms and a little bit of shared space. What does a pad split house typically look like inside? If somebody walked into it, what does it look like?
[00:00:12] Speaker B: Yeah, so we're really seeing a big boom in co living as a sort of creative, non traditional way to approach affordable housing. And it is very effective at that. And when we say co living, essentially it's communal living. Right. Where we have multiple working class residents, typically who are making between 20 to 60 thousand dollars a year, is, you know, sort of the demographic that we particularly focus on serving. And there's very limited share space on a pad split home because part of our model is actually converting underutilized space in a home. And so it's called the pad split conversion.
[00:01:01] Speaker A: Hey, everybody, it's Joe Segal again, your real estate asset protection lawyer here in Florida, owner of my Land Trustee, the largest land trust company in the state of Florida, and also co author of Land Trust in Florida, the 11th edition. If you'd like to get a copy of that, go to landtrustbook.com get your free copy of the second chapter today and go to Amazon, order it. If you've read the book, please give us a review. We'd really appreciate that.
But today we're here on Trust, this, the podcast for real estate entrepreneurs and professionals who are looking for insight and masters and tactics of how to do your business better. And today we have Emmanuel Promonte, the Padsplit guru, I like to call him. He's a. He's an advisor on Padsplit and everything. Padsplit and Emmanuel Biggie, welcome to the show today, Joe.
[00:02:00] Speaker B: Thank you so much, man. Do you have a nickname? Is it Big Joe or Slick Joe? What's the nickname for you, Joe? I need something for you, man.
[00:02:08] Speaker A: Joe.
No, I'm just Joe. Just Joe.
[00:02:11] Speaker B: That's Big Joe, our Smooth Joe. Smooth Joe. There you go.
[00:02:19] Speaker A: Well, we're here today. I hear a lot about Pad Split. A lot of people don't know about it. They don't know how it works. They don't know what it is.
And I was at a seminar that a title company put on here in Orlando a few months ago and we learned a little bit about it. But I thought, man, real estate investors who are tired of short term rentals and they don't want to be doing long term rentals, they may want to look at midterm rentals. They need to learn about PadSplit, what it does, how it works, and how you can help them so why don't you start with just tell us a little bit about yourself first and then tell us a little bit about Pad split.
[00:02:58] Speaker B: Yeah, will do. Well, thanks again for having me. It's an absolute joy to get to share the PadSplit mission. And my name is Emmanuel Promonte. I like to go by E. I like to say he keeps it easy. And I've been with PadSplit now for the last 18 months. I'm a Florida native. I grew up in Melbourne, Florida, went to school at a UCF where I studied finance and you know, got into corporate healthcare sales with GE Healthcare right out of college in this prestigious sales program, had a chance to live in seven different cities in a span of two and a half years. So that was quite fun. But after doing that for a bit, realized that, you know, my passions weren't really aligned in healthcare sales nor in corporate and you know, made the pivot and the jump into real estate. And I started off with short term rentals. That's how you know, I began my journey about three years ago and it was really around last year at the beginning of 2023 that I saw the market even then was beginning to take a shift and short term rentals even then at that point were not really where they used to be. And at the time I was, you know, a short term rental investor. Also had been working for Vacasa, which was the largest vacation rental management company in the US and in May had the opportunity to join PadSplit. And so for those who don't know about PadSplit, we are the nation's largest co living marketplace. And through our platform we now enable investors to be able to invest in co living at scale. And essentially we are room rental platform that handles really the four core pillars of this business that have been challenging for investors to do it at scale. And so pillar number one is going to be the marketing. We are the market leader when it comes to room rentals and we spend hundreds of thousands of dollars per month to be that top ranking spot in all of our 40 core markets that we're currently in as a platform. Right. Orlando and all the Tampa and Jackson, all the major cities across Florida being part of that core market.
And so we also handle all the screenings as well. Right. So we do the background screening, the eviction report, we handle the income verification and we really give full control in our investors and being able to set the pricing, being able to decide who they want to approve or decline based on those member inquiries. And whenever I say members just know that refers to people who are staying in the, in the rooms. That's, you know, tied to our legal strategy, we can talk about later on. But and also when I say units, that refers to rooms. But essentially the third pillar that we handle is going to be the payment collection. Everything is done electronically, making it super easy.
