Podcast Episode 59 Transcript

Episode 59: Splitting The Pad: How PadSplit Is Innovating Rental Income For Investors

Participant #1:
The decision, a very intentional decision. Several years ago, there was a world where we'd say, hey, you know, we're going to be a very simple listing site. We're not going to be in the weeds, and it's going to be sink or swim. And I don't know, maybe that would have been a good idea. I can't tell you we didn't choose that path. But what we believe one of our core convictions is that because this is different for a lot of investors, because it's a different set of tasks, because it's long term unlike, say, an Airbnb, where if you that experience, you did it wrong. Whatever, you shut it down. They're gone a weekend later. These are long term tenants, right? The average stays about ten and a half months. So if someone moves in, you're not set up for success. Not only are you going to have a bad experience, that bad experience is there to stay.

Participant #1:
Welcome, everyone to the Prendamano Real Estate "PreReal" Podcast. We're joined today by Frank Furman, who is the chief operating officer and founding team member at PadSplit, which is an absolutely remarkable innovation as far as I'm concerned. So, Frank, thanks for joining us today. Thanks so much for having me. I appreciate it. Yeah. I'm really looking forward to this. So maybe we can start just in your words, give the audience an overview of what exactly you're doing there at Pad Split, and then I've got so many things I'd like to question you about. Yeah. Absolutely. So Pads have been around for about four years. We are headquartered in Atlanta, but we've sort of expanded throughout the Southeast and kind of gone from there. And when we are at our core is we're an affordable housing company. We're mission driven marketplace. It's not that dissimilar from Airbnb in terms of how it's structured from a technology product, but as opposed to an Airbnb, that's fractional in terms of time, where you want short term rental and other short term rentals. And so on. We're fractional in terms of space, and the demographic we serve is really workforce housing. So from the landlord side, it looks relatively similar. You take a property, perhaps from an Airbnb, but it's a furnished property, and you listed on our site on our platform, and then it's rented out by the room effectively. And the reason that we've been so successful so far that we've got a long way to go is we generate significantly higher above market yields for investors. So the idea is if you're a renter who's working and we do kind of credit check, income check, background check the whole day of employment verification, but perhaps aren't making enough to really afford a market rent. And obviously those have gone up in essentially every Metro area. You can rent a room for significantly less and save a significant amount of money. And it's a lower barrier to clear in terms of first and last month's rent. And so on. It makes it very hard for people to crack into the traditional rental market. So very clear value proposition for the renter and then for the landlord to make more money. So that's kind of what makes us work. So housing and security is an issue that I think, unfortunately, we're going to just see increasing the pressure is going to increase in the short term and likely the long term because of so many things that are happening in the marketplace. I'm just curious. You've got an engineering background. I understand you served in the Marine Corps, and thank you for your service there. How did you end up with a passion for how do you go from engineering backgrounds and the military to affordable housing? Yes. I think my mother asked me the same question a couple of times. I don't know. Really. I've always been interested in real estate investing. My brother in law, Atticus, is our CEO, so I've known for a long time. This really was his kind of passion. He kind of stumbled into it around 2009. I knew him at this point. I was at that point dating his sister, and he was a commercial broker here in Atlanta, and he's buying up houses. His timing was good, right? Obviously, the market had recently crashed, and he was just renting them traditionally, renting section eight and so on and so forth because the houses were just available for so cheap. So we bought a house southwest Atlanta. It was kind of cut up, and he didn't think anything of it. And two neighbors came by and they said, hey, our house is being foreclosed on. We want to rent rooms in your rooming house. I don't know what you're talking about. Just a house. Well, we'll pay you $100 a week. He's looking at me saying, okay, I got this many bedrooms. I can get 800 from the Housing Authority, 100 a week, four or five bedrooms. And despite his not having an engineering background, he was able to figure that out pretty quickly. And so he did it. And then did another one in 2012. And come 2017 or so. I'd moved to Atlanta that year. The year before, I've been in management consulting and a little bit bored. He essentially had this string of businesses that all been quite successful. But they sort of run their course. And they were kind of running themselves. And he said, I've had this idea kind of kicking around in the back of my mind. And I was very familiar with this business. I've been investing in projects and apartment buildings and houses with him for kind of about eight years prior to that. So familiar with his team and his approach. And what would it take to scale? What would it take to do this? Not as a side hustle, not as a house here there. But how would you do it here? How'd you do it everywhere. How'd you do it across the country, across the world and at the time, and it's only kind of gotten more pronounced since then, these factors have made it even more important. And the conversation around affordable housing, obviously, asset prices have continued to increase. So there's been all sorts of factors that have really been tailwind for us. One of the things that you kind of said, it's perhaps regrettable, but a lot of challenges in our business, lots of things to keep me up at night, a lot of things that are just hard. But the one thing that's easy is knowing that there's just huge, unmet demand. Everyone I talk to across the country and I talk to people all over and they'll say, no, Frank, what you don't understand is here. We have a real affordable housing. Got it. You know, it's true. It doesn't matter. It's in kind of top tier cities. It's in secondary cities. It's in not even in urban areas at all. It's a challenge. I actually got interested in the concept because this is what I did in Grad school. I left the Naval Academy. I was going to Grad school, Johns Hopkins, and I really need about six months, and I needed flexibility. I was a young second Lieutenant in the Marine Corps. I actually felt pretty rich because I didn't really have any expenses. But how do you even do this? How do you rent a room? How do you rent an apartment? And so I rented a room in a house and did it. I saved some money and it was flexible terms, and it was furnished. And it made a lot of sense for me and where I was in life. And then you get a little older and now married. I have three kids. But you think, hey, the mechanism that I was perfectly capable of using at that point in my life isn't open to a lot of people. I was a student and relatively high social network. So on. I had a very short haircut. There's a being clean cut. And for some reason, if you're working in a manufacturing plant or as a security guard, those options aren't open to you because the market just hasn't kind of met that need. So how do you make that opportunity available to everybody? I think it's really interesting. You hit on a couple of things there that are just core to what we're doing. And I think so few get this piece of it being in the real estate business. Now, I don't care what side of the real estate business you're in, but if you want to do anything in scale or anything significant, we've had to become a tech company over the last ten years. It used to be we would seek out the best deal makers. And of course, you need the best deal makers in a transaction if you really want to drive value on one side or the other. But we had to become marketers pretty quickly. And considering this digital age that we're in, that meant that we had to become a tech company. We went in and we brought a CMO and