It’s older than our parents and grandparents and so on. And realistically, not only have people been doing it forever, But it’s really something that, you know, people ask, Oh, I should ask my kids about it. You know, they understand, you know, sharing economy. I’m like, no, no, ask your grandmother. Because if a woman was living in the sixties and she was a typist in New York, she didn’t rent an apartment, she boarded.

And if, uh, you know, if a guy was working in a factory single, you know, before he had a family or that kind of thing, he boarded. That’s what people did. So this isn’t anything we’ve invented. It’s something that’s always been with us, but by and large has been frowned upon and kind of building code and zoning and, and just kind of culturally, But you know, when you unpack it, you.

Well, hey, I, I did that when I was in school, you know, or, Hey, I, I did it with friends and so on. But some of the gap that we’re trying to solve in the market and kind of gets to how we’re different from Airbnb and hotels is. For example, I was, I was in the Marine Corps for years and before I was married and had a bunch of kids and all that, I’d rent a house and I would split it with buddies.

You know, nothing crazy is something we’ve all done, you know, we all paid our share, you know, at least be my name. But it was no big deal. When I was in grad school, I did the same thing essentially, but as a relatively high, uh, social network kind of person, the college degree, you know, relatively clean cut or, or part of a cohesive group like the Marine Corps, where, you know, you have a bunch of colleagues, uh, that you, you kind of work.

It’s pretty easy to do that, right? It’s easy to go to a new place and say, Hey, I’m part of this group. How can I live here? How do I get a room? All those things we really serve, uh, an underserved part of the market, right? People who are trying to get their footing but maybe don’t have college degrees, don’t have those social networks or family connections to lean on, but still have that same need for affordable housing that I had as a poor graduate student or as a, you know, young officer in, in the military.

So it’s really kind of solving that problem that, you know, maybe you or I, or lots of people can solve on their own. But a certain part of the, the demographic camp. And so that’s really what we do. Now, how do we differ from Airbnb? I mean, our core offering is similar, right? We’re housing marketplace. On one side you have landlords, they’re listing a property.

On the other side, you have people who are gonna be residing in that property. What’s different is, instead of being fractional in terms of time, so one occupancy, one occupancy, we’re fractional in terms of space. So, you know, rent by the. And that results in all sorts of implications, right? When you look at the feature set, a lot of what we’ve built that’s unique to us is how do you get people to live together, if not always harmoniously, you know, at least, uh, you know, in peace and with communications and with feedback and accountability mechanisms.

So roommates can rate each other. They can submit maintenance tickets. That’s something you don’t really have with Airbnb cuz it’s, you know, short term and it’s targeted towards long-term renters who live in the community. So unlike, uh, say an Airbnb or any sort of short term rental situation where you’re generally marketing to a.

People from outta town, people who are vacationing or, or what have you, who don’t live in that community. We’re looking for people who are, who are already in that community. So just from a marketing and targeting perspective, we’re, we’re seeking a totally different kind of person. What that looks like is general kind of workforce frontline folks, security guards, people work in fast food, hospitalities, teachers aide.

That’s sort of a person who maybe is new to town. You know, we’re, we’re predominantly in sort of the Sunbelt. We have people who moved from Detroit to Atlanta or to Houston looking for work and maybe don’t have the family connections or, you know, networks to lean on and they aren’t making enough to get over that really pretty high bar to get your own apartment.

You know, and when you think about the challenges in the housing market, it, it really comes down to supply and access. Supply, we can go on for days and days about that and how hard it is to build and, and so on. We’re increasing the supply vibes to getting, you know, better use out of the assets. But the other one that people don’t talk about as much is access and that, you know, if you wanna rent an apartment, Even a relatively low cost one in, in really any city, you typically need three times rent as income.

Okay, fine. Usually have to do at least first month’s rent and one month’s security deposit. And then you get in, you have to furnish it, you know, you’ve set up all your utilities, there’s deposits for utilities. Even if it’s a thousand dollars a month rent, which is about as affordable as you can get in any metro area, you probably need at least three grand.

To get in the door, right? And that’s before application fees and all that, all that kind of stuff. So for us, by having furnished units, by having kind of shared utilities that are already set up, you can really kind of bring that down and open up the aperture to a much wider group of people while still delivering generally about double the, the net yield for investors, which is how we solve the problem.

And, but to a large degree, we’re similar to Airbnb. Smaller in fairness. But in terms of the way that things are structured the same, I mean, we rely very heavily on our hosts and. We use the same term cause we sold from them. You know, I have a lot of, uh, respect for what Airbnb does in that they understand that the hosts drive a lot.

They’re focused on host returns and hosts having a good experience. And so are we. You know, our, our conviction is that if hosts are on our platform, they’re having a good experience. They’re generating a great yield and above market yield. The problem solved the supply problem because they are incentivized.

Do more of it, tell their friends. And that’s, that’s really our growth engine. So by being hyper focused on host returns, host experience, their incentivize, provide a great experience for the residents cuz that’s pays the bills and, and that’s kind of the virtuous cycle we’re seeking.

[00:08:06] Robert Leonard: I actually had somebody who I think, I believe they were a fan of the podcast. They reached out to me and we hopped on a call for a couple minutes of 15, 20 minutes, and I think they were a landlord on PadSplit. I believe. They, uh, actually purchased a few properties and were renting them out through PadSplit. And so when your email came through to come on the show, I was like, Why do I recognize that name PadSplit?