And the members, they pay weekly or bi weekly and the host gets paid out on a monthly basis minus our platform fee. And then the final pillar would be the 247 support. Right. Handling the people management.
You know, I like to say, hey, we can fix the system problem making this scalable, but people will be people. And with that, over the last six years we've developed a very robust playbook of standard operating procedures on how to deal with some of the unique situations that may come up in a co living environment. So that's kind of a very high level, quick out of the gate overview of PadSplit. But we can definitely dive deep into it throughout this podcast.
[00:06:17] Speaker A: And by co living we mean multiple people living in one house, having their own bedrooms and a little bit of shared space. What does it, what does a pad split house typically look like inside? If somebody walked into it, what does it look like?
[00:06:32] Speaker B: Yeah, so we're really seeing a big boom in co living as a sort of creative, non traditional way to approach affordable housing.
And it is very effective at that. And when we say co living, essentially it's communal living. Right. Where we have multiple working class residents typically are making between 20 to 60 thousand dollars a year, is, you know, sort of the demographic that we particularly focus on serving.
And there's very limited share space on a pad split home because part of our model is actually converting underutilized space in a home. And so it's called the pad split conversion. And so with that pad split conversion, typically maybe that living room will be converted into a room.
Any other underutilized space, maybe like a family room or any open space, is potential opportunity to convert it into a room. Now we do this for a couple different reasons. We recommend doing this for a couple different reasons. I should say. For one, it's what makes the business model profitable. If you just take a traditional three, two and you have a living room. Because most average weekly room rates are going anywhere from about 130 per week on the low end, upwards of 350 per week on the high end, it just simply won't make economic sense to, you know, to do it, to invest in it. But the moment you take that 3, 2 and perhaps make it a 5, 2 or 6, 2, depending on the square footage and the size of that home. Well, now you not only have something that is profitable, but also something that is filling for a need by providing more affordable housing. And in fact, what we find is you want to limit the amount of shared spaces because it can actually lead to disputes. It can lead to a poor member experience because, you know, maybe someone invites someone over that's unauthorized and they end up crashing the couch, where if you just had a wall and had converted that to a room, it now could have also been an income source as well. So, you know, that's part of the model. That's where I can help. I've walked now hundreds of properties, and we have various tools and tech in place to be able to kind of get an idea of where that conversion can be made. Of course, everything has to follow building code. That's where we do lean into our bender network that we have, which includes licensed general contractors, lenders, insurance providers, property managers, just a whole list of professionals who understand the padslet model, have gone through a training, They've been vetted by our operations and general manager team. And so it really is offering now a unique opportunity to be able to capitalize on the need for affordable housing.
[00:09:09] Speaker A: So how did they. Let's say you wanted to convert that living room and maybe a dining area into a living space. What exactly would you do for that? Those rooms to do that?
[00:09:22] Speaker B: So we want to do as minimal modification as necessary. Right. Typically, these are temporary walls that are being added to create that additional space. And the room furnishings are very standard room furnishings that would make it a habitable space. So bed frame with a mattress, you know, a small nightstand, if it doesn't already have a source of light in the room. Adding a source of light and a place to store clothes. So sometimes when, you know, convert that living room, rather than building out the closet, you can just have an armoire or dresser or wardrobe in there for them to be able to store their clothes. And there are some room requirements. Right. It's. It's not like any underutilized space is a good fit. That's where we want to look at the egress points. Is there a window in that space? Is there enough actual square footage in that room to make it a qualified room? And also AC ventilation. This is sometimes where, you know, it is important to take a look at, you know, do we need to add a ventilation vent or mini split into that room in order for there to be ventilation. But again, that's where I can help. And this is where our clients have seen incredible results by doing so. Occupancy rates are continuing to rise because quite frankly, if you're a single individual right now in the rental marketplace and you're making less than $50,000 a year, your housing options are very limited. Right now, the median cost for a studio is about $1,500 per month nationwide. And a lot of these traditional rentals, multifamily units and complexes, require three times the income requirement. And so if you do the math, you know, if anyone makes less than $54,000 a year and they're a single individual, they may not even qualify for a studio apartment. And that doesn't even take into account all the upfront costs that come in to move into an apartment, which includes the furnishings, it includes the utility, startup cost and security deposit, all kinds of things that may be without, not within reach for someone who's in that income demographic.
