[REN #501] Subdividing Your Single Family Rental

Picture of a Living Space for Real Estate News for Investors Podcast Episode #501

An Atlanta start-up called PadSplit is hoping to fill a low-income housing gap with a new kind of no frills co-housing. The company calls it workforce housing for people who need an affordable place to live in a safe neighborhood. It also claims that landlords can increase their cash flow by renting out rooms in single-family homes.

PadSplit provides housing for the working class by converting homes into shared living environments. They are designed to be attractive, safe, and convenient to things like public transportation, but without all the bells and whistles that today’s typical co-living communities offer, making them much less expensive.

While they eliminate the upscale amenities, PadSplit homes are also much nicer than what we’ve called roominghouses. They’ve been around for centuries, and are often associated with substandard living conditions. PadSplit boasts of much cleaner and safer accommodations that exceed HUD guidelines. (1)
 

Roominghouses vs. PadSplit

When asked to describe the difference between roominghouses and PadSplit homes, company founder, Atticus LeBlanc, said in a Curbed article that roominghouses are like hitchhiking while PadSplit is like ride-hailing. He says, “It’s a question of legitimacy.” LeBlanc told Curbed that he’s concerned about the affordable housing problem in this country, and believes that well-run roominghouses or “PadSplits” can provide a solution. (2)

LeBlanc is a Yale graduate with a degree in architecture who has acquired and redeveloped single-family and multifamily properties in Atlanta. He has also worked in residential and commercial construction, and he’s an advocate for affordable housing.

He participated in Atlanta’s Affordable Housing Preservation Challenge last year with a proposal that shows the benefits of subdividing single-family homes. He says that by living in slightly smaller spaces, we could create a lot of additional housing. To illustrate, he says the average amount of square feet per person in Atlanta is 590, and that by reducing that number 25 square feet, the city could create almost 21,000 new housing units.(3)

He also provided details on the benefit of turning an 1100 square foot 2-bedroom home into 4 rentable bedrooms that are fully furnished, with utilities and cable included. In this case, the rent would be an affordable $435 a month which benefits a low-income tenant. And that’s for everything, making it easier for tenants to manage their finances. With the low rent and the convenience of nearby public transportation, tenants say they have the chance to save a little each month.

The landlord would also get a greater return on his investment, according to LeBlanc, by renting out the four bedrooms. LeBlanc calculated the ROI as 20 to 30%, and they enjoy lower vacancy rates because each tenant accounts for a smaller percentage of the overall revenue stream. LeBlanc says it’s cheaper, easier, and faster to create this kind of affordable housing, which could help address the need for more housing.
 

Selecting PadSplit Tenants

When asked about how he selects tenants that will be able to live well together, he said his methodology is pretty simple. He said, “From the time we market a unit through daily management, we ensure that our residents understand our expectations of them. Primarily, we expect them to behave as “kind and respectful adults.” Occasionally we have to remind them of this expectation, and enforce the stated rules of the house.” Applicants must also pass a criminal background check.

He opened the first PadSplit last May and is now operating five houses with a total of 27 units or rentable rooms. One tenant told Curbed that she’s trying to get back on her feet after a few difficult events in her life, and is renting a PadSplit room for $525 a month. She says the room is “beautiful” and is near a bus stop that she uses to get to work as an overnight security guard. She says is making it easier for her to save money.

Links:

(1) PadSplit Website

(2) Curbed Article

(3) ATL Preservation Presentation

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