What if a resident’s credit score doesn’t matter nearly as much as you think? What if you could actually increase profit by creating “shared housing”? And what if you were helping to create affordable housing in the process?
In this episode, we’re joined by Atticus Leblanc, the founder of PadSplit. Atticus has been an affordable housing advocate and investor since 2008 when he began acquiring distressed single-family homes in Southwest Atlanta. He founded PadSplit in 2017 based on the concept that shared housing in a single-family setting could provide attractive, accountable, & affordable housing without the need for public subsidy.
Listen as Atticus talks about this innovative new concept in SFR and answers your questions in this Triple Win LIVE recording.
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Hosted by Andrew Smallwood and Laura Mac
Featuring Atticus LeBlanc
Produced by Andrew Smallwood, Laura Mac, and Carol Housel
Edited by Carol Housel and Isaac Balachandran
Related: Check out the other property management podcasts we recommend for single-family property managers.
Episode Transcript
Atticus LeBlanc
We've gone toe to toe with some of these some of those local jurisdictions. And the reality is like these laws are unconstitutional. I mean, whether they are ready to admit it or not, you have a massive supply problem. You have a huge force in the population who is working in government jobs a lot of the time that can't afford their housing and they can't because local jurisdictions won't get out of their way to unlock supply creation. And we're sitting on empty bedrooms where 4% of the housing, give or take, that we already have could solve the entire problem. It's just stupid. And the more pain that we can put on some of those local municipalities that just have their heads in the sand, the more they'll start to realize, oh, wait for a second, this is a cost-effective way to solve this problem. And it can be done in such a way that still manages to not take off all the neighbors.
Andrew Smallwood
Welcome professional property managers, great get to be with you. Before I introduce Atticus and we get into the conversation, there are a couple of things that I wanted to just cover quickly. PMX is the preeminent digital convening of the industry. You know, on an annual basis, there are hundreds of professional property managers who come together and it's a really unique way of doing it. It's not quite like this where we are generally in a small group of a couple dozen or a few dozen people. And there's some Q&A in the chat and interaction. That way we can pull some people up. When you've got 400, 500 people registering for an event. It gets a little fun. Like we had three or four different zooms that were stitched together anyway, kind of like some cutting edge technology for digital event production to pull it together and in any way create a really cool environment where there's a powerful connection, powerful collaboration, and powerful conversation happening in the industry. Last year, we had Chris Voss, FBI hostage negotiator, featured as a keynote. We're excited to make some announcements over the week ahead. So you'll be hearing more about this. You can mark your calendar for August 23rd. 24th, and that is the official dates for t w l access, triple N leadership exchange, same conference, idea, different initials. We have a lot of things that people are it's going to be the same. We're going to be raising money that 100% of the proceeds from that event go to charity as they have in the past. And this year, the charity that's been nominated is Make-A-Wish Foundation. And so if you're not familiar with Make-A-Wish, you'll learn more about that great organization we're excited to support. Hopefully, we can continue to raise ten, $20,000 or more as we have in previous years. So with that said in your calendar, Mark, we're ready to insufficiently introduce our guest so we can bring Atticus to the Zoom stage. Laura and Atticus, thanks for being with us. Atticus, lives in Decatur, right outside of Atlanta, a suburb of Atlanta, Georgia, and is CEO and founder of PadSplit. And Atticus, maybe what I'd like to do to tee things up today is could you tell everybody a little bit for those? I know there are people on here who are familiar with you and who are familiar with pad sweat, but I know there are also people who are not. Could you just give a brief explanation of when pads fit to get started, the little elevator pitch of what the company does?
Atticus LeBlanc
Yeah, definitely. Thank you, Andy. Really appreciate the opportunity for that. So I founded a company in 2017 and I really didn't get up and rolling in it without any degree of seriousness and so 2018 but PadSplit the is the largest shared marketplace for shared housing and specifically designed for the workforce. I mean country and we have we've about four to 500 units that are on our platform today space across ten markets or so generally the southeast but not necessarily and the idea is we want to help solve the affordable housing crisis one at a time by leveraging housing as a vehicle for financial empowerment and the best way we can think to do that is you make affordable housing possible by making it more profitable both for hosts or investors as well as for property managers. And if you could pull that off then, then people would actually go create it on their own. So that's ultimately what we're trying to do empower people with the tools and incentives and the plan to actually get that done.
Andrew Smallwood
So I'd love to dove right into this because, you know, creating more affordable housing by creating more profitable housing, most people, when they hear a statement like that, they would think like, isn't that in conflict? Isn't that intention? You know, those two parts of that same sentence? And, you know, maybe it would be good to just give a little more context on, OK, so what is it exactly that pads what is doing that addresses that problem and handles it in that way?