Like, has Frank been on the show before? And I look back, I’m like, No, he hasn’t been on the. And then I remember this conversation, I, I actually have had a conversation with somebody, uh, who was a landlord through Pads split. And he, and from what I remember is he had all great things to say and he seemed to really be enjoying it. And he said the returns were really good. So yeah, it was interesting to kind of connect the two.

[00:08:44] Frank Furman: We probably had to pay heavily for that referral. Know, I’m just kidding. I’m, I’m sure I know who it is. Uh, you know, but you don’t have to out them in the show. But, but yeah, I mean, we’re, uh, we have a, a band, a very dedicated hosts, and, and really it’s, uh, you know, I think part of it for us is we came out of the real estate investment space, so we always had that focus, you know, in terms of how we started the company and.

So some of the things that do make us different from Airbnb and other kind of marketplaces in general is, you know, when we started we thought, Hey, we gotta think about financing. Yeah, that’s, that’s the world we came from. How do you, if people can’t refinance these properties, there’s no business. So how do we start with that?

How do we solve those challenges of the ecosystem? You know, these properties may be modified. How do we get general contractors trained to know kind of the co-living model and what kind of hardware you install and that kind of thing. How do you work with lenders and insurance companies and, and really build out that ecosystem to where someone could come to us today and say, hey, I, I get it, I’m interested, but you know, I need a little bit of help.

You know, I need, uh, I need to find who’s an agent, who can help me, Who’s a gc, who can help me, you know, how do I get refinanced? And by kind of relying on a lot of that ecosystem and kind of help them through that.

[00:09:57] Robert Leonard: I wanna talk a bit for a second about that, you guys, being a marketplace, I love learning about businesses, so I spend quite a bit of time studying it.

And what I’ve learned, or at least what I’ve seen, is that marketplaces can be a really tough business. They can be really lucrative, you know, there’s a large network effects there. So once they hit scale and, and you have traction, they can be really lucrative. But at the. It can be tough because there’s this chicken and egg problem.

So in PadSplit’s case, I’m guessing you kind of face the same dilemma. You go after the tenants or the host first, right? If the tenants go on the platform and there’s no hosts, then they might not come back. And if the hosts list and there’s no tenants to fill their space, they might not come back either.

So it’s like this really chicken and egg problem. How would you manage this as you’ve grown pad?

[00:10:39] Frank Furman: Yeah, I feel you’ve been, uh, spying on our exec team meetings now. It’s, uh, always a concern. You’re absolutely right. And for us, we look at it as a supply challenge, uh, the host. So our conviction is that there’s a huge unmet need for affordable housing generally, but just for this kind of model specifically.

And so we’ve always had this. Really kind of core belief that if we magically added, uh, you know, a hundred thousand units tomorrow, that’d be great. We would panic a little bit. You know, I’d be in the fetal position for a while, but we’d be able to fill the rooms. There are people out there who need it.

You know, maybe, you know, how do you screen, How do you find people efficiently? You know, how do you market effectively? All those things are. Our problems, but it’s not a question of is there demand? It’s just how do you find it and how do you kind of, uh, validate and all those things. So we’ve always seen the supply problem as, as the big challenge for us.

We find the houses, we’ll assume that people are there and generally that’s been born out. I mean, another interesting subset of it, cuz you’re right, marketplaces are, are a challenge. And I had a, you know, many fewer gray hairs before we started this venture, but you know, it was really how you get started in markets.

Cuz to your point about network effects, they’re a hundred percent real and real estate is hyper. And we, when we started the business, we looked at this, there were kind of two rational businesses, right door one. Let’s do it ourselves. Let’s create a real estate kind of full stack company where we will buy renovate, manage properties, okay, fine.

Or let’s be a marketplace and be the Airbnb of this model. And what we really saw is the challenge of being the full stack kind of fund is that hype that real estate is hyper-local. And sure, we could do it in Atlanta where we’re based out of. We know that market. Well, maybe we could do a few kind of other markets, but you’d have to be.

In a market and really kind of understand it and, and not be all that spread out. And we thought, hey, if we think this is a moonshot, we, we think we can be everywhere. And we think this is a need everywhere. We’re gonna have to rely on local investors who know their markets. Cause even in Atlanta, which I know pretty well, and I’ve lived here for a while, there’s 83 different municipalities in metro Atlanta.

Even within the city, you have street to street, you know, different might be, hey, this road’s fine, this one’s a little bit not as fine. Hey, this one’s an issue cuz of this. So we’ve gotten a lot of leverage in our belief is that working through local investors who know their markets, know who to go to in permitting know, you know, Which GC is great and which one’s not so great.

And all those things is just really important to doing it well and providing a good experience and, and kind of meeting, uh, you know, being compliance with the fabric of communities and that sort of thing that reduces neighbor complaints. I mean, when you look at Airbnb and some of the challenges that they’ve had, whether it’s necessarily a scribing blame, but you know, it’s, it’s a condo association.

It’s neighbors saying, Oh, this is a party house, or the parking’s not here, and this or that. Or it’s someone from out of town who’s kind of. Running this thing and we don’t like it by working with local investors predominantly. And we kind of take all comers. You can kind of mitigate a lot of that cuz you know, we’ll talk with hosts and they’ll say, Oh, you know, I can’t do it here, this area, you know, just, they’ll complain about renters so it won’t be worth my time.

Or, Oh yeah, hey here, it’ll work fine. And that insight is really hard to scale. You need to sort of crowdsource it. Yeah. The

[00:13:41] Robert Leonard: gentleman that I was mentioning earlier is actually in Atlanta now that you mentioned you guys are in Atlanta. I do remember him being based in Atlanta. So how does PadSplit make money in this model where, what is your guys’ business model?