came over and spent a bunch of time at Apple, and it profoundly changed how we do business. There's an adaptation period, and there's a bit of a buy in period. But once you get the systems kind of rolling, you need technology in basically every corner of your business to scale. So to frame the issue for folks, I thought maybe we'd spend a couple of minutes talking about what those kind of tailwinds are that are creating this demand. So from what we've seen, there's several factors, one, at least where we are. There's been a big push against any up zoning. There's been down zoning everywhere. Legislative threats are abound where the elected officials are focusing on less density, which means bigger, lots less vertical housing and just far less units per acre than existing zoning or previous owning. We've been through multiple iterations of these down zonings. And as you go through those down zonings and the homes become bigger, they become more expensive. Right. So your product is in volume, dropping, prices are soaring, and then you sprinkle in these interest rates, which have been just absurdly low for so long. The housing prices just continue to soar, and wages are not matching that. And that creates this crisis where we just simply don't have housing that is on par. I think it used to be like 25% or 30% was what average folks were spending on rent. And from what I've read recently, it's as high as 50% of their income is being spent on their rent. It's completely untenable. So to build affordable housing, at least up here in New York, it is an extraordinarily specialized field, right? You have to be able to have access to the powers that be. You have to be able to negotiate very complex tax credits and grants and subsidies from HUD and other governing bodies. Many times you have to go through a lengthy approval process. And on top of that, oftentimes, if you've gone to the city for assistance with zoning and with credits, they want to require Union Labor, which drives prices way up. And it becomes this model where so few are able to do it, that you just don't have the production in any kind of scale way. So what you guys are actually doing is you're taking now, could it be a home? Can it be buildings? Does it matter what the typology is for the housing? We're totally agnostic. Most of it actually isn't single family homes, just because that's the best yield for investors. But we're a multifamily for us. It's a matter of you need to meet code. You need to have a face, but we're agnostic where it's how it's zoned, what kind of structure it is. So we're seeing companies follow the path of the decentralization of real estate that I keep bringing it up. I've been talking about it for five or six years, and we're seeing it in a major way. Now, companies like Did Go West and Blackstone are pumping billions of dollars into the single family home market. Is that your client? Are you working with the funds, or is it Mr. And Mrs. Smith both, and hopefully a lot more, both, to be honest. But we have clients that are those Wall Street back funds. Absolutely. And they're looking at their business and saying, hey, I've got a relatively low yielding assets that depend on appreciation. And how do I boost those yields to a long tale of absolutely kind of mom and pop retail investors who have a side hustle for them. They've got one to five properties, and this is something they're doing on the side. So yeah. And everything kind of between. So again, we're relatively agnostic to it. And our view is it can work for either type of investor. All right. So if we can, I'd love to walk the audience through, and I'd love to learn it myself. Candidly, can we talk about from start to finish? You know, I have holdings. I want to go ahead and rent out the house or the multifamily building. Let's say let's start with a three bedroom home. I'm going to contact Frank and your company. How do I do that? Where do I start? Yes. I mean, as far as for contacting me. And that's great, too. I'm just Frank at PadSplit. Com. We're not too inventive. So you can reach out directly if you don't want to talk to me. And there are many people who fall into that camp sales at PadSplit dot com. Right. The Royal, you can come to me directly. I'd be happy to handle directly. And it's an interesting point because unlike maybe an Airbnb or something, we get very involved with investors, even pre acquisition. And the reason for that is that this is a challenge. We're going to go through the steps and so on to some rocket science. Exactly. But it's a new kind of model for a lot of folks. It's a different way of looking at properties and a different way of looking at management and renovation and so on. While none of it's complicated, there are a lot of moving pieces. So for us, our growth lever is investors getting good outcomes. When that happens, they tell their friends they add more properties. We're maybe not all that good at sales. We're good at driving yields. And that's the only way we get to grow. So we get involved very early and not a day goes by that I'm not working with investors saying, hey, I like this property or I don't I like this one because it's on a corner lot. It was more street parking versus this one is on a cul de sac. So it is less and we'll get to that. So again, we get involved very early on with folks. But the way that it looks like from the investors point, you come and talk to someone at Pad Split or what have you? And really, again, we're usually looking at either assets you already own or assets you might want to buy. But let's say you already own one. You know, we'll take a look at it desktop research and say, okay, you've got this three, two in this zip code. What do we think about and do a quick assessment? We have an earnings calculator on our site. We essentially build a pro forum with you to say, hey, is it a good fit or bad? That is a big mouth and so on. In terms of what an investor is looking for from a buyback perspective is we tend to like larger homes that can get to more bedrooms because that'll increase your yield and make it more profitable for you more affordable for the renter. Obviously, you need to have a certain threshold of bathrooms as well, because you can't have ten people share in a bathroom, at least not successfully. But we like a little bit bigger. We like to be close to employment centers or public transit very important for us. And there's a little bit of an art and science to say, hey, here's a property. Hey, it has great street parking or it's close to public transit or, hey, there's parking around the back. Those are the kind of things that make it a little bit easier for this model, because again, in terms of how you want to look at an asset, that's a little bit different. If you're going to have more people, you could have more cars if you don't want your neighbors to be walk around pitchforks mad at you. It helps if there's easier parking situations or fewer cars. So planning factor from that. But again, larger close to public transit or urban areas. And we kind of go through that whole process with folks build a pro forma, let you get a view of what your net operating income is going to be to see if it's a good fit, if it's the highest and best use. And again, that's part of what we do, too, is oftentimes telling people, hey, this property would be better or something else pursue your highest best use. So we get involved with that part, and then the investor commits or decides to buy the property. And that's great. We have a preferred vendor network both of brokers and general contractors and property managers and all the markets we're in. We're obviously always looking for more, but oftentimes are referring folks to a general contractor who understand the process, or in other cases, are working directly with the general contractor to help them think through it. And again, nothing cosmic on the renovation side. Most of what we recommend folks, and we have documentation and spec sheets and so on help folks with the process. But a lot of it's. The same things you should do for any rental property you want solid surface flooring and all that kind of good stuff, neutral tones. You don't be too adventurous. You want to be easy to clean, easy to operate. But some things are different. Right? So a good example is around utility. So part of our model, just like for Airbnb, is that your utility costs are borne by the landlords. You have to bakement at the price.

