The Real Estate UNLOCKED Podcast
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The Real Estate UNLOCKED Podcast
How Padsplit Works | Episode 04
What if you could transform underutilized spaces in your property into thriving co-living environments? Join us as we explore the innovative housing platform PadSplit, featuring our special guest, the PadSplit Queen herself, Kim Walls. Kim shares her inspiring journey from brand building to real estate, offering invaluable insights into how she and her family have found success in this unique sector. She highlights the distinct advantages of PadSplit over traditional rentals and Airbnb, providing a fresh perspective on affordable housing solutions.
Unlock the secrets to optimizing your investment properties for PadSplit success with Kim's expert advice. We cover everything from ideal property characteristics to the importance of balancing occupancy and resident comfort—ensuring you can create harmonious living environments with up to seven bedrooms. We also delve into key practical aspects like parking and waste management, and discuss how proximity to public transportation and job opportunities can make a world of difference for potential residents.
Finally, discover the transformative power of co-living in high-cost areas like California, and learn how technology can streamline property management and tenant screening. Kim shares her tips on maintaining low eviction rates and building a sense of community within PadSplit homes. Plus, hear Kim's excitement about contributing valuable content for Subto members on the Zoom Vault platform. Don't miss this episode packed with strategies for leveraging PadSplit to boost your real estate ventures and create meaningful housing solutions.
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What up everyone and welcome back to the Real Estate Unlocked podcast. I'm your host, Joseph Marohn, and man oh man, we got something special for you guys today. Today we're going to be covering the topic of pad splits. What is pad splits, you say? Well, I'm glad you asked. Pad split is a housing platform that connects property owners with tenants seeking more affordable places to live. This not only helps leverage underutilized spaces in our existing properties, making it more profitable for us, but, more importantly, more affordable for our tenants.
Joseph Marohn:We all know that there's a severe shortage of housing supply in the country right now. We also know that traditional housing options are insufficient to meet the need and too expensive to access. Right now we see in California they're adding in ADUs to assist with affordable housing. Padsplit creates housing supply and provides access for people in need of more housing choices by using the empty spaces that already exist. Now I can't think of anyone better to assist us in educating us on this topic than our special guest today, miss Kim Walls, aka the PadSplit Queen.
Joseph Marohn:Kim is an investor herself and very well educated on PadSplits. In fact, she covers an entire Zoom series with Pace Morby students in the Sub2 community, and if that wasn't enough. Her impressive career has marked by securing over $25 million in capital, fueling the growth of successful brands that ultimately transitioned to venture capital firms. She's a mother of two and partnering alongside Michael Broadus, who is not only her companion in life but also a key collaborator in her real estate ventures. With that being said, I've been talking long enough, so, if you will, everyone, please allow me to introduce to you the Pad Split. Queen Kim, what's up? How are you doing today?
Kim Walls:Hi, I'm great. I'm not sure how I got that nickname, but I think in any universe where people want to call me a queen, I'm just I'm not sure how I got that nickname, but I think in any universe where people want to call me a queen. I'm just going to say thank you.
Joseph Marohn:You'll wear the crown proudly.
Kim Walls:Exactly.
Joseph Marohn:So how's your day going? Everything good today.
Kim Walls:Yeah, it's good. It's great. I mean, hey, I get to be on here with you, I get to talk about one of my favorite subjects. It's a great day.
Joseph Marohn:Yes, absolutely, absolutely Well. Thank you for joining us and teaching us all how to rake in more cash on our investment properties.
Kim Walls:It's my honor and pleasure.
Joseph Marohn:Awesome, okay. So let's start things off with just you know. Let's talk about you for a second. Tell us a little bit about yourself and how you got involved in the real estate game.
Kim Walls:I got in well, so I've always loved real estate. My dad was actually a contractor who funded his skincare businesses by being an amazing contractor, so I got to grow up in it and I fundamentally just I love to see things come to life. Ground up construction is my favorite or massive overhauls gut it, take it down to the studs, rebuild it and then take it all the way to the finish line with an Airbnb or now pad splits. It really just makes my heart happy to see things like that, whether it's businesses or properties or people's lives, like you name it. I love it.
Joseph Marohn:Yeah, it sounds like you got quite the experience there, huh.
Kim Walls:Well, so actually that's what I was saying. So it was all personal experience. Really. I didn't, I didn't. So real estate for me is part of a career change, like life stage coming. You know my two. I have two sons. They're fully grown, one's a senior in high school now and one's a junior in college. So I'm like I'm coming into this new place in life where it's just total freedom to do everything and anything I want. And in my career building brands there's really like there's just a. It's very long, you know, five to seven years to build a brand and get it to the point where you can sell it or move it on to venture cap or what have you. So I really wanted to do something that I had more control over. It was more contained from a time perspective where I could step in and out however I wanted, and I love real estate, and so that was very much just a career switch for me.
Joseph Marohn:You and me both, I love real estate. I'm like so addicted to this stuff. You know it's it's so intriguing, you know it's like you can never learn everything, right.
Kim Walls:Yeah, yeah.
Joseph Marohn:Do you have? Is your sons involved with real estate at all, or?
Kim Walls:Well, so my older one is that's how that we had our Airbnb in Ohio came to be through. Uh, he went off to school in Ohio and I wanted a way to stay connected and I was like, okay, this is it, we're going to do Airbnb. He's like I'm going to be the property manager. I'm like I'm going to oversee the construction, I'll fund it. And so he now runs that as the property manager has 100% five-star reviews and I'm super proud of him yeah.
