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Sticking with the Mission

PadSplit’s Unique Co-Living Platform Empowers Investors & Residents By Carole VanSickle Ellis You can do good and do well simultaneously,” Founder and CEO Atticus LeBlanc (yes, named after that Atticus) asserted when he talks about PadSplit, the Atlanta-based co-living marketplace that has spread far, far beyond its initial metropolitan base in the southeast to 10 markets around the country. “At our core, we have a mission to help solve the affordable housing crisis one room at a time, but investors also need to earn a significant return,” he continued. “If they get paid more for doing good, which is sometimes controversial, it only incentivizes them to create more supply!” LeBlanc founded PadSplit in 2017 with Frank Furman, who serves as the company’s chief growth officer, and Jon O’Bryan, the company’s chief technology officer. The CEO seldom mentions the affordable housing crisis, the problem the public benefit company hopes to resolve to solve, without also detailing the benefits that contributing to the solution to this problem brings to PadSplit “hosts,” the property owners who own the co-living properties listed on the platform, and the investors who work with the company. “PadSplit is a marketplace that empowers the millions of individual entrepreneurs all across the country and around the world to take an asset in which they are already investing and make it more profitable while making it more affordable,” LeBlanc said. The key to this seemingly “magic” combination lies, as the company’s national fund and partnership manager Shani Franklin explained, in aligning the incentives for success across all parties from passive investors to active hosts to the residents who live in the properties. “I am passionate about homelessness prevention because I was, at one time, homeless myself,” Franklin said. “Solving that part of the equation and helping residents find a respectable, affordable place to live is extremely important. The best way we can do that is to increase profits for our investors.” The entire PadSplit team is clearly dedicated to maintaining the win-win scenario for hosts and residents, noting that the only way that this type of housing solution can spread is if it pays for investors who rely on their returns to support their own families, communities, and passions. LeBlanc recalled his initial forays into real estate, noting that when he realized he had enough to support his family and sustain college tuitions and retirement, his interest shifted to leaving a legacy for “positive impact in the world.” As an urban planner by training, LeBlanc had already utilized his formal education to improve neighborhoods where he was purchasing rentals, including working with two neighbors facing foreclosure who ultimately rented rooms from him. “That was my first ‘ah-ha’ moment,” LeBlanc recalled. “Those two men were working hard, living in a house that had a tarp on the roof for a year and no air conditioning in Atlanta, Georgia, and they had no other choices.” He worked with the men to establish a room-rental arrangement in the house he owned next door to their property, figuring out what would be needed in terms of furniture, payment processes, utilities, and weekly payments. “It was easy to see that we were reaching much greater levels of affordability and, in terms of returns, it was significantly more profitable at the same time,” LeBlanc said. “In order to scale and support our mission, we must be hyper-focused on investor returns,” emphasized Furman. “Investors, both in the fund and the investors who use our platform to list their properties, are our growth engine.” Part of a Mission for Public Good Because the PadSplit platform facilitates rental properties on a co-living model, residents of these properties often are low-income workers who might not qualify for a traditional rental. When would-be residents cannot qualify for traditional rentals, which typically require relatively strong credit scoring and an income roughly three times the amount of the annual cost of rent, they have historically been forced into unstable situations in which they are couch-hopping or relying on homeless shelters. Co-living via the PadSplit model, however, enables a resident to pay far less than local market rental rates and provides them with additional benefits like reporting of on-time rent payments that can improve credit scores, job-matching, and telemedicine. “Our goal is to help these individuals stabilize their situation or ultimately transition to more permanent housing of their own,” Franklin explained. While listing co-living opportunities on a web-based platform may be a relatively new concept, co-living itself is older than recorded history. In modern history, co-living can be traced back to 19th century-era boardinghouses, but Neolithic longhouses date back more than 7,000 years. “We did not invent co-living, and we did not even reintroduce it,” laughed Furman. “This is something that exists in every municipality in every area from college students housing together to seniors who want companionship. We like to think we do it better.” At its founding five years ago, PadSplit was structured as a Public Benefit Corporation. Unlike a nonprofit, which does not have owners or shareholders, benefit corporations, sometimes known as B corporations, have shareholders and expect to generate returns. However, public benefit corporations are mission-driven for social and public good and offer enhanced accountability and transparency to investors and shareholders. “Our mission is a huge part of who we are,” LeBlanc said. Franklin chimed in, “That social-impact component is so important to our investors, especially those who are interested in owning properties or assets in markets that really allow them to make an impact.” The Tougher the Market, the Better the Odds Another aspect of PadSplit investing that appeals to many real estate investors these days is the split-rent system that maximizes rental income on each property. “In major U.S. markets, [traditional] rents are lagging behind,” said Carl Bassett, a PadSplit investor who began converting his traditional rentals to PadSplit rentals in 2019. “If you are keeping assets as rental properties, these days there may not be enough rental cash flow to catch up with the cost of