Participant #1:
Okay. How do you drive down those costs? So it could be more affordable for them. More profitable for you. So we're very involved in thinking through. Hey, you want there's a Niagara one point, 25 gallons per minute shower head on Amazon. It's $8. Buy it your fastest payback investment hours. Go do it half gallon per minute aerators in the faucets. You want a smart thermostat that you lock with a pin, because if you control the thermostat you're controlling HVAC, you're controlling most of your electricity bill. They're talking through folks with that, which is just it's not in most investors muscle memory to think through utilities and how you drive that down. That spend. Because typically tenants are paying that bill. We're quite involved there. And hopefully helpful through that process also had to divide up the property. Sometimes it's as easy as hanging a door in a case entry. Sometimes it's putting up a wall to turn a living room into a bedroom and so on. So we're all about showing folks how to capture and monetize underutilized space. And kind of our point around housing is most houses were built with the family in mind, and room rentals are buying something else. Right? What they're willing to pay for what they value is a bedroom, a share of a bathroom, a share of a kitchen to optimize around those revenue generating units and not around extraneous things that don't generate revenue. So you really want to kind of boil it down to that. That's where we kind of fit in. So again, oftentimes we're either recommending a general contractor working with the general contractors so that the investor can be successful and same thing from there. So we kind of walk people through the process, help out where we can help them with the listing. Creating a listing is very similar to doing what you do with Airbnb upload pictures. You set prices relatively straightforward, and then our platform is set up to help Host manage the actual property. And the way that it's broken down is what we do for Hosts is we talk about the four P's, right. So the first P is payments. We do all the payments, all the collections. So any conversation around money. Hey, I need an extra day or hey, I want to talk about my late fee, all that handles. We have a whole team of folks who are doing that call, text, email so that we do we do all of the lease, the second piece is people. Right. So anything getting them in the door, all the lease marketing screening. Again, we do that. Credit check, background check, income verification, pulling verification. Any of the interpersonal stuff? We have a 24/7 call center. So Johnny ate my peanut butter. Sally looked at me funny. Those calls come to us, and our team is really trained to deescalate those situations. Hey, have you rated Johnny? We have a rating system. Have you thought about transferring sometimes that's the release file that's needed. And that's one of the benefits of having a network of these properties. So we know that anything on platform related. Third P. So I forgot my password. Obviously, that comes to us. And then the fourth piece is property. That's what is essentially on the host. Right. So we have a ticketing system within our platform. It's made into our platform. So if there's a leaky sync, someone submits the ticket. Everyone else in the house can see that ticket. You can correspond on it, dispatch people and so on. So anything that touches the property is the host responsibility, again, very similar to Airbnb. And that's how it works. And obviously, we have a customer support team that supports our host network through that process as well. So if I'm catching this correctly and actually, I'm pretty surprised at the level of involvement, this isn't the site where you go and you just upload some pictures. There's quite a bit of support that's coming from your end here. Exactly. Yeah. I mean, our view is we made a decision, a very intentional decision. Several years ago, there was a world where we'd say, hey, we're going to be a very simple listing site. We're not going to be in the weeds, and it's going to be sink or swim. And I don't know, maybe that would have been a good idea. I can't tell you we didn't choose that path. But what we believe one of our core convictions is that because this is different for a lot of investors, because it's a different set of tasks because it's long term unlike, say, an Airbnb where you have a guest, that's a bad experience. You did it wrong. Whatever. You shut it down. They're gone a weekend later. You're not dealing with it. These are long term tenants, right? The average stays about ten and a half months. So if someone moves in, you're not set up for success. Not only are you going to have a bad experience, that bad experience is there to stay, and it's bad for them. It's bad for you. It's absolutely bad for us. So we made the decision to say, look, we're going to lean in very heavily to ensure especially early on that hosts are successful. And it'll mean saying no to business. It'll mean getting more involved than we'd like to sometimes and taking some risk on referring vendors and getting involved. And being a little more customizable would like to be fortunately, we've been really pleased with the fact that none of it. Again, we've developed a lot of expertise around it, but our hosts are smart people, too, and they figure it out. And you work with folks on how to do it. They learn they innovate, they kind of put their own twist on things. They try and deliver a superior product because it's a marketplace. And oftentimes we were probably too concerned early on. That host wouldn't get it fast enough, and we needed to really kind of inspect and check. And the thing is because people vote with their wallets. Most coasts are pretty savvy about saying, okay, well, what are people going to like, how am I going to please my customer? And if I do more of that, I'll be rewarded. And if not, I'll be punished. And they kind of go from there early on. We really like to lead in. So are you outsourcing a bunch of this stuff? Do you have VAS that are handling a lot of this work, or is this it's essentially all in house? And we do have some overseas folks on our customer support team, and we do have an outsourced call center for more kind of transactional calls and so on. But we have a US team for escalations. Our host side is all us based, so they're all over the country now because we're in a couple of markets. But no. Again, when I say emailFRANK at padsport. Com because