178. Struggling with Low Vacancy? This CEO Just Solved That - Interview with PadSplit’s Atticus LeBlanc

19:59Natalie Palmer:if this is something you guys have like looked into but have you ever thought about the resale value of these homes just from the perspective of a real estate investor right if we're i don't know throwing up murals and neon signs in our short-term rental, like that doesn't necessarily help the resale value. What about just throwing up walls and trying to maximize bedrooms and building new bathrooms? How does that convert later?

20:22Atticus LeBlanc:Yeah, super interesting question. So, I mean, we've had fewer cases where a house has been converted back and sold than we have, I mean, by an exponential degree, the number of houses that have sold as pad splits. so like that was the first big surprise when when i started what you mean is people are selling like

20:43Natalie Palmer:i i'm selling a property that's been a pad split and who's the buyer for that another investor that

20:49Atticus LeBlanc:one had blood investor gotcha okay okay and so and so that was that was a major learning over the last couple years where people that have moved on for whatever reason have 90 of the time sold to other new pad split hosts or existing hosts who are taking over those those projects but yeah i mean even in the cost in in the cases where someone has needed to figure out okay how much does it cost to convert this this property back to sell as a traditional single family home that average cost is is not that significant it's i mean in some cases it's a little it's like twenty five hundred dollars to convert it back but almost always less than ten grand when they're removing moving walls and whatnot.

21:35Atticus LeBlanc:But yeah, the big surprise has been, look, there is a real secondary market for this product. And there are semi-institutional buyers who are out there looking for existing pad splits that are occupied to be able to put them into a long-term cash flow strategy. And I'd say that's maybe one of the biggest differentiators between short-term rental versus this strategy is it's a lot lower turnover. It's still higher turnover than like a really long-term rental where your tenant may stay for years and years, but way, way lower than a traditional short-term rental, which means that it's a lot fewer hours that you're spending at the property and making sure that everything is just right and that neon sign isn't flashing, that somebody didn't walk away with your perfect throw blanket.

22:26Atticus LeBlanc:So it's a lot less labor intensive. than STR based on what we hear from most of our hosts. And in many cases can be significantly more profitable. We're never going to compete on a dollar for dollar basis with the beachfront short-term rental. But if you've got a short-term rental in Nashville, for instance, or in Atlanta, there's a really good chance that you're actually going to be more profitable by having a lower nightly rate, but higher occupancy. and then individual bedrooms. So you're getting an overall higher gross income and significantly higher net income, especially once you account for just ongoing costs.

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23:46Natalie Palmer:One thing too that I keep thinking about with this is like a long-term rental that something people don't think about when they jump into real estate investing is the time between tenants. If you lose somebody, it can take months to find somebody new to fill it. And I imagine that with pad split, your income is never going to be zero. Maybe you lose two tenants. So you're at 60 % for a while until you fill it, but you're never going to be starting from zero. You're not going to have these long gaps. That's my assumption. Am I correct on that?

24:19Atticus LeBlanc:You're exactly right. I mean, as you think about it, so I've been a real estate investor for a long time and we've owned and managed over 700 units even before pad split. But the two biggest issues that I found that were that were killing our P &L as a property manager, whether you are in STR or in in long term rentals, it's your vacancy loss and your turn costs. and those two kind of go hand in hand what you're referring to is your turn costs and like how much does it cost you to go in and re-renovate that property or to process that turn and then what's the what's the vacancy loss in the time that you have turned that somebody's moved out to the time someone moves in and the the vacancy loss is really twofold like one it's the loss of the income that you would otherwise be generating if that unit were occupied.

25:15Atticus LeBlanc:But you're also still paying your mortgage, you're paying your insurance, you're paying utilities, you're running a risk that somebody is going to steal your air conditioner or break in and steal your appliances. Those are all costs. And so vacancy really, really kills the bottom line, regardless of whether you're in STR or in longer term rentals. And what I discovered about this rent by the room model and why long before pad split, I was recommending to anybody who would ask me, this is really what you should do, is because to your point, when you have one bedroom out of six that is vacant, you still have five that are producing income, right?