Atticus LeBlanc
Yeah. I mean, effectively, what we enable people to do is to rent, buy the room, and scale that business in a way that has never been possible before. The reason I keep this background behind me is that your property managers in the call, you probably heard the term rooming house or boarding house at some point. This house here is a traditional rooming house. This picture was taken maybe four years ago, but it doesn't matter because that house is still in that condition. And those have existed by the thousands in just about every major market in us for a long, long time. And this is the first prototype over my right shoulder. And ultimately what we do is as a marketplace enables renting by the room and in a single-family setting, as you guys have probably noticed, home sizes have increased pretty dramatically over the last 5060 years about three X almost and there's a lot of space that's wasted so how much rent do you get for your formal dining room. And the answer almost inevitably is $0. How much rent do you get for the fifth bedroom of a five-bedroom house? And again, the answer is almost $0. And so what would our system enables is we can fill individual rooms quickly with the population of individuals who are in desperate need of more affordable housing options. And for whom there is a complete lack of studios. One-bedroom apartments put them into a shared setting and there is a there's a tipping point from a pricing perspective, so we can price that first bedroom at 40, 50% less than whatever it would cost them to rent a studio or a one-bedroom apartment. But instead of that fifth bedroom for the landlord being worth almost nothing, it's now worth exactly the same cost as the first one. And so you realize that at around four bedrooms in a single-family home or really anything more than two bedrooms in an apartment, you're generally better off financially to rent per room versus renting the entire thing. But that also means that the prices for those individual consumers are much cheaper as well.
Andrew Smallwood
So let's do a little bit of a triple and break down here if we could going kind of stakeholder by stakeholder which, you know, where I want to start is it sounds kind of like if I'm an investor and, you know, I'm working with, you know, PadSplit I've got the opportunity to take a four-bedroom single-family house. Right. And rent it. But it's going to generate revenue, not like a four-bedroom house it's going to generate revenue closer to a duplex, you know, or maybe more. I'm trying to think of, you know, ultimately a much higher revenue amount assuming you've got everything occupied, not forex, I'm sure what you would get. But what kind of results are investors seeing? What's attracting people? You know, ultimately to do things as well?
Atticus LeBlanc
Yeah. I mean, sonically, it's to X not return. So if if you're evaluating a single-family portfolio and buying at a 4% cap rate or so in this market, it's reasonable to expect that assuming 100% of those units can be converted the to split that you would now be operating at an 8% cap rate. And that's historically been the case. We have some investors who do a lot better than that. We're just outstanding managers and are really in the weeds but yeah the idea is to be able to an asset that historically has been stable but really juice that returns and also serves a really significant public need.
Andrew Smallwood
And so you know I'm curious what you're seeing I mean I'm thinking about in single-family rentals like vacancy can be such a huge cost right and the term can be such a huge cost but in these types of scenarios, you know, if there are four people in a four-bedroom house, OK one might be moving out and it and it may take a while to fill that room back up. But you still got you to know, the rest of the home filled. So, you know, are you seeing hey, there's a lot of people moving out all at once or at similar times or that's kind of over time-periodic. And it reduces the vacancy risk.
Atticus LeBlanc
Great, great question. I often ignore the quick background on me that I haven't really given. I started buying houses in 2008 before the crash was even necessarily evident and only managed 550 properties all generally in the lower-income segment as I compared panels across my portfolio and I started experimenting with shared housing in 2009, what I saw was the same types of results on net income generation which was due in large part due to because of the pricing mechanisms and just that that cash flow potential real-time improvement that I mentioned earlier. The other big one was, holy cow, we get absolutely kills on term costs, vacancy in turn costs when we have to turn a single-family home. And what I notice with the shared housing model was we didn't have those same costs. Our ongoing maintenance expenses were higher, but largely because we were addressing deferred maintenance over time as opposed to adding a term. And when you move strangers in together, what you saw was instead of a family moves out of the house, I go in and determine what well, we're going to return what portion of security deposit. I pull the poster off the wall and I see, oh, two brothers. We're clearly wrestling here so I through their kid brothers to the wall and voila, now I have to take care and work for broken windows road appliances, stolen appliances, what have you well, I didn't have any of those things anymore, and I didn't need to go back and re renovating that house. When someone moved out, I had one out of six vacancies so the house was never completely vacant. Utilities stayed on, and the house stayed maintained. I was still generating positive cash flow from that home, and I had one room to turn I didn't have to go re-renovating the kitchen. I didn't have to go re-renovating the bathrooms. I didn't have to do new flooring. And I had to effectively turn an individual bedroom that was furnished that cost me on average about 100 bucks. And so the house was more occupied more often and I never had those ones off, even if my, my tenure was really good at court for years on average, when I had to go back and renovating that house after that tenant moved out, those costs were always really significant. And by the time you break those in open, it was a massive difference.
Andrew Smallwood
Yeah. It makes me curious like you guys have been doing this long enough and on a scale for long enough. Now, out of that, of course, I'm guessing you're you've proven out some of these questions like what does maintenance expense look like or, you know, damages or things like that? Do you know what's coming out of potential deposits and things like that? What are you observing? Was there anything that surprised you or was unexpected?