it's coming to me, no one else is looking at that email, I hope. And we get very involved with our hosts. And how long is the average stay for a guest or, I guess tenant in the room. Is this a three month or three year or three day? The average is about ten months. So some folks are a little bit shorter. One of our kind of key insights that we had early on was that having the long term commitments isn't super helpful for a lot of these folks. If anything, part of the value proposition is having that flexibility. Now you commit to a month up front. But our view is that sometimes it doesn't work out. Workforce housing, you have job turn. People can lose their jobs. That can happen. But having a long term lease doesn't give you a lot of security. So it's better to say, all right, hey, this didn't work out. Let's move on from this if there's an issue, but if you're providing good product, people stay. So we've had folks with us for years. How is the institutional debt market receiving this? Are people able to refinance, cash out and stabilize? Absolutely. It was definitely a struggle for the first year or so because lenders like to see things inside their box. They'd rather see $1,500 on the first one, $500 on the first one year lease, so on and so forth. And here we are because it's weekly payments because you might have five of six rooms filled and then six of variable payouts. And so early on, lenders really kind of pushed back. But what they saw was the debt service coverage ratios were so much higher that it's like, okay, well, you want to see one $500 on the first. What about 30, 215 and $0.65? Does that bother you? What if it's 35, 23 in the second month? So we've been really fortunate and we put a lot of work into it to build out a network of lenders who get it, who are comfortable with it. Obviously, we have to put in the work and prove it over time and share a lot of data, which is fine. But it's at the point now where if you want to get long term debt, it's very easy. And unfortunately, the good side of having really low interest rates is that all the lenders are hungry and they're chasing yield and they're dying to push out money. So that hasn't hurt either. So I have ten properties with Pad split, and I want to go for a portfolio or just a simple house refinance. Right. And the bank's asking me for all these documents. Are you guys getting involved in that process? Am I referring them to you when you're producing a report, or is that a concierge level service? We are oftentimes getting a little bit involved. The reporting on our platform is typically sufficient for what those folks are trying to see, but we are sometimes getting involved. So, yeah, that's something that we'll do, especially around the documentation, because people have a lot of questions about the lease. Again, I'll talk to Appraisers from time to time. I'll talk to lenders on behalf of hosts. So when those questions arise. Okay. So if we could spend a couple of minutes on the payment waterfall from the tenant. Right. So the tenant is paying Pad split, and then Pad split is paying the investor. Exactly. Okay. And are they paying you guys? The tenants are paying you guys through a credit card portal or cash or check or what does that look like? It's all electronic through our platform. We have a third party payment processor software that we use, but all electronic payments, credit debit ACH they pay on their dashboard in the app. That kind of thing. And what we're really doing is just aggregating all these payments because average house is six or four bedrooms. You have six or so people paying foreign change times a week. You're talking 2030 payments a month. So what we do is we roll that all into one payout at the end of the month for investors. So that's kind of what we're doing on our end, and we take a percentage of it. And are the tenants on any Voucher programs? Are you guys taking subsidy or is this so that is a really interesting question. I actually met with the Secretary of HUD about a year and a half ago, about this very issue. And HUD actually recently released guidance based off that it was more than me in that room. But on that conversation, and the fact is, there is no federal restriction on using HUD funds for housing choice vouchers, but it is up to the local public housing Authority. There was some guidance in that document, which is again published a couple of months ago about how public housing authorities ought to pursue shared living and subsidies. There are some operational challenges to it candidly. I mean, the tools for how you price rooms are different from how you price houses. There's an experience there, how you would run inspections a little bit different. But we're quite bullish on getting a pilot together with the Public Housing Authority soon. There's a lot of demand there. A lot of cities have long waiting lists. They're very strapped, and singles are the hardest demographic for them to serve. And that's kind of our bread and butter. So rather than doing a full apartment or house for a single, which they're loath to do, you could do a room. And that would obviously be a lot more cost effective. But today, other than our network of nonprofit and corporate kind of sponsors who will do some rent assistance for folks, we don't have any public subsidy through housing choice sponsors or anything. Okay. So I applaud you for being in the room with the decision makers a year ago on this because, again, technology is disrupting the markets so quickly. And folks that would have access to subsidy, right. But can't find the traditional housing stock as these funds are pushing in and buying literally whole neighborhoods up. It leaves people in a bit of alert. So I'm happy to hear that that is in the works. And good luck with it, because I think that's a game changer for you guys. As that kind of shakes out, I have so many questions. So who's setting pricing? I'm here in Staten Island, and I've got holdings up in Holmesdale, right? And Jessup, two completely different markets. How do I get a quick sense of this is what it's going to carry here and our amenities a factor in that. Is it very house specific? Yeah. Down to the room. The individual rooms are being priced. We have a pricing tool native on our platform that pulls from a number of different data sources, including other rooms that are local. So again, if you're pricing a room in Atlanta, where we have a couple of thousand rooms, it's got a pretty good idea, right? It has a huge data set.