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Our Short-Term Rental Adventure

Not as Simple as YouTube Makes It Look By Lori Wyatt My journey into the world of Short-Term-Rentals (STRs) began as an unhappy accident. I had purchased a home in 2006 as my primary residence. By 2012 we needed to move but were still underwater. We decided to rent to a long-term tenant. At first, she was great, but two years in she lost her job and became the tenant from hell. On her way out the door, on a particularly cold Chicago day, she shut the heat off. By the time I gained access, the worst had already happened. As I opened the door, I could hear a sound similar to Niagara Falls rushing through the entire house. A full year and $110,000 later the house was put back together. By then it was 2015, and I could have sold it but wasn’t sure. When faced with the thought of another potential nightmare tenant, I couldn’t do that either. I was approached by my neighbor who had been running a successful traditional rent-by-the-room sort of Bed and Breakfast. They lived on the top floor and rented out the other seven bedrooms in the house. He offered to rent the house so he could add more rooms. We couldn’t agree on a monthly amount, but it got me thinking. If he is having so much success, I should give it a try. We dragged out every piece of spare furniture we had, hit Facebook for some used furniture, snapped a few pics, and thought we were good to go. Our hopes at the time were that we cover our mortgage. The day we put our first property live, we were blown out of the water at the response as requests started rolling in. We were stoked. Initially, we hit some speed bumps and bad reviews as our crappy furniture didn’t cut it and we needed to upgrade fast. But we could also see that things get beat up, so what to do? We found a high quality used furniture liquidator and started upgrading. Each year, we found a new property and renovated it to add to the portfolio. By 2020 we had six properties. They were all in an area called Bronzeville which was a Southside neighborhood that used to be home to the Robert Taylor and other notorious low-income housing projects. But, there was a convention center, U of C had both the school and the hospital, and there were several wedding venues nearby. And it was 15 minutes from downtown. We had a great mix of convention goers, sports fans, and families coming for a graduation or wedding. Then COVID happened. When it was announced that the St. Patrick’s Day parade had been canceled, we knew we were in deep trouble. We had been toying with selling our house in the near future, but the near future became immediate. We put it up both for sale and rent. Less than a week later, we had a renter who needed to work remote and couldn’t do that with his two young sons running around. We moved into one of the many empty Airbnb’s and got to work. Everything was up for grabs. Some we put up for rent, some for sale. We needed to pivot and fast. Luckily, the market was on fire, so we quickly sold two, rented two. That left us with two; one we were living in as we sold our original primary. That home was a two unit, so we still rent one as a furnished short-term rental, but only for a month or more. It’s less work, and a more professional crowd, and since we live right on site we like it better. The last house was a challenge because I did NOT want to let it go. This was the original house that had been blown up, and I wasn’t letting it go. So, we rented to short term medical professionals, insurance companies looking to house a family whose house had burned, and a girl who produced a cooking show, and a few other families looking to relocate. Conventions have not really come back yet, and I don’t know if they ever will get back to pre-COVID levels. We still own two of the other properties, but without business travel fully rebounding, it’s best to keep them rented with long term folks for now. One, we will most likely sell soon. We do plan to rebuild our small portfolio, but we won’t do so in Chicago. Short-term rentals are a lot of work. We never trusted anyone to run them, so we did it ourselves. It’s a great business, and you can make a lot of money, but it is not some get-rich-quick situation, as portrayed on YouTube. As more commercial operators enter the space, the bar is raised, meaning finishes and furnishings better be A+, or get ready for bad reviews. It’s amazing to me when I go on Airbnb or VRBO the shift I have seen in some of the homes. Travelers expect hotel quality beds, sheets, pillows, towels and swank furnishings. If you buy cheap trashy furniture online, expect that you will be replacing it within six months. These are the small things that eat up your profit. Overall, we have met some amazing people and been able to travel much more because of our extra income. My husband and I are a blended family totaling nine children between us. Our houses are large and fit large groups because we know if you have a large family or travel with extended family, STR’s are the only way to go. We are heading to Europe this fall to explore the idea of owning a STR in France. The possibilities are endless. As we build our portfolio again, we will be mindful of where we go and who our audience is. We will build in places we would enjoy going and places that are business friendly. Great professional photos are a