25:58Atticus LeBlanc:So you're still generally covering your mortgage and paying for those expenses. And if you've underwritten the deal correctly, you're still earning a significant profit with those five of six. So whether that's that one unit is vacant or that one unit has an eviction or what have you, you still have the others that where you diversified your income sources and are continuing to produce that revenue. The other really important thing, and you see this a lot in STR, like you don't have the same turn costs in a short-term rental that you typically would in a long-term unfurnished rental. When units are furnished, and it seems counterintuitive to some degree, but especially in co-living, your cost to turn an individual room averages for us like$76 across every host, where you're really just paying somebody to come in and clean one room.

26:50Atticus LeBlanc:We're not providing bedding. it's just the mattress and the furniture that's there and you're cleaning that one room so vacuuming wiping down surfaces you usually have a mattress cover on on the mattress and so it's not a lot of cost versus you've got to go in and restock the pantry or like refill all the supplies that are necessary most of our folks are bringing their own supplies and then compared to a long-term rental where you're talking about re-renovating the kitchen or repainting significant areas of property, it's just not an expense that you incur under co-living. And so that's a huge advantage that dramatically cuts down on that vacancy loss and those churn costs.

27:41Natalie Palmer:Yeah. Yeah. Even just like your startup costs, like you don't have to, I don't know, put the giant chess set outside and like these crazy amenities that we get into. You brought up cleaning each room. And so that's very cost effective. But who handles cleaning of like the kitchen, bathrooms, common areas? Like how often do you guys recommend that hosts are getting in there to maintain those shared spaces?

28:04Atticus LeBlanc:Yeah. So it depends on the host. In most cases, it's twice a month. Okay. And I'd say that's kind of the acceptable average that most hosts have aligned on. And I've seen is about right. Some hosts will clean, a lot more frequently in my own experience as a host. I found that the more frequently you clean, the more that members feel like, oh, well, I guess I don't have to.

28:28Natalie Palmer:And so it's a balance between

28:32Atticus LeBlanc:you want individual residents to have personal accountability and accountability for the space, but also you know that they're probably not going to clean the toilet and they're probably clean the kitchen sink when they should. So it's good to just have a cleaner in there to do those types of things, but also to be your eyes and ears in terms of what's happening on the ground. And so it's another hidden benefit of co-living in that you don't really have the same surprises that you often see in traditional rentals where, oh gosh, like my tenant moved out after a couple years and I see that there's a big hole in the wall.

29:15Natalie Palmer:Yeah. Or smells like cat urine. Yeah.

29:19Atticus LeBlanc:Or turns out that the kitchen sink, the trap on the kitchen sink has been leaking for years. And now I need to go replace all my kitchen countertops.

29:25Natalie Palmer:Right.

29:26Atticus LeBlanc:Or kitchen cabinets. Or in some cases I had, I had one as a long-term rental landlord years ago where like we had to replace the whole kitchen floor because of that exact issue. So yeah, just having visibility inside the home is a huge advantage.

29:42Natalie Palmer:Do you guys recommend like chore lists for members? Like, is that okay? So how does how does that work? I know this is a huge debate in the short term rental world, like how many checkout instructions is appropriate to give when you're already charging a cleaning fee. So walk us through this.

29:58Atticus LeBlanc:Yeah, well, there aren't many people charging cleaning fees. And the beauty of just the ongoing rental is it's wrapped into your weekly rate. So it's pretty easy to change as a host. And I've absolutely had cases where I've had some residents who are just a lot messier than others. And I've said, you know what, I need to increase your weekly dues by 15%.

30:21Natalie Palmer:Oh, and you can do that.

30:21Atticus LeBlanc:Yeah.

30:22Natalie Palmer:So that - No, it's not like a flat rate once they agree to it in pad split, that's it. At any time you can come and say utilities have gone up, we're increasing. Do you agree or not? Oh, wow. Okay.