Participant #1:
Okay. We don't have any rooms in Staten Island yet, so we wouldn't have that. But what we pull from other data sources, including kind of fair market rents with HUD and so on, we give a price suggestion. But the pricing itself is on the host. Oftentimes we were asked to help, and we will talk through strategy and so on. In new markets. It's a little bit tougher because it's a little bit less established. You don't have the same robust data sets like you do for traditional rentals or per, say, hotel rooms or that kind of thing. But it's really on the host. Amenities do matter. But honestly, the biggest amenity is private bath. So that's about a 30% to 50% price increase, because that's what people care about amenities beyond that even size of the room. So on or matter less for folks. But location obviously matters a whole lot. Someone that's right on a bus stop or better neighborhoods. It's like anything else, but we have a supporting role there, but it's up to the host. And then we allow for price adjustments over time for folks, because sometimes underwriting is not easy. Sometimes you're with a little bit. Your utilities are higher than you planned or what have you. And they can change over time. So we have some constraints built into our system. You can't up someone's rate on the second week or anything. You wait a few months, you have to give a month notice and so on, mostly for just fairness and compliance reasons. But we allow folks to adjust over time, too. Okay. So you had said essentially, ensuites or one to one ratio is 30% to 50% premium. If there's a private bath in the bedroom, can you talk a little bit about when do we start getting into diminishing returns where you have issues with tenants? Is it three bedrooms to one bath? Is it two great questions. So, yeah, there's a few in there. So one is we mandate that you need to have at least one bathroom for every four bedrooms, so you can have a seven. Two. That's fine. But if one of those is an en suite, it doesn't fit. Right. Because then you have six sharing one. So that's one constraint, really where you tend to get to it is around using the kitchen. So there isn't an exact number. It depends a little bit on the size, and you can put in a second fridge. But at some point maybe it's nine bedrooms. Maybe it's ten. What have you and some properties are that big. You get too many people sharing a kitchen and it gets messy. It's hard to tell who did what to whom. So that's definitely one topic that kind of gets there. But I mean, other diminishing returns that are maybe on the easier side above a certain size. Room size doesn't really help you really above, about, say, 120 sqft. No one's paying for extra space to have a yoga studio or anything. So it's really kind of it's a rental. No one's buying. So that's pretty reasonable. But, yeah, there's a few things. Every property is a little different. Now. We have folks who are doing built to rent, even kind of retail investors who are doing it at scale and building it out new. And those are all the same floor plan, but for the most part, our kind of background was doing rehab. So every house is just a little bit different, and they look a little bit the same, but they're all a little bit custom. So what are some of the notable markets that you are in and what are some of the notable markets you're not in currently? Yeah. Well, notable that we're not in, I suppose it's New York. But today we're kind of all across Georgia, Atlanta's, our flagship market. We're in 15 or 20 counties a whole lot. We're in Florida, kind of Jacksonville to Tampa, kind of that whole swap there. Texas is a big market for us. Houston, San Antonio, Dallas, we're in New Orleans, we're in Richmond, Virginia, we're in Indianapolis. So we're kind of over the next couple of months, we will certainly expand in all those markets, and we're very active in them. But we will be adding likely North Carolina, probably Vegas, Phoenix, Ohio, probably Chicago, Minneapolis we're looking hard to mid Atlantic. I'm from Philadelphia originally. We're taking a really hard look at Philadelphia kind of Baltimore, New York is a little tough candidly, for all the reasons you mentioned before, it is not the easiest place to be a landlord far from it, and it's pricey, certainly in the city. So it's a little bit harder to make the deals pencil. So that will be a tough one for us. Same could be said for much of California, where, again, tons of demand for affordable housing. Some of that is because it's such a hard place to be a landlord. Obviously, there's some cause and effect there. But California, we're pretty bullish on parts of Southern California. We think we can make it work. We expect we'll probably be there at some point next year. But today we don't have anything in California, even in the pipeline in general, we're focused on kind of the Sun Belt in the Midwest, just because that's where the highest yields are kind of the most regulatory friendliness. And they're kind of the easiest places to get going with investors. I assume that the regulatory nonsense in New York is one of the big reasons that you've stayed away. And quite honestly, why we're seeing this continued decentralization out of these major cities. Yet it's a place where we need something like this just desperately because there's just an awful shortage of affordable quality housing. We're in the process of starting a fund up that is going to run a pretty wide gamut from entitlement plays to we're trying to identify underutilized assets in emerging markets. Right. So we've kind of got our secret sauce. And some of the things I've seen recently with Coronavirus is a lot of the smaller, like, B and B's and a lot of these smaller motels just got absolutely crushed. Right. So we're able to pick up these deals. I just literally looked at one yesterday and for the energy, even with Airbnb for the energy to get, because hospitality is another animal, right? That's a whole another ball game. But there is an opportunity where you've got facilities, and in some cases, it's even a commercial kitchen. In some cases, we've seen efficiencies where you can actually Cook right in the room. If we were able to pick product up like that where you had these small kitchenets right in the room. Does that play for you guys, or do you need the traditional housing stock? No. Absolutely. I mean, we've looked at a lot of similar types of deals, whether it's kind of small apartments, the sort of sub scale, sort of too small to have onsite management jobs or even motels. So, yeah, similar. We're seeing a lot of the same things in the market. And the fact is that's a really compelling value for a lot of folks because they don't even find a space to want it. It's great to have your own bathroom and a space to Cook, but you don't have to do yard work, and you don't have to worry about this or that. And location wise, they tend to be just off the highway with parking and all those things. There's a lot to like about. So no, that's absolutely feasible. Okay, so obviously this is very market sensitive. So let's assume we're talking about one of your Premier markets, Georgia, Florida, Texas, New Orleans, Indy. Give me an idea of occupancy rate and default rates. Yeah. So our Occupancy rate, we average in the low 90s once things are stabilized. So we target filling up every house in 21 days. Don't always quite get there. In Georgia. We're a little ahead of that. Houston a little behind, so it can be market to market. But our view is we only get paid when we fill them up. So that's what we pride ourselves on. So we keep things in the low 90s as far as kind of bad debt or collections rate, or however you want to think about it, we generally average about 96%. 