[00:11:25] Speaker A: So what does this look like from the property owner side? What is your typical number one? What is your typical profile of an owner who would be a good fit for pad split as a, as a, as a pad split owner and then for the property? So let's talk about the owner first. What kind of, what kind of owners do you typically see?
[00:11:46] Speaker B: So really, I mean, anyone who's interested in buying hold investing, I've worked with investors from all over the world, as far as Israel to Hawaii to California to local investors here in the Jacksonville market, or, you know, based out of Orlando and they're investing in Jacksonville. But anyone who has an interest in investing in residential properties as a buy and hold investment, this is right now the number one way to be able to cash flow on a property. Just because with the way interest rates are, a long term rental is very likely going to be negative cash flow if it's not break even. And short term rentals. What we're seeing in that market right now with Airbnb and VRBO are two negative factors. Number one, high amount of saturation. Airbnb has been in the market now for the last 15 years. There's really no shortage of hotels in the US and there's just too much inventory, which is causing low booking rates for hosts who are on those platforms. And then also the fact that there's also a lot of regulation coming into the short term rental space. And that's primarily being driven by the need for affordable housing. A lot of the major US cities in which PadSplit is currently operating in have initiatives in place to create more affordable housing for the working class. And when you look at Airbnb as a business model, it kind of makes housing a lot more expensive. It's on a short term rental basis and it's not affordable for those who need it. Whereas our whole belief is that the people who serve our communities should at least have access to affordable housing. And now you have that power as a buy and hold investor with PadSplit. As far as like, which properties are a good fit, you know, every property is different, but we kind of have like a criteria that we look for in order for this to be a viable investment opportunity. So typically, you know, we're looking at getting to at least five rooms. Now again, these properties typically don't start with five rooms. And so that's where we really look at square footage. So at a minimum, I would say you want to look at properties that have at least 1200 square feet. And we found that with 1200 square feet you can, you can get to those five rooms. And again, every layout is different. That's where we have tools where we can actually create like a 2D layout of that property and be able to design a diagram on, you know, what the potential conversion would look like. But anything between 1200 to about 3000 square feet, it's typically a good fit. And you want to be in densely populated metro areas because that's where there's the greatest need for affordable housing. And you also want to be close to public transit. The reason for that, about 50% of pads but members do rely on public transportation. And so that's why when we're looking at a property, we're also going to go into Google Maps, hit that little transit view so we can see where the closest bus stops and just make sure we have something about 1 mile distance from the home. Parking is obviously something you want to take into consideration. This is a topic that often comes up with padsplit and when I'm working with clients and what we find is that, you know, what we recommend is to have one parking spot for every two groups. And that's where, you know, maybe we'll do a Google street view or look at some of the Zillow listing photos and see what's there and see what we can create, perhaps maybe, you know, graveling out a portion of the driveway.
And all of our members, when they become a member, they have to register a vehicle. And so by doing that now, you know, if you've all your parking spots are filled up and a member who has a vehicle tries to go book your place, they're actually Going to see a message that, hey, there's no parking spots available. You know, you can't book this place. So that's how we kind of mitigate parking issues for our host.
And final thing I'll mention is hoas. So generally, you know, we advise against hoas, but we also put it on our clients to do their due diligence on the bylaws and the covenants and to see, you know, would this type of rental be allowed? Typically HOAs generally have some for some form of rental restrictions and you know, if they're allowing short term rentals, then that's a pretty good sign that, you know, padsplit will be allowed. But it's always encouraged to make sure that's verified by the investor.
[00:15:53] Speaker A: Yeah, I've seen that with hoas, because you don't want to have, you know, four or five cars parked in a driveway. HOA neighbors typically don't like that. What about you talked about making sure that they had a door and a window on every room for egress. What other safety measures does PadSplit have in place for the members who are staying there?
