How Atlanta-based start-up PadSplit 'threads the legal needle' to provide affordable housing

An example of a PadSplit unit. (credit: PadSplit)

By Sean Keenan

Many housing experts have said one of the best ways to wrangle Atlanta’s affordability crisis is to diversify the housing stock, and one local start-up is on a mission to corner some of that untapped market.

Founded by affordable housing advocate and investor Atticus LeBlanc, PadSplit has introduced a model that allows landlords and property owners to rent out homes by the room for periods as short as one week.

“Generally, folks would choose to live in their own space, if they have that option,” LeBlanc told Saporta Report during a recent interview. “But there are really no options that exist between supportive housing or shelter arrangements and studio apartments, which are averaging more than $1,000 a month.”

PadSplit rentals, he said, are available to people making less than 80 percent of the area median income (AMI), and the company now operates nearly 500 units in Atlanta.

“Most of the general population doesn’t truly understand the desperate situation that we’re in and the need for affordable housing,” LeBlanc said. “And I would bet that most people don’t realize that folks they see working every day in their communities are actually homeless.”

LeBlanc’s system is novel, yet simple. Property owners or landlords renovate homes up to PadSplit standards — think new appliances, furniture, artwork, and security systems — and then pay the company a fee to orchestrate the rental operations.

Part of the allure for prospective PadSplit operators is the chance to watch investment returns leap from 6 percent to 9 percent, according to a report by Bloomberg. That’s thanks to energy-saving upgrades made during the initial renovations, coupled with the fact that rooming houses are less likely to be totally vacant than residences that require long-term leases.

If it seems like PadSplit just appeared out of nowhere and unregulated — a la Bird e-scooters —that’s because it did, and it is. During last month’s Atlanta Regional Housing Forum, LeBlanc told attendees of a panel discussion on housing innovation that his company “threads the needle, legally speaking.”

That doesn’t mean PadSplit is a dodgy operation, though. Boarding houses were largely outlawed years ago, although there are still slumlords who operate outside the parameters of zoning codes.

“The whole idea was to put those guys out of business and to take the same model and make it more accountable,” LeBlanc said. “We’ve done that within a fully legal framework. I would not want to go on record and say what that was and give all of those same illegal operators the recipe for how to get legal, but, suffice to say, we meet the definition of family in every jurisdiction that we operate in.”

Per Bloomberg:

Although Atlanta doesn’t allow rooming houses in single-family-home neighborhoods, PadSplits are designed so that the tenants meet the city’s complicated definition of a “single family,” up to six unrelated people, plus another four, as long as the latter occupy no more than two rooms.

PadSplit also works to ensure its apartments aren’t occupied by ne’er-do-wells. Potential tenants undergo a background check to weed out people who have been convicted of felonies in the last 10 years and those who have ever committed violent or sexual crimes.

But PadSplit hasn’t come on the Atlanta housing scene without some controversy; some worry the system’s lack of regulation needs to be addressed.

“I’m sorry, but when someone tells me they are ‘working inside loopholes in local laws,’ that doesn’t feel like ethical behavior to me,” Doraville City Councilwoman Stephe Koontz wrote in a Facebook post. “Until local government is allowed to register these types of properties with just basic ‘here is who you contact’ info, this is putting a huge burden on taxpayers hunting this info down.”

Responded LeBlanc: “We would love to be regulated. It’s the challenge of any innovation of any kind. The counter to that is that our entire concept was borne out of housing competition sponsored by the City of Atlanta, JPMorgan Chase Foundation, and Enterprise Community Partners… They were looking for solutions to solve [the affordable housing crisis] very quickly.”

As for the people who are skeptical of the new company that’s taking control of homes in low- and middle-income communities — where PadSplit has been largely operating — LeBlanc said it’s important that people know part of the start-up’s mission is to help combat gentrification and displacement.

In many Atlanta communities, homes are bought up by flippers who just want to sit on a property while it appreciates in value. In those cases, as well as with conventional rentals, homes are liable to fall victim to blight, due to a lack of oversight, control, or upkeep by the owners or tenants, LeBlanc said.