97% collections rate. Now that's inclusive of late fees and so on. But our view is we want to be able to underwrite really low income folks to a high income middle income standard. So we work really hard on that front. It doesn't work for every single person. But part of the point is you diversify across a larger group of folks, and even when one falls short, other folks are kind of doing fine and making it up. So, yeah, we're about 98% 2021 for collections rate. So pretty. That's absurd. That's an absurd rate. Clearly, they don't put me on the collection team because I'm either too nice or too incompetent, but we've actually like good people on it. I suppose now the best performing managers in the country never sniff that kind of rate ever. Yeah, we put a lot of work into it, that's for sure. Some of it is if you think about a big. Not that we invented this per se, but we're very customer focused. Not so much in saying, okay, how do we think about the space and so on? But collection is a good example where landlords, they want you to pay on the first because it's easy for landlords, right? It's easy for accounting. It's what the banks like to see and so on and so forth. But it's a very customer focused, especially as you move down the income ladder. We go weekly because one, you keep on people. But two, it's much more intuitive for folks. So when is the first of the month? I have no idea. But When's Friday? Well, I know that's tomorrow I get paid off Friday, get my bill on Friday. I pay it by Sunday. Okay, great. It's much more intuitive. And we actually build out the software to allow folks to move their payment date to their payday if they so desire. So if you get paid every other Wednesday, you can get billed on every other Wednesday. That's fine. That's some of the flexibility we build into it. And the idea being how do you make it as easy as possible for people to pay and the most catering to them rather than making it easy for landlords? Now, then, of course, we aggregate incentives of the landlords in one bill, but, yeah, it's kind of shifting it around to be more customer focused. Now, I assume you guys are dabbling in or certainly I'm sure you've contemplated it because I'm really blown away at how thorough the platform is. You're helping tenants establish credit. You're giving them the opportunity to report. Yeah, we teamed up with a company based out of New York called Suzu that does our credit reporting for them. And most of the folks who are in our houses are not necessarily bad credit, but oftentimes no credit thin file sort of folks. Many are unbanked. And by teaming up with the Suzu, which is a team we've known for a long time, they actually just raised their series a really good group of guys because you're paying weekly. You're actually getting four data points each month or four more. So for folks who don't have much of a file, they say six months, you're talking 26 rent payments effectively. And so we're seeing average credit scores really go up quickly because you have this long track record and many data points much more so than you would for normal renting. So it's part of our value prop to the members, the residents. So just to explain to the audience because you and I knew what we were talking about, but for their benefit, what Frank's referring to is as these tenants are making their payments, their platform is actually reporting to Experian Equifax and TransUnion payments on a weekly basis to help some of these folks. Honestly, it helps them pathway to home ownership, because oftentimes they don't have a lot of credit, and by making those payments weekly or bi weekly, however, it's being done for that individual residence pad split is then reporting to the agency that they're making the payments on time, thereby bolstering their credit score, which again, you guys have really covered the gamut here, and I'm Super impressed with the platform. It's a great benefit if a tenant is in. I know you mentioned 21 days for a lease up. Typically, if a tenant is in for their ten months or twelve months and the house has been vetted already, you've turned folks over. What is the typical downtime from a tenant vacating to a new tenant being in and paying typically less than two weeks. So essentially, what happens from a product perspective is I'm living in room two in one of your properties. I decide, hey, I'm moving. I'm getting my own apartment, whatever. I select my move out date in the future, right? So I'm going to move out in two weeks. Will you get a ticket in the platform that says, hey, you got to go turn room two on whatever the 14th. Okay, fine. So when that gets done, it gets relisted. And the room terms are very simple. And that was kind of also one of our early insights that in traditional rentals, you think you're making money, you think you're making money, and then your tenant leaves after two years, and you say, oh, I got to dump four grand in this house to repaint fix this and do the fridge maintenance. And I'm going to be down for two months because I'm going to fix it for a month. I'm going to do a month lease up, and I'm not making any money for us. You're only turning the room, so you're not really touching the common areas. You're very rarely doing anything paint whatever. It's much more fabrise and swifter change a mattress cover than a rehab. So usually the room turns take an hour and are done by a maintenance guy. Very simple. So they cost $$50 to $75. It's covered by the movement fee trying to go from there. So then it's just a question of okay, now that I turn the room now, it's realistic the same day as soon as I click it to reactivate it in the platform. We have rooms in Atlanta that have been booked for moving the following day. But on average, most people move in. We let people book a room up to a week out, so there's usually a little bit of time while they're waiting for their move in and so on. But yeah, usually it's filled pretty quickly and the eviction rate across the portfolio. When you have someone that's knocked performing or yeah, it's a great question. Precovid. I would have said we don't really even ever VICT people. I think we had one precovit, and I don't want to go too far down the rabbit hole. But eviction moratoria collectively have not been super helpful to us or landlords or anybody in my mind. Well, these are Anomalistic time, so let's focus. Sure. So yeah, the way to think about it is we've always framed occasionally, an Eviction is needed. Right? You