Joseph Marohn:Yeah, I bet I'd be proud as well. That's great, I want to. You know, I have two daughters myself and I'm absolutely looking to get them involved in real estate as they. You know, as they start to age, they're still little right now, so I'm kind of teaching them the little ropes right now. Right now they like to jump on my computer and jump on the mic and they pretend they're doing some podcasts. So so, uh, this interview. Obviously we're talking about pad splits and you know this interview shifted towards a beginner, entry level standpoint. So some of these questions I'm going to ask you are going to be very basic and as we transition through the interview, it might get a little more detailed. So, with that being said, can you start by explaining what a pad split is and how it differs from traditional long-term rentals or maybe an Airbnb?
Kim Walls:Yeah, you bet I'd be happy to so. At the end of the day, a pad split is a technology. It's a technology platform, in the same way that Airbnb is a technology platform. What makes them different from Airbnb is how they're servicing their target customer. So their target customer is an essential worker. It's an employed person who's single and living alone, who is earning maybe $50,000, $60,000, $30,000 a year, cannot afford to live in the cities where they work. So maybe it's home health aides or school bus drivers or librarians. It's people who want to live near where they work, but they're being priced out of the market by our current economy.
Kim Walls:So what PadSplit has done is create a recommendation for how to convert single family homes into co-living spaces really designed and tailored for that essential worker's lifestyle and needs. So, for example, community spaces like living rooms and dining rooms are actually converted into bedrooms. And the people who are living in pad splits they're not there for the community, they're there to have a safe, comfortable, affordable place to live in a location where they want to live. So converting those shared spaces, or traditionally shared spaces in a single family home, into bedrooms allows the property owner investor to make more money, because you're renting by the room and it services, a need that this particular demographic has. So Airbnb is more about well, it was originally more about renting a whole house. Now they are starting to do rooms, but they're not actually going so far as to have properties converted to be optimized to meet the needs of that essential worker.
Kim Walls:So really, what PadSplit has done is create a focus. And not only are they teaching people how to optimize their spaces, the technology itself is also supportive of the investor, in that the technology does background checks, the technology automatically withdraws funds for payment, it allows people to pay by the week and it allows them to pay on the day they get paid. So it's really supporting them with making sure that they can pay their rent. And then PetSplit goes beyond that with their membership model to provide things like microloans, telehealth services to service that healthcare need and positive credit reporting. So for people who maybe hit a hard patch who knows what, right Like anything can happen a divorce or lost a job and couldn't make their car payments, whatever it is they Petsplit does positive credit reporting to help rebuild that credit, which can put people in a position to, if they do want a whole house, or even to save up and buy a house. It can help them do that. I feel like I'm talking forever.
Joseph Marohn:No, no, no, You're absolutely. You're providing a ton of value right now and that was a great response and I love it Absolutely. Thank you for that, you know. So how could someone interested in pad splits get started? You know whether they're looking to rent, become a landlord or invest in this model.
Kim Walls:Yeah, I always like to start with research personally, so watching this podcast is a great place to start Right.
Joseph Marohn:Thank you yeah.
Kim Walls:And then, beyond that, I would go to the PetSplit website and sign up to be a host.
Kim Walls:You don't have to have a property, you don't have to pay anything, but it gives you access to all their host tools and in that area you can find things like how to optimize a property, what your property manager needs to do, expected costs, lists of things to buy when you're furnishing a property just a huge amount of wealth of information there, and it also has map functionality, where it shows you their core regions that they're focusing on what occupancy looks like. So when it comes to any rental property, occupancy is super critical, right? If it's not rented, you're not making money. So making sure that you're getting properties that are in areas that have very high occupancy levels is important, and their maps will show you that. It will also show you average rent per week for the rooms, so you can really start doing your math or underwriting, to make sure that whatever you're paying for your property monthly and upfront can be covered by your rental incomes based on the occupancy and the price per week per room.
Joseph Marohn:Okay, all great info. Obviously, clearly, you're very knowledgeable in this space, and so where did you learn all this info about pad splits?
Kim Walls:You just have a ton of knowledge right now.
Kim Walls:So, thank you, I love to share. I'm just a total research hound. I like I come by it. Naturally it's in my genes I love research and so when I first started getting interested in how and where I would focus you know it's up to right following paces, right Use, focus, right Focus, focus and so I came in believing that that was the right thing to do and doing that. So all I did was pad split research and execution and education for several months in the beginning, and now I just kind of keep up to date. I even ended up doing a brand project for Pat Split directly. I got so immersed in it so I know the people How's that coming along?
Kim Walls:Besides pardon.
Joseph Marohn:How's that coming along?
Kim Walls:Oh, I finished it. It was just kind of a one-time thing which I almost feel guilty that they paid me for because I love doing it so much.
Joseph Marohn:You deserve to be paid every dollar. So I have to ask how did you get the name Pad Split Queen and who gave you that name?
Kim Walls:I believe it was. I'm pretty sure it was a guy named Joe. I'm blanking on his last name, but we were at a meetup at the Mondrian in Hollywood and I was just talking with him about what I was doing and he'd been, I think, watching some of the videos and he's just like you're the bad split queen. And other people heard that and it just stuck yeah, I didn't. I don't know.
