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Episode #2: Interview with Padsplit CEO Atticus LeBlanc

PadSplit was founded in 2017 to leverage housing as a vehicle for financial independence for low-income workers. By using alternative screening methods, simple billing practices, and thoughtful transparent communication, Padsplit is reimagining the co-living category as “shared housing”. Padsplit seeks to create affordable housing by ensuring that doing so is profitable and streamlined for real estate investors. 

In this interview, Deidre sits down with Padsplit CEO Atticus LeBlanc and they discuss affordable housing, how investors can create additional value, and why PadSplit decided to become a B-corp, and how it balances profit with social good. 


Atticus LeBlanc: Our thesis is that we can make affordable housing possible by also making it profitable. If we make affordable housing more profitable for the underlying providers and those real estate entrepreneurs. That buyback thousands or changing our communities every day, that they are much more likely to go create that affordable housing opportunity.

Deidre Woollard: You are listening to the Millionacres podcast. Our mission at Millionacres is to educate and empower investors, to make great decisions and achieve real estate investing success. We provide regular content and perspective for everyone from those just starting out, to season pros with decades of experience. At Millionacres, we work everyday to help you demystify real estate investing and build real well. I'm Deidre Woollard, Editor of Millionacres. Thank you so much for tuning in. On today show. I talk with PadSplit CEO and Founder Atticus LeBlanc. PadSplit is a platform that maximizes rental property value by putting multiple tenants in the same home. In our conversation, we will discuss affordable housing, how investors can create additional value, and why PadSplit decided to become a B Corp and how it balances profit with social good. Hi Atticus, how're you?

Atticus LeBlanc: I'm great, how are you?

Deidre Woollard: I'm good. So to get started, you could just identify yourself and explain a little bit about PadSplit and what you do.

Atticus LeBlanc: Yeah, absolutely. So my name is Atticus LeBlanc and I'm Founder and CEO of PadSplit. At PadSplit essentially, to boil it down in a nutshell, we move strangers in together to make housing both more affordable for the residents most in need, and more profitable for the housing providers who are most likely to be able to provide those opportunities.

Deidre Woollard: Excellent, thank you. So one of the things I was most interested in about PadSplit is that you are a big corporation and I was wondering if you could explain what that means and also why you decided that was important for PadSplit. We haven't seen a lot of real estate companies make that move.

Atticus LeBlanc: Technically, the technical term is a public benefits corporation, that was important for us for a number of reasons. But namely because when I founded the company my idea was to be mission-driven and to create a legacy for positive change in the world. I knew that if this running like anything like my other ventures. There was a chance that I would not be at the helm forever, and in order to create that legacy in a lasting way, we also wanted to make that public benefit part of the charter. What that means is that as part of our charters and organization, we have to provide housing for people earning below 80 percent of the area median income. That means that if someone were to offer to buy the organization, then they would also have to be aligned with that mission in addition to being the highest bidder.

Deidre Woollard: Interesting, thank you. Obviously, affordable housing is a huge issue. It seems to becoming even more of an issue right now with the COVID-19 pandemic, and so many people being out of work. Has COVID-19 changed the outlook for PadSplit? Have you seen any changes with the individual houses?

Atticus LeBlanc: Sure, the biggest impact for us has actually been on the financial side. What's important to note is that the way that we look at housing and our target population is primarily low-income workers. Folks who are earning less than $35,000 a year and our average income is around $25,000. What that means is specific to COVID, we're talking about a lot of those frontline workers that everyone is looking at now, folks who work in retail or administrative positions. The [inaudible 00:03:55] of local coffee shop, the cashier to grocery store, etc, who are often confronted with the real risks of COVID on a regular basis. But also the bigger aspects for us was the financial risks and that slew of job losses that we saw early on. We're incredibly impactful for our businesses as they work for many. I'd say what came out of that, interestingly, in the way that we're set up, we recovered much more quickly than I think most housing sectors did, and have consistently outperformed the apartment industry as you look at our collections and move-ins and those types of things. From a health-related aspects, the reality is these folks just don't have any other options, and so if you're choosing between living in your car, or functional homelessness. Or skipping around from [inaudible 00:04:47] versus being in a stable, secure location with access to running water, and plumbing, and the ability to take a shower, and sanitize, and all of those other health measures that we put into place. This is a far better option than anything else that is out there in real estate. The only thing I would say is what's important and I hopefully will be a lasting change of the COVID-19 crisis, is this focus on systemic inequality and how that has affected not just every aspect of our society, but specifically housing, and how now we're under this addiction deluge . But how that disproportionately affected populations and minorities, not just in Atlanta but around the country. I think as an organization that strives for economic uplift and being able to provide opportunities for people who, regardless of what their starting point is, have the opportunity and access to the opportunity to find stable housing that creates savings. That can then eventually billed and unbilled wealth, it's as important as it ever has been, if not more so.