need to do a formal Eviction and go through the courts. And clearly, that's one of the challenges of moving into a market like New York that is much less landlord friendly than, say, a Georgia or Texas or Florida. And Evictions take a whole lot longer and a lot more expensive in the many other cases, because we have folks who fall short. That's the reality of working in low income house. You can pretend that it doesn't happen, but it absolutely happens. It happens all the time, usually for collections related reasons, occasionally for behavior, but usually for money and what we do. And this is again, something that our collections team is doing is we have what we call an easy way, hard way conversation with everyone say, look, we're all adults here. Door One, it's your choice. Door One, we shake your hand. No hard feelings. We don't send this thing in. You need an extra day, not a big deal. It's fine. We have a whole suite of support services for folks. We can refer you to support shelters, that kind of thing. No big deal. This won't follow you. It won't be on your record part as friends. Door Two file for Eviction in again, the States that we're operating in, it's just a question of time. And usually it's pretty quick. Again. We've been in anomalous times, but usually it's going to be pretty quick and we're going to send it to collections. You're going to get a dispossessory. This thing's going to chase you. And every time you try and get an apartment, this is going to be on your record and you might get turned down. You want to get a job. This is going to pop up. So again, it's your choice. But whatever. And most people are pretty pragmatic, right? And I think if you treat them as adults and make it their choice again, some people they want the hard way that's life. But most people look at it and say, Look, I need an extra 48 hours and say, okay, let's do that and let's shake hands. And that's fine. So that's how we've always approached. We've had a lot of success with that method. Again. The last year has been a little bit harder on that front with Moratoria, but we're pretty confident that that will kind of get back to being more, but we're talking lower than single digit percentages. So again, it figures heavily in my mind, and every time it happens is amiss, whether it was screening or dysfunctional or just bad luck. But it does happen. So we have to be prepared for it. We've paired with a kind of national eviction service for hosts so they can kind of not have to deal with it too much folks that don't want to deal with it. And who's handling the filings is it just referred to the landlord. We've partnered with this company that will do it for the landlord on their behalf, but they're handling the filings, and we will liaise with them on the documentation. And a miss is a miss. Risk is inherent to everything. It's certainly speculative real estate. And if there's a miss, I assume the landlord bears 100% of that expense, and it is what it is correct. That's right. Okay. So I'm wondering if there's a rating system or is there a way there's different investors have different appetites for risk. Right. So I have holdings in state out of state. I tend to be more risk averse when it's out of state because it's not in my backyard. And I want these things to run as efficiently as I can. Are there rating systems where I can say, hey, Frank, this is an asset. I don't need every dollar out of it. I'd rather have someone with you that's tenured that's been with the company for years that's moved from place to place and has a good record. Is there a record for landlords and tenants? That's a great question. The answer is today no, we're working on a beta roll out of something that would effectively let you do that and adjust your screening criteria for folks today, our system does not do that tangibly, but I think within the next year, we'll be rolling that out where you could effectively set customer limits for our customer requirements. For that. To some extent, you can use costs for that as a proxy, but we prefer to be a little bit more customized in the future. Interesting. And what happens do you deal with I know singles with a preference, but there must be instances where there are families. Right. How do you treat that? Really not today. We're singles only. We have done couples and with kids in the past. But really, while we do have a few that have been sort of grandfathered in that have been with us for a while. We neck it down to just singles during COBIT and tend to keep it kind of permanently. In our view, is there's huge demand for singles in the marketplace? It's kind of the hardest group for folks to serve. And, yeah, it just makes everything a lot easier in the houses. And again, one of the questions that I oftentimes get from investors is all these people in the house. I bet you have lots of fights. And the answer is not really not relative to my traditional rentals, because people fight. But husbands and wives fight. Boyfriends and girlfriends fight people who know each other and care about. My two sons are fighting in the other room like savages. But strangers don't fight. They're petty and weird and passive aggressive. So introducing couples or children introduces a lot of risk on that front for the host, the landlord. So we try to derisk that as much as possible. We're singles only. So when I'm building out my pro forma for a property for you guys, what kind of an insurance increase do I anticipate? Depends a lot on the market. So in Atlanta, we build a couple of relationships where with investors or with insurers who really don't charge much of a premium, you know, maybe 100 or $200 a year, something relatively minimal, because from their view, we've got a big portfolio here. They kind of get it. And the risks are kind of the same. Right? So your risk of Hurricane or hail or what have you a tree falling down, hitting the house are independent of use. Houston, Florida we're a little bit newer in those markets. It depends a lot on the insurer, but many are just looking at saying, look, this is a rental. If there's a criminal act between two people, we're not going to be liable for it because it's criminal act between two people. And that's always been the big concern. But in general, insurance rates are really comparable to just traditional kind of investor policies. And what are we putting keypads on each door to ensure so not only interior doors, we recommend, we're agnostic in terms of our platform. You select the lock type. What I recommend, just as someone who's done it is smart lock on the exterior door. So you want to keep that lock so that you can control access to the code, that kind of thing. But on interior doors and it's a little bit counterintuitive. I actually prefer Privacy locks with a door chain. And the idea is, you have these houses hollow core doors. Anyone could get through them if they so desire. And the idea is, if you have, we've done everything. We've had keyed locks. We've had punch pad locks. We've done all sorts of things. And what we found keyed locks are a huge problem because people lock