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Managing Risk in a Buy-and-Hold Strategy

Do Things Right to Make Your Long-Term Strategy a Successful One By Laura Niecikowski Congratulations — you have decided to hold onto your last renovation project and become a landlord. It’s a big step for any real estate investor but especially so for someone accustomed to turning fix and flips. There is a different set of risks and liabilities associated with properties you hold, so how you manage this new type of investment and the insurance coverage you decideon should adjust to fit a long-term strategy. Finding the Right Tenant First, run a background check. Leasing to the wrong tenant can result in late rent or non-payment of rent, damage to your unit, and expensive and time-consuming eviction costs. It is important to run a background check every time for every tenant to minimize costs and help give you peace of mind. A tenant background check will generally show criminal history, rental history, and credit history and payment ability. If you are looking at a potential renter’s credit report, don’t just look at the credit score, as that may not tell the full story. Instead, look at the number of addresses on file over the last 5-10 years and the payment history for rent and credit cards to determine if they would be a stable, long-term tenant. You will also want to verify income for all signers on the lease — using either paystubs for the last month or other official documentation. A phone call, in this instance, might not work. For example, your prospective tenant told you she works at a retail store and gives you the cell phone number for her boss…. who isn’t really her boss at all but a girlfriend ready to say whatever is needed so the prospective tenant gets the apartment. State and federal law limit what can be reported on a background check, but most do provide information on criminal convictions, any pending criminal cases, and any history of incarceration as an adult. In the end, background checks provide you with a more level playing field when deciding who to choose as a tenant. Before Move In You found the perfect tenant. Before they move in, we recommend a walk through that includes photos that are dated. Pictures should verify current condition of the unit, both interior and exterior, if appropriate. It is often a good idea to include language in the lease that outlines to the lessor that condition of the unit was agreed upon and verified with photos and a physical inspection. Next, you should require a certificate of renters insurance with you named as additional insured — for every tenant, every time. By requiring a certificate of insurance, particularly for multi-family buildings, you provide your tenants with the assurance that you want responsible people in the buildings you rent. Renter’s insurance is important to protect the personal property of the renter in addition to being an extra layer of protection for you. If one of your tenant’s guests falls in the tenant’s bathroom and sustains injuries, whose insurance coverage kicks in? Their renter’s liability, then possibly yours, which means in this instance, there might not be a claim against your policy — which can save you time and money. New tenant have a pet? Almost 70% of US households do, so it might keep your units filled if you allow them. But if you do, you should also understand the risks and require renters to add on pet liability coverage just in case. Be aware also that some breeds of dogs carry more risk of bites than others and may not be covered. We also strongly encourage you to have signed leases for all tenants — even if they are a friend or relative. Signed leases are legal documents and outline the responsibilities of both parties in clear language, so if something occurs, there is no he-said-she-said battle, and everything falls back to what is in the written, signed document. Types of Coverage for Landlords So, you found the perfect tenant, they signed a lease and scheduled a move-in date. Now you need to make sure you have the right types and amounts of insurance coverage because the wrong decisions on insurance could mean the success or failure of your real estate investment business. Do not skimp on liability coverage thinking you can get by without it for a while. Accidents happen and people sue — and you need to be ready and covered. General liability covers accidents that happen on your property and covers things like bodily injury, property loss or damage, and advertising injury, so it is a must. Many new landlords skip over obtaining sewer and water line backup coverage and flood. Skipping flood insurance might be possible if you are not in a flood zone. But sewer and water line backup is an add-on that makes sense in most cases, because this coverage generally includes backup fromthe main sewer line into anywhere in the house — like the bathtub. While you may have redone the pipes in the house, it is unlikely you redid the line running to the house and that could be clogged with tree roots and cause problems down the road. Rent default is additional coverage if your tenant can no longer pay the rent but loss of rental income is related to a property that is no longer habitable – both risks but very different. Running background checks helps mitigate the first risk but there isn’t much you can do to stop a tornado from ripping a roof off. If that happens, you will need Loss of Rental Income coverage to ensure cash flow while the repairs are done. And, add on an Umbrella Policy. This coverage does exactly what it says — provides an overall layer of protection in case your other coverage is just not enough. Property Maintenance Because you have decided to hold for the long-term, maintenance comes into play. As a landlord, you have a responsibility to

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Make Your Flooring Go the Distance