Atticus LeBlanc
As a part of that? Yeah, so I mean, this will be really controversial for this crowd, but when I say we I mean, we still don't really take deposits because I already knew going in. I've been running this business for seven years, and I knew two things. One, when I had to go turn that single-family home like this house, the first prototype, I had a $45,000 renovation bill when the last family moved out before I finally said You know what, I'm inverting this one to the shared living. So did their 1200-dollar deposit help. It certainly didn't prevent them from causing $45,000 of damage to the house, and most of that was on the way out. So they had stopped caring long, long ago. The biggest question for me was how do you improve access for people who are hardworking individuals that simply have less than $300 in savings? And I knew from my time on the ground that those people existed by the many, many millions, and it's about a third of the entire mailboxes population in the United States. If you talk about one or two-person households that earn less than 35 grand a year, which also means they don't qualify for anything in the market at this time, too, to be able to iterate on those things and really create some validated learnings. But the wear and tear are shockingly less. I mean, no one will believe that until they try it. But in 98 cases out of 100, the wear and tear are low again you're your ongoing maintenance expenses are will be marginally higher. So much of that though is because when you have six, seven, sometimes eight strangers living in a home, the likelihood that I hear about that plumbing leak that I always wanted to hear about goes up exponentially. The likelihood that I hear about Richard leaving his dirty dishes in the sink goes up exponentially. Which then prevents potential insect or rodent issues down the line. And so your ability to intervene in what could be very costly problems later down the line is significantly greater than it was before and more than offset the increase in that maintenance. Now, I will say, like I said, a cleaner on a monthly basis to clean all the common areas in my house. Clearly not an expense that I would put out if I were if I had an apartment complex. Right. Or any of the other single-family homes that I still own and manage. But it gives me an opportunity again to see, oh, I need to go knock on this person's door. Send out a message, et cetera. When you see something that should be attended to and you see those things earlier yeah.
Andrew Smallwood
And, you know, it's interesting. I think if we get to the management part to be interesting to hear about, hey, there's some benefits this and also some challenges, I'm sure like you were talking about, of, hey, noise complaints and just general interpersonal conflict. I got to imagine that's probably more in this scenario than you know, as a standalone single-family home and hey, there's a lot we've talked about that makes that trouble worth it. But, you know, thinking about the resident first into this, you know, is there a certain type of property, meaning like if it's a three-bed, one bath, is that a good fit for Pat split in the kind of scenario that's going to be attractive and get those kinds of results? Or is it, hey, we really want a four-bed and at least two baths or I guess what are you seeing as far as that or go or what's really informing what's going to make it a good fit?
Atticus LeBlanc
Great, great question. I mean I mean, I think all of these questions are relative within a given market. And I'm a firm believer that you all are the local experts on your local markets. So you can discern much better than I ever could. And that's why I wanted to start a marketplace business and not a massive invitation to home institutional owners of shared housing around with that in mind, what we see as the highest performing properties are ones where there is significant inefficiency. There is a living room and a den. There's a basement that is a daily basement that could be finished, whether it's a split level home or what have you, you have again, like a formal dining room that you can convert very easily. Those types of scenarios where when the market looks at that asset, they see a relatively low SFR return or something that's not particularly attractive, where whereas we see, OK, I can get a significant bump from renting additional bedrooms with that wasted space. Another obvious one is like you think about major thoroughfares, right? The value of homes on major thoroughfares usually takes a significant hit, whereas for us that's perfect. You would rather be on a major thoroughfare because it means closer and easier proximity to jobs or other transportation infrastructure. So so there are a couple of little nuggets like that. And I'm sure our sales team has tons more from the people that they engage with on a regular basis.
Andrew Smallwood
It makes sense if it's if you're on the main street close to a bus stop or something, stop that. For a lot of the resident profiles, it could be that much more attractive, right, to be there. What are you seeing as far as demand like from a hey, how many applications per property or what kind of you know, we use these traditional metrics of like days on market you know, talking about vacancy and in your guys kind of model, how are you thinking about that, measuring that and what kind of demand are you seeing for it?
Atticus LeBlanc
Yeah, again, like depends on both the product and the market. Man list. My unit here in Atlanta and these homes are, as you describe like in town, close to public transportation, relatively close to jobs I'm getting bookings within hours now. I don't want to set the wrong expectations for folks, but the average first booking for any home in any market is less than ten days and the average time to fill is around 45 days to 85% occupancy but it all depends on the quality product right. I mean if you have a nicer room nicer home and it's clear that the property manager or the investor really cares about their property, shockingly those homes fill a lot faster than the ones where I pigeonholed this seven-foot by 12-foot bedroom and put a single bed in it like a shocker, those don't book particularly well. And even people who are not high income still are attracted to curb appeal and the basics that I think we would all expect our extended family to be attracted to if they were going to book a room somewhere.
Andrew Smallwood
So moving to the resident side here, Atticus, like if I'm if you're a potential resident looking for like a where would I find a property in listing like this? You know, where how would I find it? What would I see are their options as far as like, you know, is it a one-year lease? Six-month lease is up. Is it 30 days at a time? Do I have options for that? What's my experience going to be as I'm looking at booking a pat spot. Spot.
