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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.
Craigslist is the main elephant in the room on the discovery side and has been for decades. Beyond that are a wide range of national and international search platforms, such as SpareRooms and Coliving.com (more than 11,000 rooms available globally). Nooklyn is a niche local solution helping people find and share apartments in New York City. Nesterly matches the elderly in need of companionship with housemate connections across generations and cultures, while Silver Nest screens homesharing opportunities for hosts, handles leases and payments, and even offers insurance coverage. It’s also impossible to have this conversation without mentioning Airbnb, which got its start helping people rent spare rooms, couches, and even floors to strangers. Its origins are the very definition of shared living, though it’s obvious that its core business now comes from renting entire homes, not bedrooms.
None of these, however, limit their customer base to low-income housing opportunities. Nor do the more modern, vertically integrated approaches like Bungalow—which similarly repurposes assets but focuses on a more affluent audience and has raised $171 million—and Loftium, which struggled during the pandemic due to its reliance on booking travelers into shared rooms, rather than renting entire homes (a segment that boomed).
The DIY search engines that combine coliving options at every income level, coupled with a steady stream of more affluent solutions, have left a gaping need in the market to serve this historically underserved population. Because PadSplit aligns incentives among residents, property owners, and communities, the company is making affordable housing possible for the private market.
DIFFERENTIATION
the action or process of differentiating one’s product or service
Social Impact: Commitment to its mission includes providing housing for people earning below 80% of the area median income. It’s really the only organization targeting that lower income demographic, even though it’s much bigger. Because it’s hard work. For example, PadSplit can’t screen based on credit score or based on income the way most co-living companies, landlords, and providers do. Instead, it has to invent different ways to screen for high-quality residents. To solve the affordability shortage, both housing supply and housing access have to be addressed, and I’m not aware of another solution that addresses both issues.
Lower turnover: Its pre-screened member pool and all-encompassing weekly billing lead to less churn among tenants. All members undergo a background check for the safety of other PadMates and meet approval criteria, including providing verification of their employment. Members also agree to membership rules and are eligible for fines and/or strikes if they violate a rule.
Resident management: While not a full property management company, PadSplit does staff a dedicated call center for resolving resident disputes so that landlord’s don’t have to.
Roommate matching: The service empowers tenants to match themselves directly.
HYPE
extravagant or intensive publicity or promotion
According to PadSplit CEO Atticus LeBlanc, “If you believe that we need a workforce, period, full stop, then you have to house those people. Your choices are you can pay for that housing creation. … Or do you want to capture one percent of the existing residential space that’s already created?” This is a core motivating belief that has kept PadSplit committed to moving the needle not only on affordability, but also in alleviating other important tangential issues for its core market. Incoming PadSplit residents that make weekly rent payments on time see their credit scores increase more than 100 points over the first three months—88% of its residents have improved their credit scores. Plus, customers typically save an average of $450 a month on housing and transportation when they move to a PadSplit.
A few trends underlie its model: Bigger housing stock, smaller families, and flat incomes. The platform bridges the mismatch between those trends and balances them by putting more people into existing spaces. It’s far cheaper to bring existing supply online than it is to build new supply.
The PadSplit solution has also unlocked new housing supply at a far faster rate than government subsidy programs—the numbers are staggering, in fact. LeBlanc shared that the country has a gap that’s largely stayed around 12 million units nationally, while low-income housing tax credits from the government have created 3 million units in the last 30 years. PadSplit’s roughly thousand units that it created with no public subsidy of taxpayer money has saved taxpayers roughly $203 million in upfront capital costs alone if those units had been produced by the tax credit program.
Look, we all know deep interpersonal challenges exist in shared living situations. But PadSplit is doing the hard work that no one else will and creating a huge moat in the process. PadSplit is all substance.
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CRYSTAL BALL
a means or method of predicting future events
When people think of communes, they think of Kibbutzim in Israel and ashrams in India. And others think of “cults,” such as Jonestown, rather than communes. Gillian Morris “use[s] ‘commune’ to describe a set of adults living together by choice rather than economic necessity, where any ‘profits’ made are shared by the community.” In that sense, all of a sudden we’re talking about how a massive segment of the population lives in their late teens and twenties, as they move from college housing to splitting pads at their first low-paying jobs.
Clearly, helping landlords place tenants more effectively is the most obvious monetization route. But a follow-on opportunity exists: a SaaS offering to manage communes. Software could help add certainty, convenience, accountability, and credit-building to the dated practice of communal living.
In every shared house, generally, one person serves as the house accountant and rule enforcer. Most groups of roommates aren’t willing to pay to find additional house mates, but I suspect many would pay for a tool that eases their own workload (aka solves the manual mess).
I’m a huge believer in the power of shared living, both socially and economically. It’s the best of both worlds. An operating system for any shared single family residence with roommates is a product I’ve yet to see. In other words, PadSplit should launch the communeOS so that more people can experience the power of shared living—without one person having to shoulder the burden.
Even without a SaaS offering, PadSplit has other intriguing and viable avenues for future growth centered on the power of offering housing-backed financial services to tenants. The company’s mission to use housing as a means to provide overall financial independence presents a unique opportunity for PadSplit to branch into additional financial products (like lending and investing), more robust access to healthcare, and even jobs. Serving as a bank for its customer base by using their rents as collateral is an untapped and incredibly compelling market proposition.
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