Joseph Marohn:It's definitely a great name to have. I want to be known as the king of anything right.
Kim Walls:That's kind of my perspective. I'm like, okay, I'll take it Sure.
Joseph Marohn:I'll take it, I'll run with it. So is the goal here just to stuff as many bedrooms into your investment property as possible?
Kim Walls:No hard. No, it all comes back to that occupancy right. If people aren't happy, they're not going to stay, they'll leave, and one of the unique things about pad split and part of why they focus on these core regions and getting concentration and density is because they allow their members which you might call tenants, but their members to move. If they're not oh my God, it smells bad, or, ooh, there's no water pressure or whatever they can just pick up and go. They have to pay 50 bucks and they transfer. So making sure that your tenants, members, residents, are comfortable matters.
Kim Walls:There's a hospitality aspect to being a successful pad split owner that really matters, and so the maximum, for example, number of bedrooms per bathroom that you can have is four to one, but it's highly recommended that you don't go beyond three. So you start to see in the data they're showing more problems. After you, like eight plus bedrooms, you start to get a little bit higher conflict, a little less customer satisfaction. Seven really seems to be the best of both worlds, right? Investors are happy because they're getting rent for seven rooms, and the people who live there are happy because they're not feeling like rats squeezed into a sewer.
Joseph Marohn:So you would say seven is the sweet spot. It's the sweet spot, yeah, okay.
Kim Walls:If you have a huge space, there's also some really interesting things happen. People are taking like an old schoolhouse and converting it. Well, ok, fine, you put 14 bedrooms in there because people are spread out. It's really that like people density and are in comfort to think about.
Joseph Marohn:OK, so can any property be converted into a pass split, or is there like a certain criteria or requirements that the property needs to meet? Can you kind of like paint a picture for us Like what's the ideal property for a pad split?
Kim Walls:Yeah, so I'll. Actually, I'm going to answer your question with a picture not of a property, but of a person.
Joseph Marohn:Okay, okay, I love that.
Kim Walls:So think about somebody who's working hard. Maybe they're working two jobs. So think about somebody who's working hard. Maybe they're working two jobs. They probably don't. Can't afford a car, and if they can, insurance is expensive, gas is even more expensive. They want to be in a place where they can walk to food, walk to public transportation. It's not too loud, they don't want to be disturbed by sirens every morning. What have you?
Kim Walls:So if you think about that person, that hardworking person who is needing to get to and from work, wants life to be easy, maybe there's a convenience store nearby where they can pick up their chewing gum, or a grocery store, go get the toothpaste and some eggs. These people are generally not eating in a lot. They're not cooking, so the kitchen's not that important. They're mostly doing takeout because they don't have time and also cooking ends up being really expensive sometimes when you can just get something quickly from a fast food place. So it's more the life of the person to consider. And how does the space meet the needs of that person? So your question was how do you optimize the space? Where does it need to be? So you want to be within a 10-minute walk to public transportation. You want to be in an area that has multiple different types of work, right Like, maybe they're working at Home Depot one day and maybe they're doing luggage at the airport another day. These people generally have more than one job because companies generally want to employ people part time so they don't have to pay for insurance, right Like, which is terrible, but it is what it is. And so, thinking about the space, if they do have a car, you need to have parking where the neighbors aren't going to be upset. So generally you're not looking at ritzy neighborhoods where the neighbors are going to be looking out the window and saying who's at my house you want to have space for, or who's next to my house. You want to have space for lots of garbage cans because you have lots of people eating out all the time. So those garbage cans pull up really quickly, but they shouldn't be right next to the window where it's going to stink into somebody's house. It's more like putting your head in the space of that person in their life and thinking about how can their needs best be met.
Kim Walls:So basically it's C-level neighborhoods. You can go kind of D plus to B minus and near public transportation and in one of the core areas. You can go outside of the core areas and still use the PadSplit platform, but you won't get all the benefits from it. You still get benefits, but not all the benefits. And I would like to say that as you speak with different reps because PadSplit has reps they all have sort of a different story right now. They're not really aligned on what they're saying. So the feedback I'm giving is pulled from listening to all of them and trying to get the sort of most comprehensive picture, taking the best from all worlds. But you'll have people say you can be in a high crime neighborhood, it doesn't matter, we have a property that's successful there. And you'll hear people saying you can be in any neighborhood as long as it's a neighborhood where people are used to having lots of people coming and going. And it's true you do have success stories with all kinds of different, um, you know, in the outlier situations.
Joseph Marohn:But what I'm, the information I'm sharing is what I've learned kind of comprehensively by listening to all of them right and I think that's a lot of concerns for a lot of people, because now you have, let's say, seven bedrooms, you have seven members, you have seven cars. So you know, is it? How do you accommodate those parking spaces without complicating? You know your neighbors, you know making them frustrated and calling and complaining and stuff like that. What are you seeing? Are people just parking in the grass area? Do you have to kind of build out a larger driveway? How does that work?
Kim Walls:Yeah, it depends on the property and so generally when you're in that property acquisition stage, if there's not a lot of street parking, if there's tons of street parking and there are no permits required, it doesn't really matter too much, as long as there's tons of street parking. If you have like a two car driveway but a big lawn, you can expand that. You wouldn't have people park on the grass because that looks sloppy and want to keep things looking nice, keep the neighbors happy. But you can put a gravel pad out and extend over the grass area, put some little two by fours or some sort of treatment to make it look polished to get more cars in. What I see a lot of people do is go behind the house. So on the side of the house there might be room to extend a driveway or a gravel pad back and then park the cars behind the house so that they're not in the front.