And if you can give us a, a bit of insight maybe on the scale of your business, and you can talk revenue if you want. That’s always interesting. But if not, that’s okay. Maybe give us some unit counts, things like.

[00:14:02] Frank Furman: Yeah, so we make money the exact same way that Airbnb makes money. We take a percentage of essentially collected rents, right?

Percentage of revenue, and we take the exact same percent that they do, you know, 12% net. Now they kind of split it up and kind of play both sides.

[00:14:16] Robert Leonard: But is that by design? Did you set that percentage because of Airbnb?

[00:14:20] Frank Furman: Absolutely. We said, uh, we looked at their SCC filing when they were going public. They took 13%.

We should probably be less than that. So we take 12. That’s, uh, you, you’re looking at the extent of the analysis that went into it in terms of take rates. So, but the model’s exactly the same, right? We take a percentage of what’s collected and that’s kind of, that. We have about 5,000 doors today, and by doors, I mean bedrooms, which is how we kind of think about it cuz that’s our revenue generating unit, which is, comes out to, you know, a touch over $10 million in revenue for our take of that marketplace.

So that’s more or less how we think about it. We’re. To our knowledge, the largest co-living marketplace in the country today. There’s, you could say there’s student housing companies that maybe have more doors and that kind of thing, but in terms of like really what we think of as our market, we think we’re the biggest and we’re the only one focused really on workforce housing.

[00:15:10] Robert Leonard: What do the properties look like? Are they mostly like two bedrooms? Are they mostly, or are they more like on the other end where they’re like five bedrooms and you know, the person lives in one and they rent out four? Or is there a mix really of all?

[00:15:22] Frank Furman: So it’s a mix generally on the larger side though, for unit economics reasons.

So it’s, uh, you know, in general if you have a two bedroom house, your highest and best use is probably to use, keep it as a traditional rental, huge demand for two bedroom units and you don’t get the leverage by kind of dividing it up really. You know, you get the, the pain of co-living and hey, I’ve got multiple people and you know, who does.

But without a ton of upsides. So generally you’re seeing even more than five bedrooms. You know, six, seven bedrooms, you know, is actually quite standard in a lot of areas for what we’re doing. And in general, it’s all kind of investor own, like non-owner occupied properties. We do have a few that are that way and that, and that’s fine, but you know, the vast majority of the properties are.

You own the property, it’s being managed by a property manager or, or yourself or whoever. But no one in the house. You know, the owner doesn’t live in the house. Everyone in the house is a renter. And that’s, uh, we’ve really kind of built out our feature set to allow someone to do that so they don’t have to be, When you live in the house, a lot of the technology isn’t really needed because you’re there.

You know? How do you worry about so you can knock on someone’s door, you know? How do you worry about messaging the whole house? You can just shout, you know, how do you know who belong? You know which car belongs to which person? Well, you. Ask. You know, that’s fine. But for us, we really wanted to enable the harder use case, which is, hey, here’s an an owner who lives in New York and a property manager who you know operates in Houston and the house is in Houston.

Okay. How does the owner in New York see the financials, see what’s going on, see the com, see the maintenance tickets? The property manager can kind of work through all of that, and they can all be on the same page.

[00:16:56] Robert Leonard: So do you guys have to go into a new market before you allow a host to list there? So like, let’s say, There’s some town in like a, I don’t know for sure if you guys are in Texas, but like, let’s just say there’s a small town in Texas, right?

That somebody wanted, a host came to you, they’re like, Hey, I own this four bedroom single family house. I wanna list it on PadSplit. Yeah. And would you guys be like, We don’t, we’re not really in that market yet, so like we can’t guarantee that we’ll have any tenants there cuz we don’t really have a pool.

Like, Or do you, do you open up like a, a market first and then let people come in? Like how do you guys manage?

[00:17:25] Frank Furman: Yeah. Today because we’re so focused on investor returns and, and having that great experience, while we’re still at a relatively small size, we’re pretty conservative about where, and very intentional about which markets we’re.

Both for regulatory reasons and just cuz we want those good outcomes for investors. So we are in Texas, we’re in Houston, we’re in dfw. But anytime we go into a market, we like to go in with an anchor investor. So someone who’s local, someone who’s tied into the local real estate community. So we can get those network effects going, but somebody’s gonna be there whether we’re there or not.

So for example, we just launched Las Vegas as a market. We hadn’t really had our eye on it too much. This investor came to us and he said, Hey, I love what you’re doing. I’m interested, I own a hundred properties. I wanna start bringing on a few, you know, that are PadSplits. And he’s a, he’s a home investor’s franchisee.

He’s very tied in to that world. And we said, Okay, , sure we’ll be pulled into a market. He’s a very capable guy. He has, you know, his own crews, uh, you know, he is a real operator, not just a, an investor. And it’s gone really well. He knows the market, you know, ins and outs, who can get, uh, something through permitting, you know, who can’t, that kind of thing.

And that’s really the core. So we, we get in with that anchor investor and then we branch out to new investors and so on. So we’re, we can be opportunistic around markets, but if someone came to us and said, Hey, I’m in Whipple, Texas and I want to open a. We would probably say, Eh, it’s probably not such a good idea whether or not we let ’em.

And there’s, It’s not tied to Houston proper, per se, more of the metro area, but it’s definitely a concern. I mean, we don’t want, this business does have network effects and we have marketing spend that goes into a supporting host and in every market that we’re in. So we want them to have good outcomes.