Deidre Woollard: Definitely the eviction moratorium. It's been a confusing situation because obviously cities, states, nationally there have been a bunch of different rules and now a lot of eviction moratorium are expiring. So I wanted to talk with you a little bit about your rental property owners and what they've been experiencing in this. Have they seen people leaving more or more people being interested in doing PadSplit? What are you seeing?

Atticus LeBlanc: I think it's important to highlight as well that when I started the company and created the idea behind the company. It was really intended to be countercyclical in many ways and prepared for the next downturn in cycle. No one expected that it would be from COVID-19, but as it is on the operation of the business and the target population in 2017, we had some event like this very much in mind because my background was starting a company in 2008 through 2012, and obviously, in some ways it was a similar period, if not even more disruptive in the real estate industry. Two things happen then and I think we're likely to see happen now. One is that demand increases, if we are offering the most affordable housing option available then as incomes get compressed, we see there is more affordable options increase. The second thing that's likely to happen is just with the increase in volatility, whether because of job losses, you obviously see increased rates of evictions, and an increased churn in the population overall. So far, we haven't seen quite as heavy churn, actually churn for us has been a little bit lower. But and I don't know, it's too early to say if that's just because people are hesitant to move or are just hunkering down. Or if it's because we've gotten better about providing better moving experiences or anything like that. But those are really the two things that I think are likely to continue to occur as demand increases and churn will eventually, at least on a macro-scale take back up.

Deidre Woollard: Interesting. So would you define PadSplit as being part of the co-living trend or is it really different? We've seen a lot of co-living is mostly urban, young millennial, catering to the other end of the market. Where do you see PadSplit fitting in there?

Atticus LeBlanc: It's funny you say that. I mean, most people would categorize us in the co-living category. However, I hesitate to use that word. I use shared housing. The reality is shared housing has been around forever. I as a property investor landlord, first I had a shared home in 2009. Long before the term co-living was ever coined. Whereas co-living in many ways has taken on this era of new found like whether it's young millennial professional fed, what we're doing is cater to a very different population. Our average age is around 39, and the range is anywhere from 19-83. It's a much broader segment of the population and it's also targeting lower income. As you look at the different providers in the co-living space, we're just in a different category entirely in terms of the population that we serve. As well as if you look at the demographic breakdowns, there are 14 million singles and couples in the US, that make less than $35,000 a year, whereas there are nine and a half million that earn more than 50,000. It's a much bigger market. But right now, we're really the only organization that's targeting, that lower income demographic, even though it's much bigger. I think in markets part because it's also much harder. We can't screen based on credit score the way that most co-living companies do. We can't screen based on income the way most co-living companies do. We have to invent different ways to screen for high-quality residents in ways that most typical apartment providers, landlords and what you would define as a typical co-living company, they're not able to do and it's a lot harder to do.

Deidre Woollard: Interesting. Could you explain a little bit more about those different techniques you're using.

Atticus LeBlanc: Sure. It has a lot more to do with the model itself and the operating model than it does the screening criteria. An easy one is thinking about when bills are due.

Atticus LeBlanc: If I were to ask you, what day of the week does September first follow-on, I would be very surprised if you were able to give me an answer without checking your calendar. As I asked that question to any large audience, no one has it on the top of their head. But the reality is, the entire rental industry banks on the fact that regardless of what's your income is, you are going to budget around that date. If everyone gets paid on a Friday, I know today is Friday. Everyone knows today is Friday. If we orient our billing system to make it as simple as possible, and to create a very powerful habit of paying on Friday, we are much more likely to get those payments. On top of that, you layer in not just the frequency of those payments, but what other services are added on there. If all of your utilities, and your Wi-Fi, and your health insurance, parking, if every fee that you can think of is baked into that same payment, it is much more likely to be made on a consistent basis. That's a big part of what we do is all-inclusive weekly billing or it's tied directly to your pay period. If you get paid every two weeks, and that's every second Thursday, that's fine. We can set your billing to every second Thursday. What that means though for a landlord who has absolutely no interest in chasing down collections on that regular of a basis, and particularly if you have six people in a home, and rather than chasing down 30 payments a month, what you really want to do is get that one payment. That's where we come in and make this shared housing opportunity much more scalable for those owners who are much more interested in building wealth than they are in chasing down individual collections efforts. In doing so, I think that is probably the single biggest factor for how we are able to outperform the apartment industry on a collections basis, even though average credit score of our folks coming in, maybe 490. On top of that also, adding in some characteristics around, we do credit reporting, so that we can demonstrate for our incoming residents, when we report those payments that occur on a weekly basis, if they make them on time, they are likely to see as their previous cohorts have, that their credit scores will increase more than 100 points over the first three months. By aligning those incentives between members who want to achieve financial stability and build their credit, with owners who are looking for consistent payments, were able to get much better results.