Joseph Marohn:Yeah, that's a great idea, having those longer driveways where you can kind of park towards the back, out of sight, out of mind, right you know?
Kim Walls:Exactly. Yeah, no, it's not dictated. They have recommendations and those recommendations in their core cities are based on the data right, what's working. And so if you have a slightly nicer property, or maybe you have refrigerators in each room or what have you, you kind of can go above average, and if it's really super bare bones, maybe you want to go a little below average, but they provide you with the normal pricing, the averages, and you just make your own decision from there.
Joseph Marohn:You had, it was a two-part question.
Kim Walls:What was the other part?
Joseph Marohn:Pricing and oh how do you determine so?
Kim Walls:occupancy is the other one. So you just kind of look at the math right, like, say you've got four bedrooms each running at a hundred dollars per week. You want to take off about eight. So you just total that up to the month off about it. So you just total that up to the month, back out about 5%. For people not paying, there's still about 2% eviction rate, which is fairly low actually, and about 98% pay rate. So take off 2% of that because people you're just not going to see it. And then, based on the occupancy in your area, maybe you're 85, 90, 95%. So you just multiply your expected rent by occupancy. So start with a number, take off the occupancy consideration. Take off the people don't pay you consideration. Add in the fact that you pay the utilities. So, unlike long-term rental to get back to one of your very first questions with long-term rental generally the tenant pays. In this case the owner pays, so you're keeping all those utilities going. It's an important thing to consider.
Joseph Marohn:Yeah, it makes sense, because how would you kind of break down utilities over seven people? It'd be a little complicated, but yeah, that makes sense. So, with that being said, with estimated income rentals per room, are there like any websites that you can use, like similar to AirDNA or Rental Meter, to kind of get a broad estimate per room?
Kim Walls:Yes, yes and no. So the PadSplit really provides that data. When you sign up as a host, they have algorithms that are giving you real-time data from their system. So the founder, a guy named Atticus LeBlanc, really wanted to make it as easy as possible for investors to get into this model and convert their spaces, because there's a bit of a build-out right. There's a little bit more upfront risk than an Airbnb because to optimize it, you're not only furnishing, you're also actually constructing. If, to optimize it, you're not only furnishing, you're also actually constructing to a couple of bedrooms. So he really wanted to make it easy for people to understand what to expect and give them all the tools.
Kim Walls:So, there's not really a need for something like AirDNA because PadSplit's already giving you that information.
Kim Walls:But if you wanted to look outside of their core markets where they have that data, for example, we just brought up our in escrow now on a property in Milwaukee which is not one of their core areas, but we are going to use the platform.
Kim Walls:So the thing to do is look at what does it cost to rent a studio or a one bedroom in that neighborhood and then you want it to be anywhere from 20 to 40% cheaper, so kind of 30% cheaper to live there.
Kim Walls:So if your monthly rent is $1,000 in Milwaukee for a studio, then you maybe want it to be 700 or between seven and 800 when you're doing it by the room. So you can look in just whatever they are Trulia and Zillow and all the 60 or 80 different platforms that are telling you where you can rent and how much it's going to cost and just get a feel. That way to do a pad split, you look at the median income for that area, which is Google searchable, and see if they can afford to pay the typical rents. So the typical rents and the median income, and if you want your rent to be call it 30% or less of your income. So if it would cost them 50 or 70 or 80% of their income to get studio, that's probably it's a good indicator that that's a really good market for pad split.
Joseph Marohn:OK, so I know you kind of touched on the restroom requirements, but what are, like, the bedroom requirements, like how much space do you need, how much square footage do you need? And, to my understanding, you have to have a window and a door for every bedroom, correct?
Kim Walls:Yeah, egress, that's for fire safety and ingress and egress. The eight by eight is kind of the smallest you want it to be, although the minimum wall is at least seven feet, so you could be like seven by 10 kind of thing. But that eight by eight is generally the smallest amount of space. You do not have to have a closet in the room. You can have a freestanding closet that sits outside. You know that just sits on the wall. So you have to have a bed, lighting and a place to hang clothes. Doesn't have to be a closet and that's kind of it like the bare minimum.
Joseph Marohn:So you don't really need a whole lot. So okay, so who's ideal for a passport? And that's kind of it like the bare minimum, so you don't really need a whole lot. So okay, so who? Who's ideal for a PADS split? I know you kind of touched on this a little bit earlier, but is it? Is it more catered towards like a younger person, a single person, lower income college student, travel nurses, who would you say it's? It's it worked better for?
Kim Walls:Yeah, so this is. This is again one of those situations where you hear the pad split reps saying all kinds of different things. But what, what? The pad split model was developed for the founder's vision. What the technology is designed around is really that essential worker who's single and living alone. So it's somebody who's making median income, working in the city, wants to live near where they work. You can be anywhere from sort of high teens to any age. It's not designed for, at least from its inception, not for students, not for people who have the income to have their own whole house.
Joseph Marohn:OK. So yeah, I was going to say because I don't want to hear from the rep, I want to hear from the past, the queen, you know.
