Real estate lending marketplace Groundfloor just announced that it will be working with PadSplit as part of the launch of a new impact investing initiative targeting affordable housing. What do the two companies have planned, and what does it mean for investors?
Background on PadSplit and Groundfloor
The two companies are teaming up to "densify" urban properties for affordable housing, but let's dig into each standalone company first for context.
Groundfloor is a real estate lending marketplace that works with retail and self-directed investors as opposed to institutional ones. The company essentially uses crowdfunding to connect lenders with folks who need financing for fix-and-flip projects. As of this writing, Groundfloor has earned nearly $13 million in interest for its lenders.
PadSplit was built on the premise that we don't have enough affordable housing in the country and in order to fix that, something drastically different needed to be done. Solely relying on government programs and subsidies wouldn't cut it. The company's solution is to take unmonetized space and turn it into affordable housing. PadSplit transforms underutilized home space into rooms that can be rented on a weekly basis to working-class renters.
Each PadSplit home is required to meet specific construction guidelines that exceed Department of Housing and Urban Development (HUD) standards. Renters have to pass a criminal background check and screening process to qualify for housing.
This, in theory, is a huge win-win as it works well for landlords because they get to generate more cash flow per square foot of property. Meanwhile, low-income individuals are provided with an affordable housing alternative that includes a furnished private room, utilities, internet access, and laundry.
The Partnership with White Hawk
Now how do these companies fit together? Groundfloor and Padsplit are teaming up with real estate developer White Hawk LLC. White Hawk and PadSplit have already been working together on projects. Groundfloor is getting involved to open up a new investment opportunity on its lending marketplace.
Groundfloor explained, "While the renovation projects we normally finance are designed to create single-family homes, these PadSplit projects are made specifically for higher-occupancy rental properties. PadSplit properties can generate up to four times the rental income of traditional single-family rental dwellings." Groundfloor added that loans for the projects carry far less risk than the traditional loans on its platform since the exit to PadSplit is predetermined.
The companies are launching in Indianapolis first but plan to expand into other cities as well.
The Millionacres bottom line
This seems like a potential win on so many levels. More affordable housing options in urban areas that need it, along with greater upside potential for landlords and new lending opportunities for real estate investors. This one may be worth a look.