Deidre Woollard: Well, that is a big difference at a big service for those renters. In terms of how a landlord would go about configuring their home for a PadSplit. Are there any other changes that they have to make?

Atticus LeBlanc: It really depends. As we look at the different housing providers that we work with, in some cases, it's just an individual homeowner who have an extra bedroom or two in their house. We have a basement bedroom that opens to the driveway, and we have a PadSplit resident who's lived down there very unobtrusive way for the last four-and-a-half months. But our primary source of units comes from single-family investors. We have some multi-family units as well in traditional apartment complexes. But in those cases, it really just depends. What I'd say is, around the alignment of incentives, our thesis is that we can make affordable housing possible by also making it profitable. If we make affordable housing more profitable for the underlying providers and those real estate entrepreneurs that buy the thousands are changing our communities every day, that they are much more likely to go create that affordable housing opportunity. The way that we do that is, if you think about a traditional market scenario, the first bedroom for any landlord is the most valuable. There's diminishing returns from there in a traditional market sense. Second bedroom is worth a little bit less, third bedroom worth a lot less, fourth and fifth are almost worthless. Whereas, for us, if we can bill about 50 percent of the cost for the first bedroom, but then replicate that same number over and over, you reached this tipping point. What happens is, there's no requirement for owners to increase the bedroom count. But if they were going to buy a six bedroom house versus a three bedroom house, they're much better purchasing that six bedroom house. At the same time, if you have a formal dining room in a rental property, you're not getting paid for that. There is almost zero monetization for a home office or a formal dining room. What we'll see, is because those incentives are aligned, those investors will go ahead and convert those spaces, so that now, that formal dining room which before was wasted residential space that could go to help provide this massive gap in the affordable housing supply, if they can make $500 a month from that space that was formerly worthless, then they go ahead and make those conversions. The biggest thing for us that we require is just around safety, particularly fire safety, and ensuring that any bedroom that is created or convertible living area that is created has fire egress, has a smoke alarm inside that room, and the other necessary code requirements that would be necessary for a sleeping area.

Deidre Woollard: Interesting. One question I had about that, I know that you are based in Atlanta, and I believe most of your PadSplits are in the Atlanta area. I saw that there was a due legislation coming out around the types of housing and what PadSplit has been doing. Are you seeing that as a potential concern in other cities? I know Airbnb and others certainly had a problem with some cities in terms of short-term rentals. Do you see that this is an issue for zoning, if you've got single-family housing, but you've got multiple residents living there?

Atticus LeBlanc: Sure, yeah. I think there are two points. One, it's a question of trade-offs and opportunity costs, number 1. Then the other point is just a moral one, which, do you believe that the workers who serve our communities, they also deserve the opportunity to live in that? Should the cashier at your local grocery store have to travel an hour-and-half each way to be able to find a decent place to live. In most cases, the answer to that is no, although very few people are willing to answer that question.