Kim Walls:Well, I have my own opinions, but what it comes down to is they have an opportunity. They started off with a vision and a mission that is unique and that is a multi-billion dollar opportunity. And Airbnb already exists. Right, like, you want to rent by the room? You're a digital nomad. You're a student, you have student housing. People who have aligned work and lifestyle are better suited to live together. Like, do I want to live with a college student right now? No, unless it's my college student, like my kid. So there's an audience of people who are critical to how all of our lives function, who can't afford housing, and that's really what PetSplit and the founder there set out to service that demo. So it's not Section 8, right, there's no supplemental income supporting these things, at least at this time, at least last I heard, which was a couple of weeks ago. So it's not Section 8 and it's not super wealthy. It's like the majority of the population, as long as they're single and living in a metro area.
Joseph Marohn:OK, so you kind of touched on on a good topic, you know, as far as like living with other people, you know many viewers may be unfamiliar with the concept of co-living. You might kind of breaking that down, like what exactly co-living is and how does PADSPLIT facilitate co-living arrangements.
Kim Walls:Yeah, absolutely so. Co-living is the idea of non-related people living together, right? So, and that's how regulations are done for cities and counties is how many non-related people can live together. So we're not talking about families, we're talking about people who want to share the costs and the benefits of shared spaces where they don't need privacy, like the kitchens and, in some cases, the bathrooms and maybe outdoor spaces.
Kim Walls:Right, when you get into luxury co-living, these places have theater rooms for the seven people who live there. They've got pools, they have private gyms. It's kind of it's this idea of how do you maximize shared space to have your highest quality of life costs the least. It's really what it's all about, and some people, for some people, it's about company, right? If you get into senior living, for example, where people are sharing spaces, maybe they're also sharing a nurse, and then it kind of starts to look a little bit more like assisted living, but not quite. It's a resource that all of those people value and probably need or at least want, and they can share the expense of it because they're sharing space.
Joseph Marohn:No, it makes sense and I feel like some people are already like accustomed to it because you know, if you go to college and you live in a college dorm, you're kind of already used to that already you know living with other people. So, as for me, it'd be a little harder for me to live with. You know certain people. I'd be like bumping heads with people and stuff like that, and yeah, it'd be, it'd be a hot mess, yeah.
Kim Walls:Just before we move on from that. It's very, it's cultural, right, the American, we've got the American dream right. Go get your little house with your white picket fence and have your nuclear family, and that's the training, that's the cultural training. And whereas you look at other cultures in different parts of the world hells, no, you're not going off to isolate yourself, like you know, you build another story on your house and put your kids up there, right, like it's. It's a, it's a cultural thing that America doesn't. We're not really I'm going to go ahead and say caught up with most of the world when it comes to I think it's a great.
Joseph Marohn:It's a great tool that they implemented out here. Because you know cost of living right now. We all know housing prices are through the roof right now. Interest rates are through the roof, you know. So to purchase a home right now it's so high, you know. To make. You know in California to buy a home You're looking at anywhere as a minimum of seven hundred thousand to a million plus Right, and you know a mortgage payment for that is going to be 4,500 up to six grand, right. So a lot of people can't afford that. So that's why I like this business model. Is it out in California right now or is it because I know they started in Atlanta?
Kim Walls:They did? Yeah, they're. They're due to launch. They've said they're launching in Q1 here in LA. Yeah, okay, but there's.
Kim Walls:So we I just just one more sort of like for the actual cultural piece of this and I studied anthropology in school, which is the study of man, so you'll hear me coming back to these sort of cultural and also health aspects. We, we have this idea that living alone is something to be celebrated and in fact, our bodies aren't meant for that. Like, our health improves when we eat in community, when we have people to put our arms around and hold hands or what have. We're not meant to be alone. So when you have, especially with the essential workforce, all these people who are living alone, having other people to share space with and to be around is incredibly healthy. It's uplifting, it's good for anxiety, it's good to help with depression, it's good for longevity. The conversation, at least in this country, around co-living is always like here's a way to save money. But I would love to see that conversation be broadened to how do we enhance our health and our lifestyles and our, our quality of life in addition to our pocketbooks?
Joseph Marohn:okay, no, you touch on. You touch on very great points. You know, you know, co-living can be very beneficial, right? Because you know, like you said, depression, you know, living by yourself it just you just see people looking miserable and stuff. So if you're looking living with somebody else, obviously it's an ideal situation there. Um, yeah, so like, as far as like the, you know the ideal location, um, you know, you kind of touched a little bit on that, but is it best to be like by hospitals or like college campuses, like what's the? What's the best location to put them at?
Kim Walls:like it's really anywhere where there are a lot of people working in those kinds of jobs, right? So if it's college campuses, then it's who's working at the college campus the janitors, the assistant professors, the TAs, like right? If it's near a hospital, is it? It's the assistant nurses, it's the people like, it's the workforce. So if you're near a whole bunch of grocery stores like who's checking out your groceries and who's at the register, in any area that has a lot of different types of work available is going to have a potential for high density of people who want to live near it.
Joseph Marohn:That makes sense Absolutely. So obviously there, you know there's. This can vary from property to property, but what would the average renovations costs? You know to look, what would it look like to get a pad split ready?