So for us, it’s important to be, yeah, very intentional about where we are, which markets we’re in, so we can just have a good experience for every.

[00:19:11] Robert Leonard: I’m sure that it’s gonna vary a lot from market to market, but just generally, what are you seeing for vacancy across a portfolio? Let’s say a host comes to you and what do you usually like Target or tell them for a, a vacancy rate, and how does that compare to maybe like a long term rental where in a good market there’s, you know, often very little vacancy, and then how does that compare to maybe a short term rental where there can be, you know, 20, 30% vacancy.

[00:19:33] Frank Furman: So our, our stabilized vacancy today is 5%. You know, it’s certainly shorter term than a traditional long term renter in that our, uh, residents stay about 10 months on average. And you generally see two years in change for, uh, kind of standard rentals. So you have a little bit more churn on that front.

Certainly much longer term than say, you know, short term rental. But, you know, 10 months on average. We have people who stay for years. We have people who stay for a couple months, you know, kind of, it kind of comes out to the middle. Bimodal. But yeah, I mean, I tell every investor that I work with underwrite to 85% occupancy or you know, 15% vacancy because I’m a conservative underwriter and you know, you have a lease up period and all those things, and we pride ourselves on doing it really quickly.

But my view is always you shouldn’t be a little bit better than your alternatives. If it’s a lot better, okay, it’s worth your time. Let’s do this. I’d rather set the bar super low and then leap right over it. And it kind of our, we sort of a natural conservatism about what we do because we’re real estate investors by trade and, um, we don’t want anyone to look at it and say, Okay, if everything hits I’ll do well.

Like, no, no, no. This is, uh, this is the real world. Things go wrong. You know, you always have CapEx and all these different things you didn’t plan on. So underwrite to 85% or 80% and if you still feel good about it, if you’re still exceeding what you would make as a traditional rental, I think that’s great.

I mean, I generally tell people you should be 50% better, you know, higher NOI than a traditional rental. If that’s true, let’s run with it. And you know off, usually it’s about double. So like today we are at five and a half percent vacancy across our.

[00:21:11] Robert Leonard: What’s the kinda long term future plan for PadSplit?

Are you guys gonna get into owning any of the properties? For me, like when I was researching the business, it kind of seemed like a, almost like a no-brainer in a sense of like, you buy a bunch of properties and you PadSplit them. You know? I mean that’s obviously a totally different model. It’s a lot more capital intensive, it’s asset heavy, you know, et cetera.

So I definitely see the downsides there. Yeah. And whereas right now you guys are super asset light, you know, probably not very capital intensive. So I can definitely see the pros and cons. I’m curious if that’s, uh, in the growth strategy for you.

[00:21:38] Frank Furman: So we do have a sidecar fund, separate balance sheet fund that owns about 8% of what’s on our network.

So it’s, uh, it is a growth lever for us. Our view has always been, it can be helpful. It’s sort of our laboratory in a lot of ways. There’s a certain kind of passive investor that doesn’t wanna be an operator and may just wanna put cash into it, and that’s fine. But that always, it has to be a part of the strategy because ultimately our fund can never be as nimble or as, uh, opportunistic or as locally knowledgeable as real estate investors broadly.

So we’re incredibly ambitious. You know, we wanna be everywhere. We have 5,000 units today. We want a million units. We’re not gonna get there with fund too much capital, too much, uh, you know, street by street kind of local knowledge that’s required. And to do anything at scale, it’s hard to be opportunistic.

You know, you have to kind of open that aperture. So we do it both. The answer is today, but our focus is really on being a, a marketplace.

[00:22:37] Robert Leonard: I noticed that you guys do weekly payments instead of, or biweekly, instead of just one monthly payment.

[00:22:42] Frank Furman: Yeah. So it comes out of this idea of customer focus in a way that most landlords don’t think about.

So, you know, I’m a landlord, so, you know, I come by honestly, but most landlords are a little bit lazy. Right. You know? Why do you bill on the first? Well, because I’ve always done it that way because my bookkeeper likes it, my lender likes it. You know, that’s, that’s why we do it. But when you think about tenants, And in particular, lower income, lower financial literacy tenants.

Well, when’s the first of the month? I’m not really sure. But when’s Friday? Well, Friday’s. Tomorrow. And I get paid on Fridays and my bills. Do you know? Okay, fine. It’s kinda much more intuitive, much more top of mind, especially for people who are paid kind of weekly or biweekly now. So what we do is we let our members, the residents, set their pay date whenever they want.

If they get paid on Wednesdays, they can have their bill come on Wednesdays, that’s fine. They get paid biweekly. They can have their bill come biweekly and we manage, you know, you figure that six bedroom house, you know, for and change weeks. In a month you might have 30 payments, you know, partial payments, all these different things.

Late fees. It’s a ton of noise. The landlord that they do not wanna deal with. So we aggregate all that. We have a collections team in house that handles all that. And then we pay out once to the landlord, so they can still say to their bookkeeper, Okay, here’s the one payment. Hey lender, here’s the one payment.

You know? And so, They don’t have to think about it as much, but it makes it more commoner friendly, and it’s how we maintain such high collections rates, which is hard to do in a sometimes subprime market, but we’re able to keep 97% collections rates, we believe, because we’re hyper focused on making as easy and painless as possible for people to pay.