30:34Atticus LeBlanc:Once every 30 days, like you can, you can change, change the rate. And in some cases it goes up because somebody is messy. In some cases it goes down because I've had somebody who just really takes great care of the place. And I want to make sure that I'm retaining that resident. Or I know that they're a great resident, but they lost their job. And so I want to be able to make sure that for some period of time I'm working with them. So it goes, it goes both ways, But yeah, you have that flexibility as a host. And overall, as a platform, we feel pretty strongly that the people who are closest to the problems are the best equipped to solve them.

31:09Atticus LeBlanc:And hosts, in many cases, are going to have unique and interesting relationships with those residents to know what's going on and what they need to accommodate. And whether, again, it's someone who is just a higher maintenance resident or someone who's really low maintenance and really responsible and you want to continue to build trust.

31:34Natalie Palmer:What is the deal with pricing on pad split? Like, you know, STRs, we're all familiar with dynamic pricing, maximizing holidays and weekends and different seasons. With this, would it just be like, hey, here's the weekly rate and you can adjust that by season? Or you mentioned every 30 days you can change it. Do you guys recommend, do you have like a pricing algorithm that you recommend for people. We do.

31:58Atticus LeBlanc:We've provided pricing recommendations for a while. Ultimately, the host controls the pricing if they so choose. We've actually just kind of rewritten our pricing algorithm so that we can provide dynamic pricing for hosts to optimize for occupancy. Because one of the things I really stress with hosts is, look, don't hold out for the highest dollar that you've got set in your head where maybe you underwrote the property at $235 a week, don't let it sit empty. You're far better off renting that room for$195 a week than you are letting it sit empty for$235. Just swallow your pride and get it filled, and then you can adjust it later when you're in a different scenario.

32:45Atticus LeBlanc:But yeah, they absolutely have that have that flexibility to adjust pricing as needed. Gotcha.

32:53Natalie Palmer:I think one of my final questions for you is just how to be, what would you recommend for hosts that want to be successful on pad split? Like, do you see having things like a pool, let's just say increases what someone's willing to pay or it does it end up being more of a hassle? Like now you have to go clean up glass and drinks and provide pool towels around the pool or whatever it might be like really what's like the sweet spot for being a good host but also just protecting your time and what what tenants want i mean this is this is why i love

33:26Atticus LeBlanc:people who have str experience is because they they generally have a really important perspective around what is a good experience for the person who's ultimately paying and different hosts different markets, different property types, can all be successful with totally different strategies, right? And that's probably not totally dissimilar from STR. You see all sorts of really different experiences at different price points in the STR world. And increasingly, we're seeing the same thing here. For me as a host, I focus on clean, safe, quiet, and excellent location for generally a worker who wants to be close to employment centers and services?

34:16Atticus LeBlanc:Like just brass tacks, what are the things that ultimately are going to matter to somebody who is just trying to work and save money and pay off debt? Like those are the things that I really focus on. And what that means for me as a host and where we've been really successful with really long tenure is we are super responsive to any maintenance request, but there aren't really any frills, right? Like I don't have any houses with pools and we really wouldn't. But then again, we have other hosts who are incredibly successful that have not just pools, but like design. Yeah, exactly. Like an amazing community living area with the, the, the air hockey table or the ping pong or whatever.

35:05Atticus LeBlanc:And both approaches can absolutely be successful. So there's no one size fits all. And again, like back to our underlying management philosophy, which is that the people who are closest to the problems are best equipped to solve them. And if you have a vision, Natalie, for creating this like zen area in the backyard because you're attracting single women who are into yoga like that could totally work and and you're gonna know best who that customer is that you're trying to attract and you're gonna know or should know your market and where the location of that property should be. Like for me as a host, I focus on low income workers because I know there are a ton of them.