Kim Walls:Yeah. So if you're starting with, it depends on your starting spot, right? A lot of people like the BRRRR or SIR strategy for these, in which case you can spend 80, 100, $150,000 because you can do a complete overhaul to the property and then add the extra few walls, but really anywhere from 18 to 30,000,. For example, water heaters Like if you have a water heater that's designed to service a family of three or four and then all of a sudden you have seven or eight people in it. You either want a second water heater or you want a bigger water heater. You have to do a little bit of HVAC work to pump heat and air into the new rooms that you've added, but you're really just adding a couple of walls for the most part. If you need to move existing walls then it gets a little bit more expensive. So the cheapest I think you could probably ever come in is probably 15,000.
Joseph Marohn:Okay, and are there any core markets?
Kim Walls:Yeah, they're actually just listed on the PadSplit website and it changes all the time. They keep adding new markets, so the best resources go to to pad splitcom. Look at rent a room, the dropdown menu, and it'll show you all those States and then all the cities that are being serviced within those States.
Joseph Marohn:Okay, so give us some examples of some issues someone might run into in a pad split.
Kim Walls:Yeah, Like the investor issues you mean investor issues Exactly.
Kim Walls:Investor issues? Exactly, yeah. So one of the ones that I've heard recently was the some some guy used all of his girlfriend's information to get through the past the pad split vetting process, so used her job, her like everything and was approved into her picture, was approved into the system, was then approved by a host because hosts have to approve anybody who's going to move into the house. They get the opportunity to say no, I don't want that person in my house. So then the person shows up and all of the other people who live there. They have a communication portal. That's part of what PadSplit offers is a way to communicate with all the people and it will tell you like, hey, so-and-so is moving in and it shows a picture and tells you a little bit about them to really facilitate that community feeling in as much as it's possible when you've got strangers moving in and out. So someone shows up who wasn't the right person and the people who lived in the house were like, uh, hello who?
Kim Walls:is this what's going on here, and the people whose house it was had a really hard time getting them out, actually because of eviction laws, and it turned into a whole thing. So the solution for that is you put a ring doorbell by your door and when somebody first checks in, you make sure that who you're seeing at the doorbell is the same person whose ID you've had checked and who's in your system. If it's not the right person, don't let them in.
Joseph Marohn:Right, you would think that'd be the simple way.
Kim Walls:Right yeah, but it requires management, right, like it requires looking at it. I've heard horror stories. I've heard about people peeing in their refrigerators and then just checking out. I think you have some terrible or annoying things that happen, but it's for the most part it's pretty. You're going to have that as a landlord, no matter like. If you don't want to be a landlord, that's what's not for you.
Joseph Marohn:I was going to say that that can happen with pretty much anything. Right, we see it, even with long-term rentals you need short-term rentals. People do that all the time. It's just I have this motto. It's like you kind of you take care of your tenants and they'll take care of your investment. Right, yeah, treat them right, you know. So you kind of touched on like kind of like the screening process. So like, is Padspit responsible for the tenant screening process, or is that our responsibility?
Kim Walls:No, they do. They do that. So they they promote their location, they promote their own brand, they promote the properties within their brand. And then once somebody says hey, I'd like a tenant says hey, I'd like to live in this space, they go through the background check, they pay their membership fees, all those things, and then their information is submitted to the host and the host can approve or deny. It's a little bit, it's catered to, it's cool, like if you so say, you have it back to parking full circle. Say you have a house that has seven bedrooms but only four parking spots, the, the platform, the pad split, pad, split platform, will only show your place If all four parking spots are filled. You can only really then take tenants or members who don't have a car. It will only show your locate, your place to people who don't have a car.
Joseph Marohn:So they have that option on there that you could select if you have a car or not. Right, yeah, ok.
Kim Walls:Yeah, so it really. It streamlines the process of finding a home and people can move in I think it's within one day. So rather than having like collecting sort of proof of rent and having to have great credit and the big deposit and all of that, it's just a completely different model that makes it easy for people to move in and still manages to maintain the same data levels occupancy, evictions, all of those things are better than the old way. It's a new way to service people in need where everybody wins.
Joseph Marohn:So what happens when someone stops paying rent for the rooms? Who handles the eviction process and does PadSplit ensure that rent if they are screening the tenants?
Kim Walls:PadSplit does not ensure the rent. So because of the weekly payments you know really quickly. It's not like the end of the month happens and then they haven't paid and you kind of have these long gaps. So you know immediately if they haven't paid and because it's pay is being withdrawn usually on the day that they get paid, you kind of you have an opportunity very quickly to respond quickly and PadSplit does that. They have a whole customer success team that will reach out and say, hey, we noticed you didn't pay, what's happening and they'll work to get you paid. If you get to the point where you have to have an eviction, they do not handle the evictions you still have to have yourself or your property manager what have you show up within the sheriff does and go through the process on your own. So one of the things they have done up until their plan to go into California this coming year is focus on markets that are property owner friendly from a rent, from a, from that perspective.
Joseph Marohn:So you're not don't come to California.
Kim Walls:Right, yeah, I know, we have like people. Can we have professional tenants who can stay for years without paying anything because they know the system?
Joseph Marohn:Right, yeah, so I was going to say so like. As far as like the turnaround time are you, are you seeing statistically that you know tenants are staying more like longer term, or is it more like shorter term?
Kim Walls:It's. The average is eight to nine months and it varies by region. Yeah, it's pretty solid.
Joseph Marohn:Okay, so with so many people living under one roof, I can only imagine like maintaining costs must be high. I'm assuming like safety deposits are required.
Kim Walls:No deposits.
Joseph Marohn:No deposits Interesting.