[00:24:18] Robert Leonard: It’s part of my research. I saw that you guys are offering rates. It’s not technically you guys, I suppose it’s the host, but the platform in general, a PadSplit unit is offering rates roughly on average, nearly half, maybe, of Airbnb is kind of like what I saw in some markets, but sure, it seems that the hosts are still getting really good returns. So those kind of seem like opposite sides of the coin. So how does that.

[00:24:39] Frank Furman: Yeah, so the, the main reason is there’s two, So one is occupancy rates are higher. So in a most short term rentals, if you’re getting great nightly rates, okay fine, but maybe you’re just doing weekends or so on, or you know, you’re not always full.

Certainly in general, occupancy rates on Airbnb, you’re gonna be a lot lower cuz there’s seasonality and all those sorts of things. So that’s, that’s part of it. Second piece is the operational tempo and cost structure is just, Lower, it’s a different product, right? You’re not doing cleanings, you know, every third day as people come out.

All those sorts of things. So maybe you do a monthly cleaning, but it’s, it’s just much lower operational tempo. Your utility bills tend to be much lower cuz you’re setting the thermostat and kind of keeping things normal and. You’re not putting bottles of water and mince on the pillows and all those sorts of things.

You know, it’s long term tenants, so it’s not a vacationer who’s really, really, you know, persnickety about their experience over a couple days. It’s someone who’s gonna be there for a while. And then the other piece is just the asset cost. So we’re in different types of properties. So the beach house that, you know, rents for a ton on Airbnb.

That’s great. Airbnb’s probably the highest and best use. That’s what I would do with it maybe, but, Not the best PadSplit, right? We’re in, uh, different kinds of neighborhoods, bigger houses where you don’t really get paid. I mean, there’s, there’s an asset strategy to it in that, you know, if it’s a two bedroom house, hey you should probably Airbnb at our traditional rental or, or whatever.

If it’s a bigger house where you make money by the bedroom, well then it sort of changes. Cuz Airbnb, you know, you can charge a little bit more for a bigger house, but you know, you’re narrowing, who wants a six bedroom house in this given neighborhood? Maybe your occupancy’s lower. It’s not like you make double what you would for a three bedroom house.

You make a little bit more. Um, the same thing for traditional rentals. You know, you might charge a little bit more for a four bedroom than a three bedroom or a two bedroom, but not much more worse. For us, the revenue generating unit is the bedroom. So as the bedroom count climbs for us, it’s, you know, more or less kind of pure profit.

[00:26:37] Robert Leonard: When it comes to choosing who gets to stay in their property and also what rates to charge, who decides that? Does PADsplit tell the investor who they have to allow in the property and also what they have to charge? Or can the investor choose that?

[00:26:48] Frank Furman: So the pricing is entirely on the host. So they set the pricing, they can do whatever they want.

We have a pricing recommendation that they can use or not use, but they wanna charge, uh, a thousand bucks a week. They can, I don’t think they’ll fill the room, but, you know, that’s fine. Free country now we do constrain how quickly, how frequently, and by how much post can raise price. So that is constrained by the system.

So if you set 150 bucks a week, you can’t change it to 200 bucks a week. The second week that we do constrain, but the prices they set, that’s, that’s fine. The screening is something that’s actually evolving a bit. We started by doing all the screening for hosts, but we always knew that that was something we needed to hand off.

And for two reasons. One is people wanna be involved, they wanna control who’s in their properties, and the second is people might look at it differently or wanna do themed houses. You know, you might have. You know, a female host who wants a female only house and, you know, all sorts of reasons are veteran only housing and all sorts of things.

So to give host that flexibility, we’ve rolled out a screening feature. Um, we’re going to make it more robust kind of this year, but it’s, uh, It’s giving them more control. So we still do a background check. We still do a income verification, employment verification, identity verification as a baseline just to be able to request to book a room.

But now some hosts toggle it off. They can do auto approve or not, but assuming that they’re not auto approve, It would come to you as the host and you’d say, Oh, here’s Frank Decline. You know, I dunno, maybe proof, who knows? And we don’t show everything per se. You know, we hold back some of the information for kind of privacy and fair housing reasons, but the hosts have control over who’s booking.

[00:28:28] Robert Leonard: Who’s doing the property management, and you know, paying all the bills, like utilities, property taxes, et cetera?

[00:28:32] Frank Furman: The host, just like Airbnb now, I mean, again, just like Airbnb most, or I should say maybe not just like Airbnb, but um, most of our units are professionally managed. So you know, you might be the owner, you could be in New York or California and have a unit in Atlanta. There are property managers here, and it’s part of that ecosystem I talked about.

You’ll say, hey, I’ll be your host. You know, you’ll own it, whatever. I’ll be your super host and I’ll respond to the maintenance tickets and do this or that, and you’ll see the financials or you know, whatever. You still the login, but you’re not fixing the, the leaky sink or, or whatever. And so that’s how most of our, our hosts or you know, their owners operate is.

Professional property manager, they’re managing the unit owners elsewhere in town or whatever. And that, it really kind of depends on them. I mean, some of the owners are really involved and some are not, you know, on their boat, whatever. Um, and that’s fine too. So it just, it just kind of depends. And different property managers charge differently, you know, different models.

We’ve had people do profit shares, we have people do percentages, people do cost plus. You know, just, it just really depends on what, what kind of works for.

[00:29:39] Robert Leonard: It says on your website that you don’t have a minimum credit score requirement, nor do you require a large security deposit. This is a bit different than many traditional rentals, which I guess is your point, but it makes me wonder what that leads to for tenant quality.

What else do you look at when you screening potential tenants?