35:54Atticus LeBlanc:Right. And we also do some low income seniors because I know that given the locations where I own properties, there's just going to be significant demand and they're relatively low maintenance as a customer. But yeah, I mean, we have so many different hosts with entirely different strategies and they can all be successful. Like PadSplit is just, we are truly a marketplace and your strategy like may be successful. Like if you're looking for, I don't know, 70 year old Dungeons and Dragons players, like you're gonna have a pretty small market, but like maybe it'll work somewhere.

36:33Natalie Palmer:Actually, I'd love to ask on that. Is there, how like granular can you get or like what's permitted on the platform in terms of like descriptions of who you want to attract? I mean, we don't want to discriminate, but are you allowed to say like, this is a women's only home, like no men inquire, or could you put something like single only? You're not allowed to bring guests. Like what are you allowed to restrict as a host?

36:58Atticus LeBlanc:So, I mean, fair housing law still applies, right? Sure. And so I was only named after an attorney. So I will not get close to delving into -

37:08Natalie Palmer:I actually was going to ask before we recorded, did your mom love to kill a mockingbird?

37:13Atticus LeBlanc:She did. Yeah. And unfortunately, I never became an attorney. So now I was named for one. I think it goes better.

37:21Natalie Palmer:It's true.

37:22Atticus LeBlanc:It's true. Yeah. Don't get me wrong. I thought I was going to be an attorney for a very small portion of my life before I realized, no, I don't want to do that. But yeah, it's like fair housing law still applies. And read the Fair Housing Act. It's not that complex to figure out what you can and can't do. HUD has guidance on this and talk to your local attorney about what you can do if you have any questions. But you can get as descriptive from an overall perspective in your room description or house description as you want. But if it is like we have a screening tool that will flag potential fair housing violations.

38:03Atticus LeBlanc:Oh, OK. Yeah, if you have verbiage in there that is potentially a red flag, like you will get a notice. And in the most egregious scenarios, like the listing will be removed. You'll get a notice that says, hey, this is a pretty clear violation. You need to go change X language in order to put it back up. But there's a house in Houston. There are actually a couple of them. They're like art houses. And one is specifically around famous historical artists. and like they have full on murals in each room.

38:36Natalie Palmer:Oh, cool.

38:36Atticus LeBlanc:And another one was like 1920s speakeasy vibe. So some of these houses are totally themed in a similar way to what you would see to the STR world where like in the tree house or the spaceship house or whatever. And so you can still kind of create the vibe that you want. And I think there's a lot of room for creativity that doesn't infringe on fair housing rights.

39:03Natalie Palmer:Okay. Okay. Fair. And I think looking at pictures, somebody would know if the artist's place is like the right fit for them. Exactly.

39:10Atticus LeBlanc:Exactly.

39:10Natalie Palmer:Like you'll, you'll know. Yeah. Where you kind of,

39:13Atticus LeBlanc:you've got, if you've got the, the modern techno music vibe, like there probably aren't a lot of

39:18Natalie Palmer:little ladies who are going to want to be in a particular house, but are, are all the members on pad split booking as individuals or do you ever have like a couple book one room together or mother with child or anything like that?

39:31Atticus LeBlanc:Great question. Great question. And this kind of gets back to the fair housing thing. So we absolutely allow any household size to be members of pad split. Hosts can determine the occupancy restrictions within a given house, though. Because an 8x10 room, one is just not practical for multiple people.

39:55Natalie Palmer:Yeah, exactly.

39:55Atticus LeBlanc:But that said, I have a unit on the platform that's essentially a one-bedroom apartment plus a sleep-out sofa. And like, yeah, realistically, you could have two parents and two kids sleeping in that unit. And I think it would be totally reasonable. But I'm going to know that as a host. And so I'm best equipped to make that decision in the same way that you as a potential host are going to know, hey, if I have four people sharing a bathroom, I probably don't want multiple occupancy in those individual rooms, right? Where if you have two people in each bedroom and you only have one shared bathroom across four, like eight people sharing one bathroom, that's probably too much.