Atticus LeBlanc
Yeah. So so you'll find us on just about every aggregator site imaginable. You don't already know about the passport here. Here in the Atlanta market. A lot of people do. This is our, our, our largest market. And the word-of-mouth referrals are massive. I mean, we get about 50% of our bookings to come from organic traffic from people who actually go directly to paid school accounts and book this book through there the in new markets. So it's across the board we're still averaging between 30 and 50% organic traffic and we spend means our biggest expense by far as marketing dollars and trying to attract those eyeballs of qualified residents to our site and to the product but yeah we're on 40 plus listing aggregators whether that's Zillow or sub ladder furnished finders or any of those types of things.
Andrew Smallwood
Cool. And I guess like help me understand a little bit of hey, I'm seeing all kinds of stuff, whether it's following John Burns or whoever it might be. And you can see, hey, apartment rent growth, it's up 14% year over year. Q 122. Is that really what Pat Split is competing against? It's competing against one-bedroom and like studio apartments per se as far as and obviously, they're very much not the same thing. So it's, it's really a choice, right? That sounds to be given. But are those the alternatives that the residents are ending up in Pat split homes are considering.
Atticus LeBlanc
Or yes and no depends on the customer mean the incomes of our resident now range from $11,000 a year to $170,000 a year. Our average is about 25 grand. Our median is around 3536 grand if you think about the people working in the kitchen at whatever restaurant that you just went to, like whatever, whatever the latest restaurant you went to like find the people who are busing tables or who are working in the kitchen. If you've been in an airport recently, pretty much every TSA agent, security guard anyone who works in an administrative capacity at a local government, in-home health aides, and then all the way to like graduate students, and medical professionals, it's there so many differences in employee groups that that this population of folks who just don't have access to I mean in Atlanta right now the average one better apartments than you know or some hundred bucks, not a 60,000 down here that's required to qualify for that unit. How many people in Atlanta earn less than $60,000 that's an enormous population it's more than 50% of the folks here in town. So what are their alternatives? It's not really that because they can't get past the front door and then they have to come up with a deposit as well of 1700 dollars. So what we're competing with generally is extended-stay motels extend stay hotels the residents' ability to figure something out, whether they're sleeping on mom's sofa, friend's sofa, anti sofa, or in some cases it's homelessness, seriously. Like, I mean they're living out of their cars even though they have full-time employment. And that was something that I first discovered in 20 80,009 that was just mind-boggling to me that people could be working full-time jobs in reasonably good jobs and still be locked out of the housing market. I mean, one of my favorite stories is about this woman who was a security guard for Emory Hospital with the world-renowned surgeons walking by her every day. And she's been homeless for four months and she's working a full-time job, a security guard every day. And like we hear stuff like that all the time mm.
Andrew Smallwood
Wow. And I guess once on one side and, you know, what are you seeing as far as and I'm sure it's the same caveat as earlier, right? It depends on the product, depends on et cetera. But, you know, what are you seeing as a range or a typical outcome for how long people will stay you know, in that specific property?
Atticus LeBlanc
Yeah. So it's what we refer to as a very bimodal distribution. So our average is nine months but we have people who stay forever. And then you have another group of people who are generally short-termers that'll stay for like three months in that in the first home and I have experimented with in 2009, I still have one same resident living there the whole time. She works at McDonald's the second one, I open in 2001. I have three residents who have been there ever since this home like this house opened in 2017 I have two people who've been there since 2017 then you have people who are usually experiencing some sort of trauma, whether they lost a job, had some sort of medical event, went through a divorce or break up and they need housing now, but they need it for some period of time, which is until they can get back on their feet and they could otherwise qualify for that, that apartment on their own and then in that similar category or somewhere in between those two you have graduate students, technical college, community college. They're working but they're in school or they're, they're just kind of budget dieting, as I like to say, for some main life expense, whether it's buying a car, in some cases even buying a house. We have about a dozen people who have moved west or repaired their credit and have ended up buying houses and they're saving for something or starting a new business, et cetera.
Andrew Smallwood
Yeah, interesting. And so if I look at a manager role and I see the benefits of I mean, there's higher yield, there are more exciting potential results for an investor that I can bring to them, you know, and for residents, hey, you know, I can tap into a different demand and some interesting benefits as far as that goes there. That's the opportunity for me if I'm a property manager, you know, trying to get a better experience and better results? You know, for that I'm looking at this. How should I look at that opportunity, and the challenges and weigh it all out?