[00:29:55] Frank Furman: So we are still checking credit. And credit can get people declined. Right. Or evictions or what or what have you. It’s more just a point that we don’t have a hard minimum credit score. And, and a lot of that is that many of the residents who we have are, are thin file, right?

You know, 40% are on banks. We have folks who essentially don’t have a credit score who apply and they have income and demonstrated income and that’s, uh, but. They just don’t really have a credit score, and so we have to tailor our screening approach and, and what our hosts do and their screening approach to the demographic a bit.

So, you know, a PICO score is really designed to know if Robert will pay his mortgage. You know, over the next 90 days kind of thing. And it’s maybe representative, It’s not that it doesn’t have value, but is it the most relevant thing for someone who’s working an hourly wage or, you know, night shift job in Houston?

And, and the answer is maybe not. So we do look at credit data. Do people have accounts and collections? Is it. Medical versus student debt and all those, all those sorts of things. We have our own kind of way of looking at it. Um, that is just separate from a credit score, but more or less pulls from similar, It’s the raw credit data that goes into it, so that’s definitely important.

Now we also pull, we do income verification, so we have a integration with plaid, if you’re familiar with their service. People log into their bank account and so we’re pulling, Hey, how much money’s coming in? Cuz that’s really what’s important in a lot of cases, more so than the credit score. And uh, so we do that or we, if people are unbanked or don’t do, uh, the login, we will verify manually with pay stub.

So if there’s a back and forth on it, it’s not perfect. Obviously the reality of anything in housing. 10 Equality is super important and also super hard. And so that’s, it’s a risk factor that we, we bake in and we, you know, host have to bake in. And part of it is like we’ve gone through a really weird couple of years between covid and inflation and, you know, all this sort of stuff and eviction, moratoria and all those sorts of things.

And so, you know, our view is, look, we’ve had people get evicted from passport houses. It happens, people fall short. You know, our, our members are people, They are cut from the crooked timber that is humanity, you know, and sometimes they, uh, You know, they do fall short, but even if there’s one eviction in a house with six bedrooms, well you have five units that are cash flowing.

So it’s almost like an apartment deal where, hey, it’s a problem. You know, it’s not anything to celebrate, certainly, but you can still make your debt payment. You can still kind of cover it because the rest of the unit is cash flowing and so on. So there’s a little bit of security and the diversification there, but it’s an evolving challenge.

I mean, honestly, we’re always collecting more data. We’ve had over 10,000 stays so far in our network. The model’s kind of always getting better. You know, what works, what doesn’t work? It’s not perfect yet, though. I wish, I wish I could tell you it is and we know exactly, uh, based on an application who’s gonna pay, who’s not.

But it’s, I’m always hoping to just improve our batting average a bit.

[00:32:48] Robert Leonard: I’m assuming that just given that the hosts are managing that they handle the evictions, but what, what does the eviction process look like in this kind of model?

[00:32:57] Frank Furman: Yeah, so they do, we have a third party, uh, provider who does handle the process for folks if they so desire in any state or any state that we’re in any way.

But, um, the process is exactly the same as any other eviction process now. Hopefully it never gets there and you can come talk someone out. We, we do have a pretty heavy lift in what we call the easy way hard conversation with folks when we get there. Cause ideally for both tenants and uh, landlords, you never get that far.

It’s kind of better for everyone. No one has an eviction on their record cuz they left ahead of time. But process is exactly the same. You file the same way. You give notice the same way, you file the same way it goes to the judge the same way. And they rent a judgment the same way. The only difference is, uh, depending on where you are, is usually like a checkbox that says end all occupants of the home and you don’t check that.

And then the dispossess is just for Frank Furman and not for the house. If that, if that makes.

[00:33:50] Robert Leonard: Yeah. So you’re not, you’re not getting rid of everybody else that’s in that whole house. You’re just getting rid of that one bedroom.

[00:33:55] Frank Furman: Exactly. Exactly. It’s actually, I mean, people, I’ve had people come up and say, It’s impossible to do that.

You can’t evict one person from a house. And it’s like, sure, you can . We know it’s true. Um, and also, you know, you figure if I, uh, If I crashed on your couch and then never left, and uh, you couldn’t convince me to leave, you could get me evicted from your house. Hopefully I wouldn’t do that. I wouldn’t, But you know, it’s, uh, it is possible You can do it anywhere. It’s not it, it may be new to investors, but it’s the same exact process.

[00:34:24] Robert Leonard: It’s often discussed. I wanna go back to credit for a second. It’s often discussed how our credit reporting system in the US is a bit flawed for not counting things like rent, payments, utilities, et cetera. You know, people, people, It is kind of, not kind of a joke, kind of a meme, but with a serious kind of undertone to it.

Is that like, People will be like, oh, I can pay $2,000 a month in rent and I’ve done that for five years, but I can’t afford a $1,500 mortgage payment. You know, it’s like according to the bank. So there is definitely, there’s some flaws there and, and honestly, I kind of agree with it. As a landlord, I own rental properties.

I’d be more than happy to help my tenants improve their credit score if they pay rent on time. I think that. Is a great kind of incentive model for them to help, you know, it helps me and it helps them. So your model with PadSplit actually does just that by helping people improve their credit scores. How does that work?

[00:35:13] Frank Furman: So the short answer is we outsource it. We’ve, uh, we have a partnership with a company called a Suzu. We got to know their founders smear and Abby really well. Uh, we were in a housing innovation cohorts outta uc, Berkeley, a couple years ago. They build a great company that does exactly that for landlords.

