Padsplit pros and cons

[Travis Schmidt]

I'm a new investor looking for ways to find cash flow in this challenging market. I was recently introduced to the rent by room Medium Term Rental platform Padsplit.com. It looks like a less labor intensive way to increase cash flow over the STR route but also includes structural changes to a single family home (additional setup costs) and dealing with low income tenants. I haven't seen any posts about this option and was very curious to see if any investors would be willing to share their thoughts or experiences. Thanks in advance!

[Curt Smith]

Hi Travis,  I'm in Atlanta the home town of padsplit's start.  Am in a group where members might be running in the range of 100 doors (x 3-5 rooms each) of padsplit.  I don't have any padsplit though for reasons I'll tell.

You will be mostly wrong assuming padsplit is lower effort, hours / week managing vs airbnb.   Your time running an active business of padsplit (or DIY rent by the room) varies per week. Some weeks no effort, others when you need to "put out a not working out tenant" more work.   The early days padsplits operations process tried to run uusing hotel tenancy laws, that has fallen by the wayside due to magistrate court/fitting into a standard eviction process via magistrate court.  So tenants that don';t work out can be stuck in a room for 2 months while the slow eviction process works through.   Airbnb you just call the police and they are gone.

Padsplit simililarily to airbnb, site selction is very important. Only a few houses will work for either; parking, isolation from neighbors etc. IE its a very bad idea to attempt rent by the room with close neighbors, or in a nicer HOA neighborhood where tenants are seen walking streets to the bus/mass transit. Depending on your location, more folks will apply for renting by the room if you are on/near mass transit. Padsplit can still work in the burbs, but you need lots of parking and space to the neighbors.

Padsplit is only up and running their francise in the bigger cities.  Otherwise you are DIY running a rooming house and its alot of work screening and managing the 2am fights, tenants leaving their trash in the kitchen iratating the other tenants.

Its all doable, just the actual amount of hands on is more then you might think, even if padsplit is in your area and is willing to take your house into their system.   

Risks;  zoning / code enforcement for running a rooming house, more then the county limits on un-related adults in a rental.  In Atlanta area its 3 unrelated adults.  Code enforcement in Atlanta area is lower since the locale's realize that padsplit is providing low income housing so code enforcement follows neighbor complaints or repeated police visits.

Your experience maybe smooth and easy, and I hope it is!!   Same with Airbnb can be smooth and easy.  Both need systemitization!!!!  

What my friends say is the $$ advantage over 12 mo term rent is around 3x higher net.   There is up front costs like dividing the living room into 2 more bedrooms etc plus the simplier furnishing.   Remote control and locable thermostates,  water leak detetors and main cut offs.   The multi door padsplit operators have alot of home automation they remote control and monitor including cameras on the front door (not interior), remote managed bedroom door locks, front door lock etc etc.

I won't get into either rent by the room or airbnb!  We prioritize OUR lifestyle and free time over income.   I only own nicer rentals with fenced back yards and rent to families with dogs.  I never hear from those folks.  :)

Best to all,  curt

[Don Konipol]

“I won't get into either rent by the room or airbnb! We prioritize OUR lifestyle and free time over income. I only own nicer rentals with fenced back yards and rent to families with dogs. I never hear from those folks. :)”

@Curt Smith

You hit the nail on the head. Real estate industry is a ‘spectrum' running from ACTIVE BUSINESS on one end to PASSIVE INVESTMENT on the other. All real estate activities fall somewhere on the spectrum, with say owning a real estate brokerage at the extreme ACTIVE BUSINESS line and investing in a REIT index fund on the PASSIVE INVESTMENT line.

[Rick Baggenstoss]

I've had a 7 BR Padsplit for nearly 3 years with no evictions. Pretty good considering COVID was happening for 2 of those years, and I still got paid. Members/Tenants pay weekly, so reaction time to payment problems is pretty quick. I've certainly had tenants get behind, and in one or two cases, they left owing 2 - 3 weeks rent. Not a big deal in a 7BR house -- you're a little more diversified.