Atticus LeBlanc
Yeah, I mean, I think a lot of it depends on what type of manager you are. So as far as a percentage-based pricing model, it's pretty obvious. I mean, you look at a six-bedroom home that otherwise would have run for $2,000. Well, at a higher box per month per room, that's $200. So that 2% is a much bigger number I mean, and so that one's pretty straightforward, but it is also more work. It's not nearly as much work as an Airbnb, but it's more work than a traditional SFR rental. If your idea of a manager is you move somebody in there and you don't go visit the property for four years, like it's not going to be a great fit because again, one thing that has been stressed to me, both in my career as an SFR and multifamily manager as and what I have loved about this particular model is early intervention and the ability to address issues before they come significant problems. And yeah, I mean, I think if, if those two things are interesting to a property manager, then, then it could be a great fit. The other thing I will say is you will look back to the maintenance clients, you will have more frequent, smaller issues to deal with. And because utilities are included, one of our biggest ticket items is like Internet one out. And so, those types of things are different than what you might ordinarily come across. So if you're an entrepreneurial property manager trying to build your business, I think it can be an amazing opportunity if you're tried and true and you want to stick to your knitting, then, then maybe not the best, but.
Andrew Smallwood
It sounds like it's in this interesting space between the kind of what long-term or long-term maintenance has been or what has been and how it's not quite hospitality management. You don't have a cleaner going to the property every three or four days, you know, maybe once a month. Right. But there's definitely more attention on the property on an ongoing basis. But somebody who says, hey, I'm actually interested in, you know, having a little higher touch, you know, with this property, putting more effort in on a per property basis because there's, you know, more of a reward. Right. Ultimately compensating for all that. And I'm eager to pursue that kind of opportunity in that that could be a good fit for them. Are there any other like just like critical competencies that you would see is like, hey, this is a real like there's got to be the desired want to do it? Are there any competencies that you see make somebody like, OK, you're really good at this? It could be a great fit. If not, maybe not.
Atticus LeBlanc
Not really, to be honest with you, Andrew. I mean, we talk about our guiding principles for ourselves, but they actually came out of the conversation I had with the property management group, which is care. Show it, prove it. Like that's it. You show up on time and you do the things that everybody expects that you should be doing anyway. You can make it work. And if you care about the products and the property and the resident experience and your landlord, it's going to work. And if you don't, then it's not. So again, seems really obvious but bears repeating over and over. And I'm surprised at how many times we have to kind of come back to those same themes. But yeah, it's still very, very true. And our best hosts by far are the ones who approach it as like you said, I mean, that mix between kind of hospitality and creating a home that people will be proud to come to call home. And shockingly, those individuals have really long tenures, at their properties versus the ones who don't care at all or don't care nearly enough. And the results are not as good.
Andrew Smallwood
Yeah, interesting. I do want to open it up for questions. I think we're cueing a couple of people up now. I'm starting to pull up the chopped before we do that because I've run into a question that's something that caught my attention, are pants fit, if I'm not mistaken, as a registered B Corp? Am I remembering that right?
Atticus LeBlanc
Yeah. So I have to be careful with terminology here. There is a B Corp, which is a private certification, which we are not privately certified. We are chartered as a Delaware Public Benefits Corp. So people use those terms interchangeably, but they're actually different. And so what that means is as part of our charter we have a mandate not just to provide our shareholders with the best possible return, but also to meet a public good, which for us is providing housing for folks that are earning less than 80% of the area median income.
Andrew Smallwood
Yeah. Thanks for clarifying that. That's cool. Why don't we do this? I think we've got Matt Tandy or some may have some questions.
Matt
Hey, our guests appreciate you hopping on here, Coach. Maybe it must be for you. I don't know if you know Aaron Norris. I think you've talked with him before. Yeah. All right. So now really a couple of questions here. The first one is a big one. Is mean. What for? And maybe I missed this in the first couple of minutes, but what questions are you providing as a company? Is the client providing? Is the resident providing meaning? I assume that you just it's not just an empty house from day one. How does that work? Yeah, so sort of Pat's what exists is the marketplace layer so we don't do any of the stuff in the house on site. We leave it to the host's discretion or in your case, the client to determine what types of furnishings they want to put, and where to be on the platform. We need to see a bed, dresser, lamp place to put clothes that could be an armoire that could be a closet doesn't really matter one way or the other. And then we can make suggestions for hay rooms with higher quality furniture book that's much faster and those types of things and really evaluating the data for you all. But, the clients ultimately make those decisions around those furnishings. So even so, even the individual bedrooms are already pre-furnished. So if let's say I wanted to move into one of these rooms I don't bring in my queen bed. I take what's there. That's correct. Yeah.
Atticus LeBlanc
That's correct. Yeah. Today all rooms are furnished but that may change over time. And part of I thinks the continued evolution that we've been through already and will continue to move forward on is giving hosts the ability to customize for their own business model. So for us, the minimum stay is only one month. But for some hosts want to say, oh, well, I want a minimum stay of six months. Some hosts want to say, OK, well, I don't really want to furnish and I want to I think there's a market for unfurnished rentals here. And so over time, I think you'll continue to see an evolution of what's allowable in the platform for today. It is all furnished. OK, so it's a lot more like student housing at a university in that sense.