So we essentially send them the data every month and they report it to the three bureaus. Um, and they handle it all for us. We do it for exactly that reason, as a, as a service to, uh, to tenants. But to your point, it is, you know, we’re, we’re not huge or we whatever, but we’re at a certain scale. That’s worth it.

It is hard. I mean, I would say that for all the griping about credit scores, our system is so much better than anywhere else in the world, even if it’s still pretty bad. You know, credit scores are a thing that almost don’t exist in any other country, you know? And I’ve lived abroad, I lived in London and and so on, and ours is imperfect, but it’s, uh, unfortunately about the best the world has to offer on that front.

[00:36:12] Robert Leonard: They do exist in London though, don’t they? Credit scores do exist in London, though.

[00:36:16] Frank Furman: No, not really. Um, interesting. I thought they did. You’ll have, uh, they, I mean there may be a little bit more of it now, but it’s a much more nascent industry in Europe than it is, and some of that is due to national borders and all those different things, but it’s, uh, again, our system isn’t perfect to be sure I’ve got my gripes, but it’s, uh, yeah.

I mean, you figure in, in most of the world, I mean, take the mortgage industry plenty of issues. Ours is by far the best in the world. It’s, uh, you know, in most of the world you have to pay. For houses. Um, there is no mortgage industry. So yeah, we’ve got challenges, but it’s, uh, a healthy bit of perspective there sometimes for some of it.

But yeah, I mean, I, this is a thing that landlords can do to make it a little bit better, I think, and make it better for tenants and so on. And, and the other piece of it is sort of a fairness thing. You know, I want good tenants who pay all the time to see their credit score get improved. I want tenants who don’t pay to see their credit score dinged.

You know, I. The next landlord should know, you know, and that’s, uh, the next, uh, lender should know that, that someone hasn’t been true to their commitments. So, yeah, I mean, I think it’s super important. That’s why we do it. But the easiest way we think is to outsource it. It’s a bit of a, there’s a few other companies that do it, but we, we like the guys that Isuzu, so we use them.

[00:37:29] Robert Leonard: Do you know how it’s reported on somebody’s, uh, credit report? Like does it say PadSplit? Is it the property, is it the name of the company that’s doing the reporting? Like, I’m curious how that works and then like, if they go to a, they go from one PadSplit to another, like, does that changes a line of credit? Like is it a different line? How does that work?

[00:37:45] Frank Furman: Yeah, so the short answer is it, it says PadSplit. It doesn’t say the, the reporting company. It doesn’t show the property, and it doesn’t matter if they transfer between properties. For all intents and purposes of what’s reported, it’s just payments and it’s all to the same entity.

It’s through the same payment processor, whether it’s your property or my property or the next property. So we do have people transfer between properties, but it wouldn’t, it wouldn’t impact that. The good thing about our system and, and kind of the weekly payments is it’s a lot of data points really quickly.

So whether that’s fair or not or what have you, um, you know, over a year. Most of our residents are getting 52 data points, so if they’re paying on time, they can build that credit score really, really quickly because instead of 12, they’re getting, you know, 52.

[00:38:33] Robert Leonard: Yeah, it’s really interesting. As a founder, real estate investor, businessman, do you like to read, and if you do, what do you like to read?

It can be business related or not. What kind of books have been the most impactful?

[00:38:47] Frank Furman: So I do read every year. I set my annual goals on my birthday every year, and. I have a recurring goal every year to read 20 books, and I sort of track ’em, and it’s sort of a nerdy, uh, thing that I do. Why 20? It’s achievable.

Um, I guess is probably the answer. And, uh, yeah, it’s just more of a key, you know, I don’t, I don’t stop at 20, if it’s my birthday’s in May. If it’s, uh, March and I hit 20, I don’t, I don’t stop. To be honest though, if it were mid May and I were at 15, I wouldn’t stop working and just read. It’s more just a target, uh, to track.

But I do always hit it though, for the record, but I do, so I, I love to read. It’s kind of a, a little bit of an escape for me, uh, more so than some other things. But I don’t really like to read business books to be honest. I, uh, I used to be a management consultant and would occasionally get forced to read one by some client and, uh, sort of broke me on reading.

You know, I’d have to force read, uh, you know, some random business book over a weekend.

[00:39:42] Robert Leonard: Yeah. It’s like reading in school. And they used to force you to read in school.

[00:39:43] Frank Furman: Exactly. And everyone hates it. So I only read for pleasure. I do read fiction. I also enjoy nonfiction. You know, for example, I like. All my interests are weird, and that’s just kind of my, my thing.

So for example, one of my favorite, not really business books, but about an industry that I really find interesting is this book, uh, Junkyard Planet by Adam Minter, uh, that I read recently. It’s about kind of a scrap and waste industry. And, you know, it’s super fascinating. I mean, so it is nonfiction and it’s, uh, you know, he was sort of the, the son of a scrap dealer who became a journal.

And you know, it sort of tracks, hey, here’s a Christmas lights that were trashed in Wisconsin and they get bundled up and sent to China and they scrape off the insulation and turn into sandals and then they take the copper and you know, do this. And so, super fascinating. It’s not for everybody , but it’s for me.

And then, Yeah, I mean, I like my sort of trashy thrillers and spy novels, you know, for when I really wanna just kind of unplug. And Are you a Sherlock Homes fan? You know, I’ve, I’ve read, uh, some Sherlock homes, but I’m, uh, generally, I would say more modern modernish. I love, uh, uh, John Macca’s novels. I’ve read probably almost all of them.