Kim Walls:Yeah, it's a different model. Or maybe there's some small deposit 75 bucks or something. I actually don't know that there are no deposits, but it's not thousands. It's not your typical situation. Maintenance is handled by the property owner. So within the platform in PadSplit, they'll send you a message. If a member can send you a message like, hey, the refrigerator's broken or hey, my heat stopped working or what have you, and so the property owner is responsible to take care of those things.
Kim Walls:The kinds of issues that the pad split team takes care of is like disagreements between members, like so-and-so is eating my peanut butter or that kind of stuff. But actual property issues are the responsibility of the property owner or property manager. And do they have, like, their own contractors or is that entirely up to the property owner? Yeah, either. So in their core areas they do have recommended resources for property management and also construction, again, like they really want to make it easy for people to make this choice. So where they have their core regions, they provide recommendations and referrals and they do actually own a property management company called Two Keys, which is in some of their cities. So you can use them. You can not use them, it doesn't matter, as long as the needs are met. Some property owners are using like TaskRabbit and doing it themselves. But you can have somebody stop by and change a light bulb or what have you. So they don't even have property managers, they're doing it their own.
Joseph Marohn:Okay, and have you seen any HOA regulations?
Kim Walls:Yes, no HOAs. It's property, but in that condition the conversion is not allowed. So if they can't, it's kind of not working out for the most part for the investor. Like if somebody owns a property outright and they don't need to add extra bedrooms and all they're paying is their HOA fee, then it can work financially. There are exceptions, but it's generally a pretty hard like no HOAs.
Joseph Marohn:Okay, and then safety and security, absolutely critical when it comes to rental properties. How does PadSplit ensure the safety of its tenants and what measures are in place to protect them?
Kim Walls:It's kind of like a community effort, right? If you're living with six people and somebody's acting out, the five other people are going to report that.
Joseph Marohn:So everybody kind of looks out for each other. Yeah, yeah, okay, interesting, that seems to work. You know, if everybody's looking out for each other, you know that can work. So, like for someone considering renting a passive property, what advice would you give them in terms of choosing the right property and roommates?
Kim Walls:Oh, that's interesting.
Kim Walls:Yeah, let's put the shoe on the other side of the other foot for a second so you can see when you go into the platform to rent a room, you can see who's already living in that property and you can see a little bit about them.
Kim Walls:And I kind of have a love hate relationship with this because I don't like the idea that we're judging people based on how they look. I also don't really know any other way that they could do that without just kind of being like here's the person who lives here. So I guess at the end of the day it's kind of a vibe. But as far as like, what recommendations would I have? I think it's so personal, right. Like if I'm a nurse or a nurse's assistant, I could really imagine wanting to live with other people who work in the medical sphere, because they're also going to be having midnight shifts and not to say other industries don't. But or if I'm working in a certain industry or space, like even when you do bump into somebody to have kind of in the hallway, have something to talk about if you want to, that's a really hard question to answer.
Joseph Marohn:Well cause, I guess if you're kind of like looking for a room, can you see like who's kind of living in that space prior.
Kim Walls:Okay, yeah, yeah.
Joseph Marohn:Okay, that that helps. Yeah, I'm just trying to like put my on the other foot for a second and try to put my, my vision on them and see what they would be seeing, you know, but yeah, so yeah, go ahead.
Kim Walls:Before we go there was I can't remember who it was, but one of the Patsfoot reps is also an owner and she told a story of how somebody from who works in Amazon fulfillment came to stay at her place and they were one of the first people in and like a week later pretty much everybody who lived there was working at Amazon fulfillment. So you know they're talking about it. And then there was kind of another story with a grocery store. Somebody was working at a Vons and they were all excited about their pad split and so they went back and talked about it at work and then there were like four more Vons employees living there. So you know, there's some element, I think, of people finding each other and seeking out what they need, as long as they're paying attention.
Joseph Marohn:Word of mouth it's spreading. Yeah, that's cool. So you know, part of what I like to do, kim, is I like to allow an opportunity for our sub two community to have a voice in these interviews. And what I mean by that is, you know, whatever topic I'm covering, I'll ask if anyone has any specific questions and I'll make a post about it. And you know, one of the questions asked was by Jennifer Cortez, who I just recently did an entire interview with on transaction coordinators. So if anyone missed that can go back and watch my last interview. We covered a lot of great questions and I think you'll find a ton of value from it. But you know, jennifer's question was how do you get around the ordinances regarding how many adults can reside in a property?
Kim Walls:Yeah, there are a couple, a couple things there. One is they it's a membership, right, so had split sets up a membership. You pay to be a member, you get accommodations, telehealth services, microloans. So the definition the legal definition of unrelated becomes gray, because these people are now related through their membership and that's one of the pathways where, when they do hit legal issues, that they kind of battle on that level. Another benefit to being in one of the core regions is that they pay for legal support if you do run into an issue. So, unlike Milwaukee, where I'm buying a property, if we hit a legal issue we're on our own and that's not the case in other core cities. So for the most part, many places those regulations are being ignored that the city has put into place, because the city has a bigger problem, which is that they can't house people.
Joseph Marohn:Right, that's a bigger problem, which is that they can't house people.
Kim Walls:Right, that's the bigger issue right, yeah, the system is failing. We've got homelessness. We have people in Atlanta I think it's 10 years to get their Section 8 vouchers. We're failing our people, so I don't know.
Joseph Marohn:It's kind of a gray area, if you will.