Atticus LeBlanc: Honestly, with regard to the trade-offs, if you think about what we spend today on affordable housing creation to actually create units to house those workers, the low-income housing tax credit program nationally has been far and away the most successful. If you look nationally, it's about $209,000 just in public subsidy of taxpayer money that is required to create one one-bedroom apartment. Which means that if you look at the roughly thousand units that we've created with no public subsidy, we've saved those taxpayers, $203 million just in upfront capital cost, not including any ongoing subsidy that would otherwise be required. If you believe that we need a workforce, period, full stop, then you have to house those people. Your choices are you can pay for that housing creation. By the way, we have a gap that's largely stayed around 12 million units today across the country and low-income housing tax credits have created three million in last 30 years. Do you want to wait 120 years to create and spend gobs of money from taxpayers to create those units? Or do you want to capture one percent literally of the existing residential space that's already created? Which of those two choices do you prefer? As we think about how you answer those questions or at least how you have those discussions, it's very much in line of pick your poison. Which one do you choose? Does it really matter if you have six people in a home that are related versus unrelated? Because all of those codes are based very much around racial segregation starting in 1917, and everyone acknowledges that it was okay to live with college roommates and it's okay to do it when you're in a retirement home. But for some reason, it's not okay between the ages of 22 and 65. I think it's just pulling back the curtain on a lot of those long-held assumptions and determining well, is it really that it's not okay for six unrelated people to live together or is it a question of creating equal opportunities for people most in need? Can we ensure that these six unrelated people can live together and it doesn't decrease our property values, which is factual, and that the grass is cut and that the house looks neat, and so forth and so on? I think it's a much more productive conversation to address those substantive issues as opposed to the ones of, well, are you related or unrelated, which is really the space that we're in today?

Deidre Woollard: Well, that's true. I think there's a little bit of knee-jerk nimbyism on some of that. For PadSplit, when you're planning on expanding and entering new cities, what conversations are you having? Do you start with the investors themselves? Do you start with the city? What does that process look like for you?

Atticus LeBlanc: It's a both end. I'd say as we look at expansion, the most important partner is the housing provider. As we've gotten an interest from other areas around the country, those markets that are most appealing to us are where we have had interested, capable, professional, upstanding, and high-integrity investors that reach out to us that say, "Yes, I'm interested in increasing my returns by more than 80 percent and doing something good." In those cases, those are our most successful investors. Right now, we're averaging greater than 80 percent returns on NOI, increases in NOI across-the-board. If we can get one of those investors to try one, then that's the best starting place for us. In most cases, if you have a city or a county or any local governing authority that is interested in and acknowledges that they have an affordable housing need and they are interested in solving it, then that's usually a good starting point for us.

Deidre Woollard: Interesting. Are you targeting more the single-family or more of the multi-family because you can do more PadSplits within there? Is there is there a preference there?

Atticus LeBlanc: No. No preference really. The typology is almost irrelevant and of course the difference, it's differentiated from geography to geography. In New York City, for instance, now there is a whole other set of layers of bureaucracy there, but there's actually a tremendous amount of additional housing supply available in New York City, even though you would think that is a very efficient market. There are different regulatory challenges there, but it looks way different than Atlanta and is multi-family in brownstone. But I think from city to city, the type of home doesn't matter as much as is there an opportunity for wasted space to be captured and utilized by those housing providers? As another example like Phoenix or Houston, San Antonio, Dallas, Orlando, Charlotte. All of those markets look a lot similar to Atlanta in terms of more traditional single-family stock, but there's absolutely no reason that as you look at more dense markets in California, for instance, that it's not an ADU, an accessory dwelling unit or a homeowner who has extra space. We've seen several examples even here in Atlanta where people have moved through the continuum, where they came to us, they had a room, they saved enough money to be able to go out and either rent a place or in some cases, purchase a home. Now, they've purchased those homes, they are renting those rooms to cover their mortgage and make a profit using the PadSplit platform. That's the virtual cycle that obviously we love to hear and love to see. I think it's certainly possible in just about any jurisdiction.

Deidre Woollard: That's really a great story. Just to wrap up, PadSplit in five years, 10 years, what's your goal?

Atticus LeBlanc: Our goal is to create a world-class marketplace that is literally solving the affordable housing crisis one room at a time and to be able to create access to economic opportunity for people in need who have historically never had that access to opportunity. What that looks like for me is millions of units in thousands of cities. That's really what we set out to create and why I made a conscious decision when I founded the company to found it as a technology marketplace, even though I had no previous technology experience, as opposed to a real estate endeavor, which was really my realm of expertise.

Deidre Woollard: Interesting. Thank you. Well, this has been really fantastic. [MUSIC] Thank you so much for your time.

Atticus LeBlanc: Definitely. Well, thank you, Deidre.

Deidre Woollard: Have a good day. Thank you for tuning into the Millionacres Podcast. I hope you liked today's show. If you enjoyed this episode, please consider subscribing through your favorite podcast provider. If you have any questions, please feel free to drop us a line at Stay well and stay invested. People on this program may have an interest in the deals, offerings, or services they discussed, and Millionacres or the Motley Fool may have a formal recommendation for or against. Always consult a certified tax professional before acting on tax advice and do not buy or sell assets based solely on what you hear. [MUSIC]