Uh, he just passed recently at 90, but yeah, I kind of go across the board. But yeah, I like to, you know, branch out and do, do kind of new stuff.

[00:40:59] Robert Leonard: I exclusively read business books like that’s it. That’s all I read. Okay. Business or investing. And I think I need to broaden my horizon a bit, and I ask about Sherlock Holmes because I recently watched the, it’s a TV show about Sherlock Holmes. I loved it. And then I bought the books. A bunch of, like, I went, I love going to old little, like bookshops, like not, not barn. I’ll like to go to Barnes and Nobles too, but like, you know, I was in New York City, they have all these little like, hole in the wall, little libraries or bookstores and it’s, it’s awesome.

And they had some awesome, like old school Charlotte Holmes, so I bought them, but I haven’t read them yet. Like the only thing I read, I’ve never read a fiction book, like outside of school. It’s just always business. So hearing that from you, I think I, it’s just another push that I need to, uh, give that a chance.

[00:41:41] Frank Furman: Yeah. I find the pros of those of, uh, you know, a little bit dated, but it’s, uh, no, it’s still pretty good. There’s a few, a lot of ’em are pretty short. They’re more like short stories in a lot of ways, but yeah, you should definitely read fiction. Yeah, I might have to give it a shot.

[00:41:56] Robert Leonard: So why did a client during management consultant have the right, like, why were they telling you to read a book? Like, I, what is that?

[00:42:05] Frank Furman: I think it’s the kind of thing where, so when, so I was, uh, you know, worked for McKinsey in, in London and then, uh, later in Atlanta. And you know, you’re, you go in and it is truly client work. What the client, you know, they want a ham sandwich, you get ’em a ham sandwich. I mean, mostly you’re making slides and spreadsheet models and so on.

But you know, client says, hey, this is interesting. You’re like, of course that’s interesting. You know, let’s talk about this thing. And look, some things are, are super interesting, but there’s just a certain type of client who will be like, hey, you know, I read this book, this business. You should really read it.

And you know, the partner on the, the project will be like, you should totally read it so you can talk to him about it. So you read it over the weekend, you’re like, you know, I really loved in chapter four how he talks about being yourself to be a good leader. That’s pretty good. You know, or whatever the, the thing happens to be.

And, uh, you do it, it’s, I don’t know, I don’t mean to make it like, I actually loved the work that I did in, in a lot of ways and found it super interesting, but you have these short engagements. You know, six weeks or eight weeks or whatever, and you go in and you work like crazy and you work, you know, 60, 70 hours a week and you’re with these clients all the time and so on.

You have these kind of shrink wrapped relationships and, uh, so you, you know, you find things to talk about and to, you know, sort of build the infrastructure of a long term relationship and hopefully follow on work and. You know, if someone says, hey, this is my interest, whatever it is, whether it’s a business book or it’s, you know, hey, I really like this soccer team, wanna learn golf or whatever. Yeah, yeah. You, you Google it and you’re like, man, how about that team? They whew. Pretty good.

[00:43:36] Robert Leonard: Yeah. So it, it’s more like rapport building and relationship building than it is like, hey, this tech, you gotta go write a book report on this, on this book.

[00:43:43] Frank Furman: Totally. Yeah. And the, and the thing with, yeah, it’s, it’s not the write a report.

Some of it’s just in theory to get some insight into what’s important to them and how you sort of, uh, you always wanna speak in someone else’s language, you know, just kind of like communications, uh, truism. So if someone says, Hey, I really like this book about X, you know, I, I loved it. You’re like, Okay, these are things that they think are important probably.

So if it’s, you know, whatever, you’re like, Okay, this is the medium that they appreciate. This is kind of the messaging that they like. Now when I’m talking to them about this change management program or cost optimization program or, or whatever my work is for them, let me try and use that to best my ability.

That’s a theory in reality is pretty hard. And , I don’t know if it ever really works, but that’s, that’s the idea. Yeah, it makes sense.

[00:44:30] Robert Leonard: Well, Frank, as we wrap up the show, I wanna give you a chance to tell everybody listening today where the best place is to find you, maybe learn more about PadSplit. Basically direct the audience anywhere you want them

[00:44:40] Frank Furman: to go to find. Yep. So I am super easy to find. You know, you can go to our website padsplit.com. We’re super easy to find. Uh, I’m justFrank@padsplit.com, so I’m maybe even easier to find. Um, we also have a, a promo offer for listeners of this podcast Special.

We, uh, we’re offering free photography, free professional photography of your. With the promo code podcast one, so uh, P O D C A S T and then the number one, our marketing team is very intense that I get that out to people. But yeah, I’m super easy to find. Frank padsplit.com, padsplit.com. I can’t hide. I’m around.

[00:45:18] Robert Leonard: Awesome. I’ll put links to all Frank’s social media, website, email. I’ll put the coupon code, you know, every, everything we just, he just mentioned anything else we talked about in the show, in the show note below for anybody that’s interested in checking it out, learning a bit more about PadSplit. I don’t know for sure if it’s like it’s something I’m gonna do myself, but I think it’s something I’m definitely gonna be looking into.

I think it’s a really cool and interesting model. Definitely something I’m interested in. So if you’re listening today and you’re interested. Definitely recommend you. You check out PadSplit. Frank, thanks so much for joining me.

[00:45:46] Frank Furman: Robert, appreciate the time. Thanks for having me.

[00:45:50] Robert Leonard: All right, guys. That’s all I had for this week’s episode of Real Estate Investing.

I’ll see you again next week.

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