Kim Walls:Yeah, yeah, is there a risk?
Joseph Marohn:Yes, you know there's a risk with anything investing.
Kim Walls:Yeah, there's also a risk of crossing the street and stubbing your toe on the curb and then breaking your face.
Joseph Marohn:Absolutely, you know. Next question was by Karima Radford and her question was how do you determine a good market for a pad split? And then, what are some good ways to measure the demand in a specific area?
Kim Walls:Yeah. So pad split, does that work for you? So first recommendation there is if pad splits there, it's a good market, most likely. If you want to look outside of it, then it's a matter of looking at what's the median income in that area. How much does it cost to rent a one bedroom or studio? What's the gap? Is it still? Is it 30 to rent the place to live? Is it 30% or more than 30%? If it's more than 30%, the more it is probably, the stronger the market is one piece. And then the factors about having multiple different types of industry, like Cleveland's not a core market, but it's got NASA, it has military nearby, it has museums, it has tons of grocery stores, it has an Amazon fulfillment center, like all these different types of jobs that are likely to have good fit people for the classic pad split model.
Kim Walls:So looking at job opportunities, median income, then there are other situations, right, like my Airbnb is in Mount Vernon, ohio. There's, no, there aren't any places to rent there. It's really hard to get a rental. Um, so finding places that where it's just there's no inventory and it's hard to put rental inventory unless you're creative, um, it's really hard to put rental inventory on the market anywhere right now because of interest rates. So if you have an area where the parameters are fitting, um, but there's not a lot of inventory for rent, so if you have an area where the parameters are fitting but there's not a lot of inventory for rentals, you might have shorter occupancy because maybe people are just kind of waiting out when they can go get their studio apartment or what have you. But it could be a great market where there's no rental inventory or low Great response.
Joseph Marohn:Great response. So I appreciate your answering all those questions. I think you covered a lot and provided a ton of value for someone looking to get started with their very first pad split, or even help answer questions to those who may already know about pad splits. You know or have some pad split properties, but, with that being said, I want to make sure that we don't leave any stones unturned. Is there any questions you can think of that we didn't address here today?
Kim Walls:Oh, let's see what do people want to know. Going through like property acquisition we talked about tools and resources available, time, time to convert. A lot of people want to know about that. So, from the time when you close escrow um to getting it listed, don't forget you have holding costs through that whole period, right Um? The fastest to getting something listed if there's a conversion involved seems to be about seven weeks, so I'd plan for about 12 weeks.
Joseph Marohn:Yeah, always, are 14 weeks to be, you always double.
Kim Walls:Yeah, to make sure you have that time. Another like just kind of tip is, if you're doing all the furnishings and you're trying to do it remotely, making sure that you can have everything pre delivered so that you can set up your place in one day. Maybe bring a few people in, put the beds together, put the kitchen together, kind of do it all really quickly so already have everything on site. Maybe it's in a garage or some people rent storage units for the month and a lot of storage units will accept deliveries and put them in the unit for you. So you need to have that and really keep track of all the things you've ordered off Amazon or Wayfair or buildcom or whatever it is, so that you're really ready to rock and roll.
Kim Walls:Don't let time pass Once you close escrow. Get that puppy listed as soon as possible, really planning for high-quality pictures. One of the reps I like the way he describes your listings on PadSplit. He says it's kind of like Tinder. Right, people are looking at all these places to look and they're swiping right, they're swiping left.
Joseph Marohn:Swiping. They're swiping right, they're swiping left.
Kim Walls:Swiping, they're swiping. The pictures matter, so making sure that it's properly staged and properly photographed can have a huge impact on occupancy and speed the film.
Joseph Marohn:I can see that, yes.
Kim Walls:Yeah, I'm trying to think what else. I can't really think of anything else, but you know where to find me. If you have any follow-up questions, I'm here for you.
Joseph Marohn:Well, that's what I was going to say. So if someone here today is watching this and they're looking forward to working with you or run a potential deal by you, or maybe just have a general question, where can they reach you?
Kim Walls:I'm at KimWallsLA on Instagram and it's K-I-M-W-A-L-L-S-L-A, and then Facebook I think it's just Kim Walls, because I'm old, so I actually got my name, and LinkedIn is Kim Walls, so I'm pretty easy to find. Google works too.
Joseph Marohn:It's a very common name, so we won't have no issue finding you. Yeah, yeah, okay, awesome. Well, kim, I thank you for your time finding you. Yeah, yeah, okay, awesome. Well, kim, I thank you for your time. You've been crushing it and I wish you nothing but continued success. I look forward to watching you your entire series on pad splits on the Zoom Vault and for those wondering what the Zoom Vault is, that's an exclusive access to sub two members only. If you're looking to become a member, feel free to reach out to me and I can get you in contact with an enrollment director. And, last but not least, make sure to like and subscribe this video. It not only helps with the algorithm, but it also helps keep getting value content out to those who are just starting in the real estate journey. If you have a video of mine or a specific topic you want me to cover, feel free to drop a comment down below and we'll keep bringing you that fire.
Kim Walls:Thank you so much, john. I really appreciate it. I'm excited to get to share what I've learned and I love your whole approach. I love that you make it easy and that you're providing such so much value to your listeners. So truly my heart, thank you.
Joseph Marohn:I appreciate you came in. Thank you for providing us with all this value. Thank you.
Kim Walls:You're welcome.