“Our niche is to exist as a far more attractive option to those neighbors than either one of those,” he said, noting that PadSplit properties won’t become blighted and unsightly, due to company standards.

Still, Georgia State University urban studies professor Dan Immergluck told Bloomberg he’s unsure of PadSplit’s longevity. He understands there’s a demand for more affordable housing, and that PadSplit helps fill the gap, but as property values and taxes rise in fast-evolving metro Atlanta, selling property could become a more appealing avenue for owners than renting.

But for now, PadSplit is expanding as an affordable option for minimum wage workers, traveling film industry professionals and musicians, recent divorcees, and anyone else in need of a short-term stay.

This story was updated for clarity.

4 replies
  1. Avatar
    Atlanta Resident says:

    Just say NO to the return of rooming houses; it's a sure way to trash a neighborhood. Better, I think,, to extend some
    tax credits to single family detached rental properties for offering reasonable rent just like is done for the big developers
    who offer some set-asides to accommodate affordable housing. Bringing back the awful rooming house concept is
    destructive.

    Yes, there are some landlords who raise rent out of sheer greed, however most would prefer to retain a good tenant &
    only raise rent to compensate for rapidly escalating property taxes & insurance.Report

    Reply
  2. Avatar
    urban gardener says:

    It amazes me how much of the working renter's new reality is never discussed….
    My partner was just approached last week if there were any rental properties he could buy off us; he flips rental to Airbnb and is quickly building a large holding. Where a traditional year-lease rental runs $1,000/mo, he gets at least $2,500/mo. Some places even more. So what was once relatively affordable rental stock is now off-market.
    Roll on top of higher revenue stream that the owners don't have to pull business licenses, get inspected, remit hotel/motel taxes, etc, and it's a great racket.

    Conversely, many rentals have been purchased by private equity firms which have strict and high requirements. For a relative dump of a house the corporation likely requires a high combined annual salary with multiple pay stubs (difficult for many working poor or folks who've just moved to town/changed jobs/pay raises) and application fees ranging from $300 to $1000, along with 2 months rent deposit. Worse, these are faceless corporations, no longer a local landlord who can suss out a stable set of tenants who'd make decent tenants.

    Regulating the rental market to protect working residents seems much more to the point than having another "distruptor" come in via skinnying thru loopholes.

    And funny how some of SplitPad's poor underserved tenants are movie folks who otherwise are helping drive the gentrification of short-term rental properties… Meanwhile felons, some of whom may really need a good purchase in modern life to turn a leaf, are actively discriminated against.

    Hmmm….Report

    Reply
  3. Avatar
    Katherine says:

    In a way, I wish boardinghouses WOULD come back. There are times when one really does NEED just a room and a bathroom down the hall. People who could benefit from this are single people with no children, people who are going through a breakup, older students who are way, way! past the partying scene, or a SERIOUS student no matter what age, someone who does not have transportation (for whatever reason), someone who is in town checking on family or business, ETC.! Plus, if the owner so chose, meals could be included.

    Anyway, to be ABLE to rent a room – just a room – would be a big help to many, many people in many and varied walks of life. The rent in a "real" apartment or house plus the utilities, plus insurance can be so OUT of reach that, yes, some quite decent-looking people DO live in their cars or a tent or something. So, this PadSplit company sounds pretty cool! And, I hope it thrives AND catches on in other cities. It's obvious that the folks who came up with this idea (and others who have similar mindsets) really care and have a HEART. Things may need to be tweaked, but we learn by seeing how things work and by seeing mistakes in action, and this company has a gold-trimmed goal that's centered on helping others MAKE IT! How awesome!Report

    Reply
  4. Avatar
    Dekalb Resident says:

    While I agree that affordable housing is of great concern. Padsplit is a boarding house. It May have a good screening process and maintain the property but make no mistake this is money making business. The loser in this is the senior citizen across the street who has worked and paid to live in a single family subdivision. A single family could be renting a home, even a section eight house is a single family house. This is where padsplit threads the needle. Along with the number of people are the number of vehicles and people coming and going all day. No one could sell a house with this operation going on. They are making a killing and only paying the tax on that single family home. This comment is not hypothetical I live it everyday.Report

    Reply

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.