40:42Atticus LeBlanc:But we still leave that to host to decide what the appropriate occupancy is. And in some cases, it's governed by code to say, look, you cannot have more than two people in a given room. But yeah, at the end of the day, it's still like the host decision about whether or not their room is appropriate to accept multiple occupants. But we see a decent number of multiple occupants and families, frankly, that are booking these rooms.

41:09Natalie Palmer:That's cool.

41:10Atticus LeBlanc:Where in some cases they're booking multiple rooms, right?

41:13Natalie Palmer:Oh, sure. Yeah, we had a two-parent family recently who booked two rooms in a given home because they had, I can't remember if they had sold one house or moving into another, but they had a three-month period of time where it

41:29Atticus LeBlanc:didn't make sense for them to go rent a short-term rental because prices were so crazy. And so they decided to do this for three months because it was the best choice for them. And in the same way that we trust that hosts can make a lot of those occupancy decisions, we also trust that those parents have agency to make a decision on what's the best place for them to locate their family.

41:58Natalie Palmer:This is a technical question, but as a host, if you had a six-bedroom home that you're putting on pad split, would you have six different listings then? Like one room might say like, this is at this price and has an ensuite bathroom. This is its own listing and one person maximum shared bathroom. Like you can create different profiles for every room type.

42:19Atticus LeBlanc:Yes, that's absolutely correct.

42:21Natalie Palmer:Okay. So it's not just one listing for the house and people have to figure out which room is the best suited for them.

42:26Atticus LeBlanc:Correct. Yeah. If you list your house in the rooms, I can assure you that those prospective residents will look at all of the listings available on their house, which one they like the best.

42:38Natalie Palmer:Gotcha. Okay. Okay. Atticus, I really, really enjoyed this episode. I think this is just so genius what you've created and such a good solution. I know too, especially like my background being short-term rentals, I have never had any interest in being a long-term rental landlord. Like what you mentioned of, you know, you get in there two years later and you have no idea what damage somebody did. That has always scared me, those long vacancy periods. I don't want anything to do with it. And I just love this solution of you might have a little more turnover, but it's still very cost effective. Your revenue is never going to drop to zero or very rarely because you maybe only have one or two rooms to fill.

43:20Natalie Palmer:I love that you still get access to the property and you can check in on it. And then the fact that there's still people doing more creative listings. That's my world. I love hospitality and design. So you can still go that route and be a little bit more niche in PadSplit if you want. I think listeners are going to really enjoy this episode. So if somebody is now inspired to go join PadSplit, what would you say are next steps? Would it just be to go to the website and check out that checklist?

43:47Atticus LeBlanc:Yeah, go to padsplit.com slash hosts or just go to padsplit.com and click the button that says become a host. and you can find out everything that you ever wanted and more. I mean, in a lot of cases, whether they are moving on from short-term rentals because of regulatory pressure or because it's too much work or because there are many cases where they just want to earn higher income than what they are through short-term rentals, then it can be a great fit for them.

44:15Natalie Palmer:You mentioned that there are people selling pad splits as is. Do you guys have like a Facebook page or something where if somebody wants to go buy a turnkey pad split, where could they find one?

44:25Atticus LeBlanc:Yeah. So, so there is an official pad split host Facebook page.

44:29Natalie Palmer:Okay.

44:29Atticus LeBlanc:And a lot of individual host lists there. And there's also, there's a marketplace on the site, which is, is still reasonably updated, but, but yeah, that's one place to find them. But yeah, the, the, the Facebook page is a, is a great place as well.

44:43Natalie Palmer:And then it's pad split.com slash hosts for anyone who wants to get started.

44:47Atticus LeBlanc:You got it.

44:48Natalie Palmer:And with that, it is now checkout time. Thanks for listening and I'll see you back here next week. Lastly, as Airbnb hosts, we all can appreciate a good five-star review. So you already know a great review on this podcast would mean so much to me. Please subscribe, review, share, and connect with me in the show notes below. Bye!

45:27We'll see you next time.