Matt
OK, so it's a lot more like student housing at a university in that sense. Very, very similar. So in addition to the rent, are you charging the residence for additional fees, whether mandatory or optional packages? So, hey, you know, the cleaner is included with the rent or there's an extra $50 a month. Each gas pay is towards that cleaner filters, I don't know, filter delivery, something like that.
Atticus LeBlanc
So so host hosts set their own pricing. We make recommendations and today we're still using the pricing model that I came up with that I pulled out of thin air five years ago where I said, OK, well, Airbnb effectively charges 13.8% between the hosts and guests. So we want to do more for less. We're going to charge 12 and then their transaction fees if people use credit cards. But that's been it. And again, I would expect to see some potential changes there over the next year or so and be able to provide additional customization. But that's how it's set up today where we're spending a lot of money getting those units filled but it's not like we pay we charge an acquisition fee or one month's rent to move somebody in or anything like that. We only get paid if that resident pays and we take 12%.
Matt
OK, oh, so you don't have leasing or replacement via the program or anything, you just use the 12%.
Atticus LeBlanc
That's correct. Yeah. We when, when, when a member comes on our run, a resident, a prospective resident comes on, on the fly for membership. They pay $19 for an application fee and that comes directly to us. We use that to verify their identity, verify their income, and do a criminal background check as well as we're pulling credit, we don't actually use credit in the evaluation of that individual simply because we have the data to show. We didn't think this was correlated and we have a lot of use cases at this point to demonstrate that. But that's really it.
Andrew Smallwood
Now, great questions. If you have any others that this inspires, feel free to jump back in. But I have a quick one before we bring Steve up. Who's got a question? Yeah, I was given the last part go because this is something that caught my interest recently about just a more evidence-based approach to screening and how, you know, like how credit scores are looked at and evaluated. It's, you know, can I pull the thread on the sweater there? A little bit of what you mentioned of, hey, where here's what we're seeing or not seeing there.
Atticus LeBlanc
Yeah, definitely. I mean, I'll take it even a step farther and maybe be a little more controversial I mean, one of the things that I think that we have truly innovated on that that people don't really talk about is the value of weekly or bi-weekly, all-inclusive payments and screening is a part of why we are as effective at collections as we are. And we are very effective even though we have an income and credit score, an average of 461, which is like, how can that person ever pay our effective collections rate is 97 and a half percent and if that seems contradictory to you all, I would expect that it would be. But I'll ask you, all the same, a kind of pull on that thread more a simple question, which is what day of the week is August 1st? And I would, I would venture that at least nobody has that off the top of their head. And so when we tell a resident who we already acknowledge is living paycheck to paycheck that you're going to have to budget around the first of the month and then your water bill is going to be due on the 30th your cable bill is going to be due on the 17th your gas bill is going to be due on the 24th. And yeah, you're probably going to have to do your payday loan for your furniture as well. And like we're, we're surprised when people can't make those payments. And so I had this experience as a multi-feeling property manager where I ended up seeing people under eviction because they pay their cable bill on the 13th. And I thought to myself, why on earth would anyone ever do that like that's, that's just poor financial behavior. They need better financial education and their priorities are mixed up. Well, the truth was as I dug into it that they paid that guy on the 13th because he was calling them on the 13th and they felt an obligation to pay the guy and if I had been there on the 13th, they probably would have felt an obligation to pay me. So if I bundle all of those expenses into one lifestyle cost and then I say, You know what, I'm not I don't have any idea if I sit here today, what day of the week, August 1st falls on, but I know that today is Wednesday, and if my bill is due Wednesday, and I know that it includes my entire cost of living or virtually my entire cost of living, we're all I have to worry about is spending food and transportation. I'm much more likely to make that payment. And we've seen that prove out. And I don't have the exact percentages on how, but how many more times that is likely to result in on-time payments and evaluating someone's credit score. But it's massive. It's a massive difference. And so for us, we looked at, OK, well, if, if, if we know how credit scores are actually calculated and we know that this is how the system the payment system is already set up, how can we reasonably expect that anybody would have a good credit score whereas we need to just re we'll and create a much more simple system that's easier for people to pay and that's absolutely been true. And so like that's a mind-boggling statistic from doing this work which is 461 credit scores 25 average income and 97 and a half percent effective collections.
Andrew Smallwood
Yeah, that's really interesting. So we're seeing a lot of people start to approach thinking about this idea of like, OK, rent's due on the first and then do again a month later. And it's not really mapping to the income flow right of the resident. And to your point, there can be a lot of events that happen. People don't have savings, especially in this profile. I imagine that that's probably very true. You know, thinking about if I get paid biweekly, you know, or if I get paid the first and 15th, well, those are a little different. And being able to map the expense flow to the income flow in such a way where, hey, less NSF fees, you know, hopefully, less late fees and in higher collections. So it's interesting here that you guys have seven done that. So taking some of the things out of the screening process that you found, hey, they aren't that necessarily they don't correlate that well. Is there anything you added into the screening that was overlooked before or that you're just putting special importance on that you're seeing correlates to a good result in a situation for residents, investors, and managers based on who you're playing.