Evictions do happen. They use an eviction service for serving the tenant and coordinating with the courts. This service also subs the legal work out. It just so happens, I use both of these services for the properties I manage, so I'm happy with the selection.

The bad news is that evictions can become contagious in a house. If one person stops paying and it's tolerated, It's more likely to spread within the house. Quick response and a fair cash-for-keys offer is still the fastest and least expensive way to get someone out who isn't paying.

The folks who are doing best with Padsplit have a portfolio of them, manage the houses themselves, and they are good at it.  It's very lucrative for them.  If you have one - you need to let the property manager handle it or be prepared to spend a lot of time on nuisance calls -  ants, toilets, etc.  

Good luck!

Rick

[Curt Smith]

@Rick Baggenstoss  "eviction service"   thats useful to hear, thanks for mentioning that "systematizing" aspect that padsplit.com's system provides.  Who is this service?   For others, this is the Atlanta area.

For others;  today eviction, the magistrate court judges etc has not gotten back to what the process was pre covid.  I hear of judges turning more tenant friendly etc.   I've done a few evictions myself as the landlord but today I would use an eviction service who knows the judges and the "code phrases'" that work in court today...  ;(

[Jingru Sui]

Curious does the new Short term rental rule apply to padsplit? 

[Travis Schmidt]

Quote from @Curt Smith:

Hi Travis,  I'm in Atlanta the home town of padsplit's start.  Am in a group where members might be running in the range of 100 doors (x 3-5 rooms each) of padsplit.  I don't have any padsplit though for reasons I'll tell.

You will be mostly wrong assuming padsplit is lower effort, hours / week managing vs airbnb.   Your time running an active business of padsplit (or DIY rent by the room) varies per week. Some weeks no effort, others when you need to "put out a not working out tenant" more work.   The early days padsplits operations process tried to run uusing hotel tenancy laws, that has fallen by the wayside due to magistrate court/fitting into a standard eviction process via magistrate court.  So tenants that don';t work out can be stuck in a room for 2 months while the slow eviction process works through.   Airbnb you just call the police and they are gone.

Padsplit simililarily to airbnb, site selction is very important. Only a few houses will work for either; parking, isolation from neighbors etc. IE its a very bad idea to attempt rent by the room with close neighbors, or in a nicer HOA neighborhood where tenants are seen walking streets to the bus/mass transit. Depending on your location, more folks will apply for renting by the room if you are on/near mass transit. Padsplit can still work in the burbs, but you need lots of parking and space to the neighbors.

Padsplit is only up and running their francise in the bigger cities.  Otherwise you are DIY running a rooming house and its alot of work screening and managing the 2am fights, tenants leaving their trash in the kitchen iratating the other tenants.

Its all doable, just the actual amount of hands on is more then you might think, even if padsplit is in your area and is willing to take your house into their system.   

Risks;  zoning / code enforcement for running a rooming house, more then the county limits on un-related adults in a rental.  In Atlanta area its 3 unrelated adults.  Code enforcement in Atlanta area is lower since the locale's realize that padsplit is providing low income housing so code enforcement follows neighbor complaints or repeated police visits.

Your experience maybe smooth and easy, and I hope it is!!   Same with Airbnb can be smooth and easy.  Both need systemitization!!!!  

What my friends say is the $$ advantage over 12 mo term rent is around 3x higher net.   There is up front costs like dividing the living room into 2 more bedrooms etc plus the simplier furnishing.   Remote control and locable thermostates,  water leak detetors and main cut offs.   The multi door padsplit operators have alot of home automation they remote control and monitor including cameras on the front door (not interior), remote managed bedroom door locks, front door lock etc etc.