Flooring Advice for Real Estate Investors By Fred Harris Statistics show that 95% of flooring issues experienced at an investment property can be traced back to improper installation and have nothing to do with the flooring materials. Manufacturing defects can occur, but most hard surface flooring materials available today should be expected to last 10 to 20 years and still look great. Carpet has an expected lifespan of approximately five years, even when installed and maintained properly. Hard surface flooring is the obvious choice, but how do you ensure it lasts for a decade or two in your investment property? Here are three pieces of the best flooring advice for all real estate investors: Do the moisture testing, do the subfloor preparation, and use trained installers. Do The Moisture Testing Today, waterproof flooring is the norm. However, people often accept the term without really understanding it. What does the term waterproof mean? In a lab, waterproof means that the material does not retain water and is not transformed by water. This makes the flooring incredibly resilient for the normal drips, splashes, and spills of a household or business. Waterproof does not mean that the flooring is immune to every type of liquid or chemical and a concrete subfloor is where this matters most. Concrete always has some level of moisture, and the levels change over time under various conditions. High levels of moisture in concrete make it likely that flooring will be exposed to moisture from below during the lifetime of the floor. When that happens, it is never pure water. Moisture coming up from the subfloor contains a harsh chemical balance that damages flooring materials or the adhesives used for installation. For this reason, there are international industry standards that require the same testing for humidity and pH before installing all types of flooring. In practice, moisture testing is rarely done. What may appear to be a good shortcut can easily turn into an expensive education of moisture related flooring failures. You should consider moisture testing and mitigation an essential part of your due diligence for any investment property. Do The Subfloor Preparation Doing a job well often requires a significant amount of preparation in advance. Professional painters will tell you not to be surprised when the prepping takes more time than the actual painting. Flooring installation is no different. The quality of a completed floor project is primarily determined by the condition of the subfloor beneath it. Preparation requirements vary depending on the type of subfloor and the type of flooring being installed, but there are four common elements across the board. Level And Flatten the Subfloor It always surprises rookie renovators that walls are not straight, rooms are not square, and floors are not flat. Even buildings constructed with great care by professional craftsmen will end up with some variation in every dimension. Each type of flooring available has well-established industry standards providing clear tolerances for how flat and level a subfloor must be and exceeding those tolerances will cause flooring problems in the future. Correcting an issue in the subfloor will require some time and effort, but it will always be less time and effort than the future flooring repairs that will arise. Thoroughly Clean the Workspace Things get dirty during a renovation project. Drywall dust is everywhere and there seems to be an endless supply of wood pieces, cardboard, and rocks and dirt. The electrical wire droppings of the fast-moving electrician are well known and documented. Cleaning up is a dirty job, but even small pieces of debris left on the subfloor can easily become big expenses down the road. Over time, those pieces of debris will compromise the materials and begin to telegraph through to the finished floor. The unsightliness and visible bumps or cracks that develop are just one part of the problem. The debris left behind puts additional stress on the flooring joints, which can cause physical damage and become a liability to you as the owner. Bottom line: a good broom and shop vacuum can provide an excellent value for ensuring a good flooring installation that lives up to its promises of longevity. Protect Against Moisture with A Moisture Barrier The downfall of even the best moisture testing is that it cannot foretell the future. Unpredictable weather, changing seasons, and other environmental factors cause moisture levels to ebb and flow throughout the lifetime of a building. The smart move is to install a moisture barrier regardless of the current test results. Adding an extra few cents per square foot in advance can protect against huge losses down the line. Use Trained Installers When you want a flooring project done right, do it yourself, if you are a professional flooring installer with the appropriate level of training and tools required for the job. Unfortunately, general contractors and even professional installers are not always properly trained to install flooring. Ask questions to verify credentials and experience with the specific products being installed. One clip system is not the same as all the others. Different adhesives have varying cure times and application techniques. Some primers and adhesives should never be used together. And techniques used to speed up installation can end up compromising the integrity of the entire floor. For example, using fans to dry primer or adhesive is a common technique, yet it is such a bad idea. Every manufacturer provides the guidelines you need to know for their products. Great suppliers will provide training and consultation for free or at a minimal cost. Get the details right and avoid expensive repairs, claims, and legal costs. Hard Surface Flooring Is the Smart Choice You want your long-term investments to provide great returns and increase in value. Sometimes that requires a little extra investment upfront to reduce expenses and protect your assets in the long run. Do not put yourself in the situation where you must redo the flooring in 4 years because of a problem that could have been avoided from the

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“Boots on the Ground”