[00:16:20] Speaker B: Right, so we also encourage all of our hosts to install electronic locks on the interior doors and exterior. Right. So both of them are going to have electronic doors, the interior doors are going to have those handles. That way they can have their own unique code to be able to access that property. I do also recommend having exterior security system so you can keep track of who's coming in and out of the home. Ring doorbell, just those, you know, standard home safety smart features that allow you to be able to keep track of the home. Now on our platform we have our support team. And so our support team is there available 24 hours a day, seven days a week for our members. And if there is an incident or if there is some kind of safety concern, our team is there to help step in. Whether it be offering a transfer into another room or providing some type of dispute resolution service to our members. Because again, we've dealt with a lot of different scenarios through our six years of experience. And with that, you know, we have a pretty clearly defined method on how to resolve those as they come up.
[00:17:24] Speaker A: So yeah, I figure people, strangers living together in a home, you know, It's. There were TV shows about that back in the 80s and 90s, I remember those. And arguments did ensue. It wasn't unusual. How do they handle, you know, who takes care of cleaning the common areas and things like that.
[00:17:43] Speaker B: And you know, in our member agreement, so anytime someone wants to move into a home or a room, I should say a member has to agree to a member's operating agreement. And this member's operating agreement is about seven page document and it outlines all the terms and conditions as a part of being a member of our PadSplit LLC. So keep in mind that there is no, we don't have individual lease agreements for every person living there. There's only one lease agreement agreement and this one lease agreement is between the PadSplit LLC as the tenant and then the Homeowners LLC as the landlord.
And so with this we've now created this member based organization to establish relation amongst all the members who are living in that home.
And so that's more a little bit about our legal strategy that we have. But part of that agreement, you know, it states that, you know, if they are late by a week, it's a $25 fee that's applied and also if their balance goes over $300, they're going to be subject for termination and we have to vacate the room. And you know, we've done a really good job in being able to now scale with this legal strategy. You know, with 15,000 units nationwide and 35,000 members who we've serviced, we've really become that go to option for those who are seeking something that is affordable and something that is flexible. Because we have now those low upfront costs, it's quick and easy to get into those rooms. But not only that, now as we're growing and scaling into different markets across the US we're essentially building a network of housing for working class individuals where you know, say Jane gets a job here in Jacksonville and she, you know, for some reason or another wants to decide to move to Vegas to stay with, you know, there because she has a friend or family member that lives there. Well, with, you know, about, you know, one day notice, she can then move over to a patent split in Vegas, have very limited costs, not have to worry about hauling all the furniture and you know, hearing all that stuff. And any early termination fee like that would be associated with the traditional rental and be able to quickly move over to a different city. So that's kind of the long term vision for us is to be able to not only be the most affordable housing option, but also be the most flexible option that is quick and efficient.
[00:20:02] Speaker A: Okay, so how do, what if a member just says I'm not moving, do you ever have to evict? And how does that work?
[00:20:11] Speaker B: Yeah, so it does happen. You know, we can't, we can't avoid the evictions, but they happen at a much lower rate. And the reason for that is because of the systems and the processes that we have up front, from the background and screening checks to giving our host control and deciding who they want to approve or decline in those rooms.
So, for example, in Jacksonville here we have about a total of 1500 units, give or take, and out of the 1500, right now we're at a point 2% eviction rate. Now, before it ever gets to eviction, there is a lot of communication from the PadSplit support team with that member. Right. We essentially have like an easy way or hard way discussion with the members and ideally they vacate and they leave. Now, if they leave with the balance, that balance is going to stay on their member account for as long as they're a member. Right. And if they don't ever come, if they ever want to come back to PadSplit, they would have to pay that member balance off before they can book another room.
Eventually, you know, I'm sure there's going to be changes with that, maybe having some type of like air cover version of pad split available once we're at that scale. But for right now, that's the current policy.