Atticus LeBlanc
Identity verification is the biggest one. And I'm sure every property manager on this call has experience. The same things that I had where you think you're booking, you think you're renting to the single mom, and lo and behold, it's her nephew that moves in happens all the time. Well, for us, and especially in the multifamily world. But for, for us having identity verification and the accountability of other residents in the home. So when people come through our booking flow, which is totally different, by the way, like you're going to pass through that screening process in about 2 minutes and you're going to book and move into that home today. 48 hours away or whenever that host has been able to set their hours, but as quickly as 48 hours from now. And so that entire booking flow and the rate of fill is totally different and then you're given a Wi-Fi-enabled lock code that is specific to you. And even if you're home with ten people, you're the only one with that lot code. And you can track real-time access events to see who's using that code, how many people are, and how many times it's been used on a given day. And so being able to pair access control with identity verification, I think a is a massive change that doesn't get talked about a lot. But as property managers, we all know that it's a major issue in communities. And then to have a secondary feature of, well, if I have a profile for the single mom or Suzy who moves in and I have six other people who are telling me, wait for a second, that guy doesn't look like Suzy that that changes the game pretty significantly.
Andrew Smallwood
Yeah, I and I see Angela's got a couple of good questions and we're gonna put you in the on-deck circle, but we're going to bring Steve up now if Steve is ready. Laura, There he is. Steve, good to see you do that.
Steve
Thanks. It's super interesting I'm in the New York area or Buffalo area. And so have you found that there are different rules and laws in different municipalities in states that make this not able to happen?
Atticus LeBlanc
Great question. So the reason why these houses exist all over the place is because of those laws. So the first thing that I did, maybe I got I applied to a housing ideas competition in late 2016 sponsored by JP Morgan Chase Foundation and got a grant from Enterprise Community Partners and JP Morgan Chase for ten grand. And I said, all right, I need to go hire an attorney and figure out how we can actually do this and attract legitimate investment. We've been reasonably successful. We raised $38 million so so far so good. The way that we do that is ultimately through the definition of a person which is defined on a statewide level in 47 out of 50 states. And so the rules that you're usually worried about are how many unrelated persons can occupy a residence in a single-family community or even a multifamily community. In some cases that's one that we address through the definition of person and the Citizens United ruling. Yeah. A corporation is ultimately defined as a person. So you create an individual corporation for each home as the tenant and those residents become members of that entity so that's the first thing to be able to check that box. That in question is usually around rooming house boarding houses where it is not legal to rent rooms to the open public in certain jurisdictions. Well, we're not actually open to the public. You have to become a member first before you have access to any of these unions so that's kind of how we do it today. But the reality is like, again, I mean, New York, I mean, in in the city, in New York City, there are probably 80,000 units just in Queens of illegally subdivided basements for four brownstones and they're there ultimately nor so the real answer to your question is your neighbors, right? You can show proof to your neighbors so that whatever fears they have around a property looking like that are completely unmitigated. And you address whatever substantive concerns they have as quickly as possible. And if you do that, you don't have a problem. And if you don't do that, you're regardless of whatever legal structure you might have, you're going to have a problem. So like the devil is absolutely in the details of the operational capacity, more so than it is any sort of legal function, and avoid the code enforcement ever having come out of the property in the first place because they're going to because your neighbor is going to call you instead of the city or county or whoever it is.
Andrew Smallwood
Steve, thanks for being that question. I think I saw Angela had a couple of questions.
Angela
Well, I was curious about the access control. And if you're using Central and misusing our password to get in despite the front door back or the house that you have it also had the same locks on their bedrooms.
Atticus LeBlanc
Yeah. So most of our hosts have we're not using Point Central. I'm not as familiar with that system, but we use a kind of remote lock enablement that we're integrated with. So jail slide, remote lock, they're quickly set up in calcium as well that are all on that operating system. And then there are a number of hosts who use their own. So they're not necessarily on our system. And they are just the same way that you would create codes for an Airbnb property, they create codes and put them in the system for the individual locks on bedrooms. Usually no we have some hosts who have with the idea of making those smart locks enabled as well. Generally, it's manual locks of manual punch code locks and as they turn the room then they'll change that lock code individually. But because they know they're going have to send somebody out to investigate, turn a room anyway by the first. But yeah, I mean we would certainly accept that and it just hasn't necessarily been cost-effective I think for most of our house at this point is interesting.
Angela
And I loved what it said about the way to get around the municipalities because I'm battling that where I live, where my business is, which my business is. Private Student Rentals Bash. The city is very against having more than three unrelated people living in a property they were giving us for person exceptions, and they don't care if it's students or whoever, they just sell it. But it's really geared toward the students. And I am going to get in so much trouble if I take your suggestion and go talk to my attorney. The city's going to hate me. Well, that's brilliant. I'm very inconsistent.