The Benefits of Leveraging a Property Services Provider By Andrew Nolan While consumer home sales show signs of slowing, the single-family rental (SFR) market remains strong. According to John Burns Real Estate Consulting, the SFR industry typically benefits from rising mortgage rates as the for-sale market cools with some potential buyers moving to the sidelines and current SFR tenants staying in place longer. For buy-and-hold investors in the SFR space, this bodes well for their strategy. Not only does it point to an ample pool of renters, but also provides a growing inventory of additional housing stock — especially for all-cash or low-leverage investors — for those seeking to expand their SFR holdings over the next 18 to 24 months. As fast as the SFR industry has grown in just the past few years, it has been a challenge for owners and operators to have all the knowledge, skills, manpower, and bandwidth to handle the many facets required to successfully grow and operate a profitable portfolio. Investors have varying degrees of experience in each aspect of the industry while others have experience at the corporate level but not the local level. This has led to property services providers like MCS entering the SFR market to become an extension of SFR owners and operator’s teams, providing a variety of “boots-on-the-ground” services that might otherwise be challenging for investors to handle on their own without a large — and potentially expensive — team in place covering multiple markets around the country. In some cases, property services providers leverage a network of vendors and subcontractors to perform the work, while others self-perform the core functions with their own team of employees. MCS employs a hybrid model to provide maximum coverage across the largest SFR markets. Regardless of the approach, technology, processes, and procedures must be in place to manage work orders, coordinate project management, ensure quality control, and track budgets, among others, adding additional layers of complexity and cost to owning and managing a growing SFR portfolio. There are four main areas that buy and hold investors can leverage most when partnering with a property services provider. Inspections From pre-acquisition through post-moveout, inspections are an integral function for any buy-and-hold investor. It’s imperative to understand the condition of a SFR property, potential rehab time and costs, and extent of any damages when making a purchase decision, as well as decreasing any down time — and lost revenue — of a rental property when preparing for a tenant turn. Additionally, owners and operators may need home health occupancy inspections, loss draft inspections, and quality control compliance inspections, among others, to ensure properties are maintained and repaired as intended. Detailed and customized inspection reports can be invaluable throughout the lifecycle of a SFR investment. Ongoing Maintenance Tenants expect timely and professional service, along with quality work, when repairs are needed. Landlords need to ensure routine maintenance occurs to help protect their long-term investment while providing tenants full value of the homes they are renting. From landscaping to plumbing and electrical to general handyman work, ongoing maintenance becomes a core component of keeping renters satisfied and in place which means uninterrupted and recurring revenue. Rehab & Repair Seeing the potential of a property is key to achieving the financial objectives of an investment. That often means undertaking significant rehab and repair work to get a property up to appropriate standards before the leasing process begins. These types of projects can range from installing new flooring, painting and minor repairs, all the way to full renovations or remodels depending on the rental rate. Additionally, older homes often need new HVAC, roof repair or plumbing overhauls to reduce ongoing maintenance expenses and increase satisfaction after a tenant moves in. Tenant Turns As time passes, it’s inevitable that tenants move out. Investors then need their SFR investment prepared for the next renter as quickly and efficiently as possible. These turnover services range from basic repairs to deep cleaning to transferring utilities, as well as painting, re-keying and other basic items to make sure the property is ready to welcome its next occupants. At times, eviction management or security services may also be needed to protect your investment. Leveraging a property services provider for these and other services can provide several benefits for SFR buy-and-hold investors: Faster Occupancy Property services providers have established processes and procedures, existing technology platforms, and accessibility to the necessary trades to complete work on time or ahead of schedule. This can lead to shorter timelines to complete property rehabs or perform tenant turns, allowing tenants to move into a home quicker, resulting in less downtime and more rental income. Field Presence & Support Property services providers act as an extension of your team, ensuring projects are completed to established specifications at the agreed upon budget. With property services providers performing the work themselves or leveraging their vendor partners, investors don’t have to source and manage a network of subcontractors, handymen or maintenance staff and can focus on the profitability of their investments. Qualified property services providers are responsible for quality control throughout the process and should be able to provide visibility and transparency into each assignment through a client-focused technology platform. Quality Work Property services providers ensure employees and vendors are trained to complete assigned work with the highest quality that aligns with local code requirements by leveraging proven policies and procedures. Additionally, qualified property service partners handle the required licensing, insurance, and regulatory requirements, reducing your potential exposure. Purchasing Power Larger providers leverage the purchasing power of national partnerships to secure materials at lower costs to help maximize your investment. When evaluating property services providers, investors should make sure that potential partners are able to provide these services and benefits at a minimum, as well as understand who is performing the work — the partner’s team or third parties. Buy and hold investors in the commercial property and multifamily arenas can also find it beneficial to partner with the same types of service

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