And you know, many times they leave and just they pay their balance due and that's fine. But if they're deciding that they, you know, they're not wanting to leave, they're being reluctant, that's where we're going to communicate with the host or their property manager, let them know, hey, here's the situation, here's what's going on, and we can provide all the documentation that they would need to be able to file that eviction, from the communication to the financial history. And you also think about, if it does get to that eviction, it is a, it should be less costly because it's one individual and it's in a room. It's not like you're trying to evict an entire family out of a single family home. The other side of it is that, you know, with the traditional single family rental eviction, that eviction could maybe go for a month, two months, three months, who knows how long the courts are backed up and throughout that period of time, you have zero revenue that is being generated from that Property. Whereas with PadSplit, even if you have one room that's an eviction, you have these other rooms that are bringing in revenue for you to help you cover your mortgage, you know, and your various bills. Now, with PadSplit, homeowners and hosts are going to be responsible for paying for the utilities.
But that's where we have some strategies and some best practices that we can share to make sure that know that bill is reduced.
[00:22:45] Speaker A: How do you deal with, I mean, a lot of municipalities have only so many people for so many rooms per house. How do you guys deal with those municipal ordinances that can curtail this kind of a use of or conversion of a house into essentially a co living space like this with multiple people with. With a lot more bedrooms per the house than originally built?
[00:23:13] Speaker B: Right. It's a really good question and one that comes up often. And the whole kind of thesis and our belief here is that part of the reason why we're facing this affordable housing shortage that we are across these major metro cities is partly in due to outdated zoning restrictions.
As an example, you know, here in Jacksonville, a family is defined as no more than five unrelated individuals. But a family is not only established through blood relation, but it can also be established through marital status, adoption or by law. And so that final point by law is how we're able to have more than five individuals in a single family home. Because now we have essentially created this member based organization. I think kind of a real world example that I think most people can relate to or understand is kind of like a fraternity house. Right. These are traditional homes in which they have fraternity members who have agreed to certain outlined agreements and terms to become a member of this organization and reside in this home. And that's how you have these fraternity homes that have 15, 20, 30 people living in them and students. Right. So it's a similar sort of concept, but again it's applied to the working class members, community members, and it's more than just a room rental. We do offer some additional services to our members that provide a quality experience. So we do positive credit reporting. Average member increases their credit by about 46 points after their state of pad split. We offer telemedicine services through Teladoc and then also interest free micro loans in the event of a hardship or an accident or something like that, our team can step in and help with that. And so because of this, about 88.8% of our members would recommend pads with to a friend. So we have a really high recommendation rate for those members who are staying in the homes. It's profitable for our host. But ultimately also I will say that, you know, there are some best practices that you want to implement in that property to ensure that people who are living there are having a good experience. Right. So for example at my PadSpit property, I always provide the toilet paper and the cleaning supplies. It's not something that's necessarily required, but it's something that I like to provide because I want to give them what they need to be able to clean and minimize those disputes. I also offer monthly cleaning services as well. So I have my cleaner who comes in there once a month, cleans out the shared space and makes sure that lets me know if there's any inventory that's low, if there's any issues.
And so those are just a few examples. Another thing is like labeling the cabinets based on the room number. So that way everybody has their own sort of designated storage throughout the kitchen.
And that's just again one of many, many, many best practices that I can share when it comes to co living. Because I will say there's a little bit more work involved than a long term rental, but certainly not nearly as much as a short term rental. Short term rentals are very operationally intensive. It's more of a hospital fatality business than it is a property management business. And with PadSplit, yes, you do have to furnish the rooms, but you don't have to provide all the small little nuanced things like the bed sheets and the, you know, pillows and the blankets, the comforters and all that. We actually instruct our members to bring their own. So less to manage and also much, many, many, many less turns. Again, our average stay in a pads room is about six to eight months.
[00:26:48] Speaker A: Well, thanks for coming in. We're definitely going to put all your contact information down in the show notes, so everybody check that out and be sure if you haven't already, subscribe like and subscribe to us either on the your podcast channel, write a review, tell them how great we are. If you love us, keep your mouth shut. If you hate us, whatever you want to do. But until next time we meet, Trust this.
Thanks for listening to this edition of Trust this. If you got something out of it, please press like and subscribe and give us a five star review to help us reach others who can benefit from this series. Until next time, keep aspiring to a better life.