Atticus LeBlanc
And I don't deserve the credit. All I did was spend money on the attorney. But yeah, I mean, I think, again, the main thing where I can't iterate enough is just focused on the operations and make sure that because you don't have a legitimate reason to complain and then go to the policymakers and say, Excuse me, sir, do you believe that people serving in our communities deserve an opportunity to live their lives? And very rarely do I ever hear no to the answer to that question. And as such, we've actually started a nonprofit, a five-to-one Z for lobbying organization, and we'd be happy to take anybody's information or do look into it. The National Association for Fair Housing and how we've gone toe to toe with some of these some of those local jurisdictions. And the reality is like these laws are unconstitutional. I mean, whether they are ready to admit it or not, you have a massive supply problem. You have a huge force in the population who is working in government jobs a lot of the time that can't afford their housing and they can't because local jurisdictions won't get out of their own way to unlock supply creation. And we're sitting on empty bedrooms, literally, where 4% of the housing, give or take, that we already have could solve the entire problem. It's just stupid. And the more pain that we can put on some of those local municipalities that just have their heads in the sand, or they'll start to realize, oh, wait for a second, this is a really cost-effective way to solve this problem. And it can be done in such a way that still manages to not take off all the neighbors.
Andrew Smallwood
You know, there's a couple of things you're saying that I'm curious about. One is access control for vendors and maintenance folks, et cetera. Very sometimes coordinating with somebody who may not be home right in the house is empty and locked. It's like there are access control challenges there. You know, do you see any, you know, unique benefits or unique challenges to having a co-living, shared housing yeah.
Atticus LeBlanc
I mean, sometimes like I have extended a Comcast going out to a property that I own today because some trees fell and knocked down the cable wires. So in those situations, yeah, I have six people in the home. I'm betting that somebody's going to be home. And I know they're all really motivated, to get their Internet back working. So, yeah, so in those cases, yeah. I mean, I think there is there is a marginal benefit there. Access control generally, though. Absolutely. I mean, when I got started in the business, and it was, oh, I had to leave a manual lockbox somewhere or arrange to go meet a vendor out there and that just thank God, but completely a thing of the past. But I'm sure that's true not just for, for us but for, for anybody in the space now.
Andrew Smallwood
And the other thing that I was thinking about as you were just talking about this, is that it reminded me of, you know, other businesses that have taken this as the opportunity of distressed inventory, you know, like the unused inventory you know, when you think about the Airbnbs of the world. Right. Or, you know, ultimately cars that aren't getting used and hey, you know, Uber Networks, et cetera, things like this, of bringing that to people and in some cases able to drive affordability or certainly more choices. Right. And more options. And that's driven a lot of success for them being really cool to see how you've brought in an interesting way to, you know, the innovation you guys are bringing here. You know, I definitely think there are some people interested in how you're getting credit for $19 or screening done for $19. But I just want to end with Atticus a big thank you for spending your time because today I think a lot of people find this really fascinating doing what you guys are doing and it's been fun to track and watch your guys' company. I remember a couple maybe a few years ago, maybe a couple of years my sense of time has been a little funny these last couple of years but I think it was like 500 or 600 units or something like that. And here you guys are at 4500. It's a, it's a real testament to what you guys are doing. So I just want to say thank you and give you the last word. Atticus, if there's anything else you wanted to share before helping us.
Atticus LeBlanc
Yeah. Now, I mean, I really appreciate the opportunity to engage with some professionals in the space. And I mean, listen, I think you all know your individual businesses better than anyone, and I truly have faith in local operators being able to solve the problems. And the question is, can we help provide tools and an incentive structure that can, that can ultimately do this? Because I know it's we're not all evil landlords. And in fact, very, very, very few of us are. But we need to be able to run a business successfully, and I think we can do some good in the world.
Andrew Smallwood
Awesome. Well, we're rooting you on. Atticus, thanks for being here today. Thanks for sharing all of this. Everybody who joined us today, thanks for spending some time and bringing some questions. I know those listening after all. Appreciate the relevance of the other than asking those kinds of questions live and getting those kinds of questions answered. Here. So take care. Have a great one and we'll catch you next time. That's all for today's Triple Win Property Management Podcast. Thank you so much for listening. Thank you so much for sharing a piece of your life with us. We do not take it for granted. I also want to give a shout-out to Carol Housel for everything she and our team does to make this possible. It's crazy to think about. Over 5000 professional property managers have pressed play on episodes and season one and season two now. And we really want to encourage you to keep giving feedback because more and more people are listening. It's getting better and better and better thanks to everything that you're sharing with us. If you liked this enough to listen, we want to encourage you to share it with other people. You can give us feedback directly on this. Social media channels, Facebook, LinkedIn, wherever you're hanging out, you can also send us an email at TripleWin@SecondNature.com, and we just want to give more where there's no sales pitch. You just want to offer more resources that help you stack your triple wins and become a triple win-driven property manager. So where can you find that? You can find a private Facebook group, you can find our blog, you can find our newsletter to find more resources all at RBP.secondnature.com to search for what you're looking for there. And every time we see you, we want to see a better version of you and your business to that end, keep it going, feel inspired, take our encouragement and we'll see you next time.
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