their keys in their room all the time and then inevitably happens at 02:00 a.m.. On a Friday, no one's happy. So that's kind of a bad idea. People have done it. I've done it, but it's a bad idea. Dead bolts are, in my opinion, against code in most places and are a fire hazard. And certain jerseys like New York City, for example, you can't have locks on interior doors. Not that we have any New York City at the moment, but I like Privacy locks because we found again counterintuitively that it actually makes the houses work a little bit better. So the idea being if you and I live in a house together and I've got a deadbolt and three locks and I've got my own safe space, I can kind of be a jerk in a common area, and then I've got my space and I can lock it up. Whereas if I don't really have that, we need to work out our differences as adults, and I need to kind of be a Kindler, gentler, more compassionate human being. So we found that those houses tend to be a little bit cleaner, be a little bit, operate a little more harmoniously. I still like the door chain, mostly for female members. It gives them a sense of security that, hey, I've got a backstop here and so on. That's a little bit more secure, which I think is totally reasonable. But it kind of forces people to say, hey, I'm in this. I have to solve this as a group rather than as a person who has my own space. Okay. And I'm sorry, I'm rapid firing here. This is fascinating, and I'm trying to be respectful of your time average increase in utilities. Have you tracked that at all? That's a really good question. I could give a general cost. You're going to have higher spend than

Participant #1:
certainly. Most landlords aren't even thinking about what the increases because they typically aren't paying utilities, or if they are sometimes maybe water an apartment or something like that. But utility spend tends to be several hundred dollars a month in single family homes. But because you're controlling the thermostat and because you're putting in low flow fixtures tends to be relatively controlled. Some houses are a lot better than others. We see a pretty wide level of variation. To be honest, part of that is just due to construction methods. Some investors are much more conscientious about, say, air sealing the property or actually checking the insulation in the attic. And others are not to be clear. But yes, we have a tool that underwrites for each property that pulls from different municipalities, but it's typically a little bit higher than, say, a family were there just because you have more folks, more showers and so on. But I have six people living in my house right now, even though my kids maybe don't bathe all that much. We have a pretty high utility bill, so I don't know. And you see a lot of local variation, even just here, you cross the county line and your water bill to double. Now, do you have to provide any type of laundry service in the unit? So we recommend it's part of the listing. But we recommend having a washer and dryer in the property not required someplace. We have apartments that just aren't hooked up for it. That kind of thing. Not a big deal. It just needs to be in the listing and accurate, but it is something that people value having it there, but not in terms of, like a linen service or actually doing any of that. And linens are not provided, and some of that is for tax purposes. So, for example, in Georgia, if you provide linens, you have to pay hotel tax, and that would be bad. No linens. People bring their own linens, but hosts aren't doing any laundry for anybody. They're not doing towels or anything like that. It's on the members in the house, but usually a washer and dryer are on site. And how about cable bills? Is it traditional standard cable package is the deal? Yeah. So what we found is just WiFi is provided in these houses. So cable is tough because you've got the boxes and all these different things, and it's a pain. So we don't do cable. If someone really wanted to, we wouldn't stop them. But our recommendation is WiFi. That's enough for most people. And the thing is, people aren't moving in. They're furnished units, so they aren't bringing in a ton of furniture or anything else, or they're not allowed to bring in furniture. So people aren't bringing in TVs typically or that kind of thing they can watch on a computer, an ipad, or if they have a TV. That's fine. But we say, hey, get a fire stick, get a Roku, get one of those things and use the WiFi. Cool cost. What is the cost to the landlord? So we charge a percentage of revenue. Now, I guess we'll take it. Obviously the cost of the asset is the cost of the asset. That's part of our team is designed to do the pro forma with you. And that kind of thing, obviously a lot of market variation on that. But again, you hear me say, Airbnb a lot. It's because we copied a lot from them. They're worth a bit more than we are. To be fair, but we're trying to get there, but we do exactly what they did. We take 12% of revenue, which we took from them. So again, there are no listing fees. There's no set up fees, implementation fees. Emailing me and asking me to walk a property is free. Usually I'll walk them. That's also free. But yeah, we take 12% of revenue. And how does someone become a preferred vendor for you guys? Very simply, we have a staff that is doing that outreach and training. If anything, we're seeking preferred vendors more so than they are seeking that certification. So if someone is very interested in doing this and being a general contractor who does pad splits or property manager or lender or insurance company, you can reach out to me, and I put you in touch with our team. We're always eager to grow that network and grow that ecosystem. So is there a way as an investor, I can connect with you guys and find out where you have the highest demands. If I want to go target some assets and try this out, is that data available to me? It is. Yeah, we can have that conversation. No problem. All right.

Participant #1:
This seems like a hell of a program. To be honest, I love the innovation. I love the leverage of technology. It seems like you guys have really fully baked this thing out. And I think with where we're headed, especially when this bubble bursts because it's bursting. There's going to be really huge opportunity in this space. So I wish you guys absolutely continued success and best of luck. And if it's okay, I would like to reach out to you offline and just see if we can coordinate on a few of these markets and see if we can give it a try. Absolutely. That'd be great. If you could just one more time. Just the best way to find the platform or you if you'd like, how do people find you? Best way to find the platform is PadSplit. Com. P-A-D-S-T-L-I-T. Com. You can set up an account. If you do so, one of our sales reps will reach out to you. I promise. Or you can reach out directly to me. And I'm just FrankFrank at PadSplit. Com. This was great. I really appreciate your time. Likewise, thanks so much for having me. Best of luck. Thanks. All right, everyone. As always, stay safe.

Participant #1:
You.