I won't get into either rent by the room or airbnb!  We prioritize OUR lifestyle and free time over income.   I only own nicer rentals with fenced back yards and rent to families with dogs.  I never hear from those folks.  :)

Best to all,  curt

 Curt,

Thanks for your input and breakdown I really appreciate your insight.  There are absolutely some additional challenges with the rent by room model and I agree it could easily be more work than an AirBNB.  Padsplit is in the Jacksonville area and they told me they would guide me through the process on where/what property to acquire.  I still have more research to do but at this point. 

Best Regards,

Travis

[Rick Baggenstoss]

@Jingru Sui. No, the leases are 30+ days.  Tenants pay weekly and can provide short notice.  Of the 7 rooms, 3 have been there for more than a year and 3 have lived there just over a month.

[Jack Swank]

Sounds like a lot of headaches.

Keep it simple

[David Edwards]

PadSplit host in Houston here and I have had a pretty good experience thus far. I would echo the statments made by others that things are more management intensive than a si gle family rental, but not 10x for intensive even though I make 10x the cashflow of a single family rental with the same financing. 

I have 3 homes up on Platform and manage another 2 homes. The homes I own total to 24 bedrooms, 8 bedrooms per home (1 master and 7 shared bath bedrooms). The ones I manage total to 20 bedrooms.

These rooms rent for between $125 to $225 per week depending on room size and amenities in the room (beyond basic amenities may include: Desk, Tv, private entry, tenant controlled AC, additional storage).

This month after padsplit takes their 14.25% cut of the revenue I am recieving, from the units I own, $15,230 from 3 homes. After all PITI, utility, and services (lawncare and cleaning) costs I have $7,225.

I set aside 25% of this for my maintenance fund.

The remainder funds my lifestyle, wife has a Tesla, and quarterly vacations as well as business growth.

In 2023 I am tracking to build 4 duplex units designed as room rentals funded in part from a recent land sale. With this I will have an additional 8 units bringing in $20k+ in after expenses revenue.

[Blake Lewis]

@David Edwards thank you for your post! We are grateful to have you as part of our PadSplit Host Community!

[Stephen Pineau]

Quote from @David Edwards:

PadSplit host in Houston here and I have had a pretty good experience thus far. I would echo the statments made by others that things are more management intensive than a si gle family rental, but not 10x for intensive even though I make 10x the cashflow of a single family rental with the same financing. 

I have 3 homes up on Platform and manage another 2 homes. The homes I own total to 24 bedrooms, 8 bedrooms per home (1 master and 7 shared bath bedrooms). The ones I manage total to 20 bedrooms.

These rooms rent for between $125 to $225 per week depending on room size and amenities in the room (beyond basic amenities may include: Desk, Tv, private entry, tenant controlled AC, additional storage).

This month after padsplit takes their 14.25% cut of the revenue I am recieving, from the units I own, $15,230 from 3 homes. After all PITI, utility, and services (lawncare and cleaning) costs I have $7,225.

I set aside 25% of this for my maintenance fund.

The remainder funds my lifestyle, wife has a Tesla, and quarterly vacations as well as business growth.

In 2023 I am tracking to build 4 duplex units designed as room rentals funded in part from a recent land sale. With this I will have an additional 8 units bringing in $20k+ in after expenses revenue.

 This sounds compelling, David. I'm considering acquiring a property to convert to a PadSplit, but my aim is to use the depreciation against my W2 income. Is this something that is possible with a PadSplit? Thanks in advance for your insight. 

[Sendhil Krishnan]

Quote from @David Edwards:

PadSplit host in Houston here and I have had a pretty good experience thus far. I would echo the statments made by others that things are more management intensive than a si gle family rental, but not 10x for intensive even though I make 10x the cashflow of a single family rental with the same financing. 

David thanks for the great info. I myself will be constructing some MFUs and was considering using either a duplex or the SFH for padsplit. However, concerned about the general wear and tear these tenants will have on a brand new construction. What has your experience been?

[Joe S.]

Does pad split service San Antonio area?