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Below is a sample of one of the in-depth startup briefings from our Blueprinting Proptech series that members have full access to for only $139/quarter.]

Without further ado…

Blueprinting Proptech: PadSplit (Series II, Part III)

BY DREW MEYERS
Last Updated November 29th, 2021

An housing startup based in Atlanta focused on affordability without subsidy, Padsplit operates a marketplace for shared lower-cost housing specifically designed for the workforce renter. PadSplit brings inventory online by creating co-living environments that are safe, attractive, respectable, and accessible to those who can only afford up to $750 per month in rent. It makes shared housing more profitable by making it more affordable. As a Public Benefits corporation, part of its charter stipulates that it provide housing to people earning below 80 percent of the area’s median income, which varies from as low as $32,000 to as high as $64,000.

The company has a fully distributed workforce and no physical office space.

Founded: 2017
Total funding: $35 million
Last funding: Series B
Team size: 110
Sector: Rentals / Shared Housing

GEM Representation: Atticus LeBlanc (co-founder), Frank Furman (co-founder), Courtney Cooper (investor, Alate Partners), Aaron Block (investor, MetaProp), and Matt Hoffman (prior investor on behalf of Enterprise Community Partners)

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Learn more: Website // Crunchbase

BIZ BRICKS

the foundation to company comprehension

Product: Tenants find flexible, long-term rental options that include furniture, utilities, and access to public transit, all without a minimum credit score and for less than $750 per month. Rooms are move-in ready, have no long-term obligation, and include service amenities designed to help tenants increase the prospect of moving up the socioeconomic ladder, such as free access to telehealth services.

The company helps real estate investors increase the yield of their existing properties, typically single-family rentals, by providing the playbook for converting the physical space into one conducive to communal living, which provides the opportunity to increase gross rents. For instance, rather than a landlord renting a 3-bedroom house for $1,750 to a family or three roommates who have pre-formed as a group, the house is reconfigured into 5 bedrooms, each of which might rent for $500 and gross $2,500 (a 42% increase). PadSplit handles marketing, leasing, and resident management, but owners are responsible for on-site property management.

Customers: Primarily low-income workers earning less than $35,000 a year—with an average income around $25,000. The average age is 39, with a range from 19-83 years old.

Traction: Padsplit operates more than 2,500 units across Atlanta, Houston, Richmond, Tampa, Indianapolis, New Orleans, and San Antonio, with multiple new markets under development.

Business model: Landlords pay a 12% recurring platform fee on collected rents (distributed monthly to owners) plus a 2.75% flat-rate transaction fee, for 14.75% total fees.

DISTRIBUTION

the action or process of supplying individuals and other businesses with products or services

Demand side: Word of mouth certainly plays a role, with tenants telling their network about the housing. But the reality is that housing supply is so bad, that there are few options and virtually unlimited demand. The company prides itself on having supply that looks and feels like any property on a street, if not better. Even if that wasn’t the case, bad supply would still be full.

Supply side: Housing supply is PadSplit’s biggest growth obstacle. The company primarily works with investors who already own single-family homes or buy SFR assets specifically to work with PadSplit. Not every market or every house is conducive to the company’s business model. Market restrictions vary relative to the number of unrelated parties that can live in a single-family residence. If that max is three persons, then the amount of rent collectible under the PadSplit model could very well be equal to or less than renting it using standard practices.

Until now, PadSplit property owners have been mostly professional investors who have made physical improvements to their properties to enable co-housing (smaller bedrooms, communal spaces, technology compatible with the PadSplit OS). However, PadSplit TurnKey is a new initiative that offers select PadSplit Hosts the opportunity to invest in a truly turnkey property, one underwritten, sourced, renovated, and managed by PadSplit’s team—giving anyone the same power that large institutional investors have at their disposal. Helping more people invest and create “PadSplits” is the path to faster growth.

COMPETITION

the entities with whom one is competing; the opposition

While talk about the challenges of affordable housing access is plentiful, there are very limited solutions. Most companies tackling the market have gone upscale—micro apartments for affluent millennials.

PadSplit is not co-living for the urban affluent—it is for those requiring rents at or below $750 per month, who usually live on their own. Accessible housing for this market cohort includes staying at extended-stay motels, illegal units (often overcrowded and unsafe), and ‘functional homelessness’ (such as couchsurfing or car-sleeping). It’s this differentiator that makes PadSplit’s true competition much lower than others innovating in the cohousing space—many companies reimagining coliving for urban environments offer high-end solutions with dog-walking, yoga classes, happy hours, and pick-up/drop-off dry cleaning. Yet the core selling points of coliving — better geography and housing quality at a lower cost by sharing — holds just as true for lower-income residents. HomeRoom is the startup to PadSplit’s model with a similar target customer demographic.

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The rest of this article has been moved over to our GEM Crystal Platform (still freely available to read). Read the entire article here.

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