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[00:00] This video is for you if you are searching for cash flowing [music] investments or if your money is stuck on the stock market roller coaster. This is a calmer asset with better control, albeit it is less liquid. It's buying a $300 to $450,000 single family home in Tampa and turning it into a pad [music]
[00:16] split. Yes. Yes. I've talked a lot about this, but it's more cash flow, solid appreciation, and tenants are lined up by the platform. So, I'm going to show you how this works. So, I hope you already watched the padsplit 101 video I made. Today is the how to make it pencil video. We're
[00:35] building the case for a house that pays you consistently like a multif family without buying a multif family because those are, you know, a little bit unreasonable right now uh to some investors. We're going to cover the right property, the room count math, what Padsplit handles, what you handle,
[00:51] re realworld expenses, um operational costs, that type of thing, and how to protect your downside. So, all right, let's start from the the beginning. Why Tampa for padsplit? Well, Tampa checks three boxes. There's job growth, population inflow, and year round demand for workforce housing. I'm going to
[01:10] translate that for you. It means more renters than rooms. Padsplit focuses on co-l livingiving for working adults. So occupancy tends to fill around 30 to 45 days, but uh could take a couple months just to be real, but you're not waiting on one family. It's not like a long term where you're collecting zero income for
[01:28] those months of vacancy. You're separately filling individual rooms. So that spreads out risk and it does even out the income. The buy box we're going to talk about within the 300 to I don't know 500,000 range. We're going to aim for a workable layout that prevents you from having to work around
[01:45] too many uh poorly designed rooms. So, really, you want a layout that prevents you from having to move too many walls, doors, electrical, and even like the HVAC, ducts, that type of thing. We're going to aim for 1,600 to 2200 ft². It's a little arbitrary. The more the better, but you know, there is a minimum square
[02:04] footage that really makes sense. Decent neighborhoods near transit or job centers. simple but quality finishes and that's whether you buy it as is or you put those in and you you just want the the finishes to be durable and please please know HOA. Now there are many variables that it
[02:23] really helps to put them all into my calculator and get an idea of uh what works and at what price and rent rates. So for example, if it's a three-bedroom, two bath with two living areas or a garage, you may be one wall away from another room, right? Right? And that's a lot of income. So, that's where an
[02:41] expert really needs to come in, help you [music] walk the property, especially if you're newer. How Padsplit, the company fits. Let's answer that question. Padsplit is your roommate platform. They market, they screen for your criteria, and they handle uh weekly payments for members and to an extent evictions.
[03:02] You set the house rules, utilities are included in the room rate, and you get one payout. Now, you still own the asset, of course, and you handle the maintenance and really all the in-person stuff. So, that includes turns and like the cleaning, the cadence of that. Think of Pads Split similar to uh Airbnb, and
[03:21] I'll probably mention this a couple more times to really hammer it in. They're like the marketing and payment collection platform. [music] Uh, by the way, check out my recent video I did with a Padsplit property manager nearby who he runs a thousand units in Tampa. I love talking with him. Uh, because
[03:37] you're really going to need to understand how important having a property manager is for a property like this. It's not something you can self-manage simply or efficiently or easily or all those all those adjectives. Let's talk about the room by room
[03:50] revenue model. So, there's a big shift from my padsplit 101 video. You're not pricing a house, you're pricing beds. So, eight rooms, let's do an example here. Eight rooms at say 185 per week each. That's about 780 per uh month per room. And let's say uh at eight rooms gross
[04:12] could be roughly 6,600 a month if occupied. So, even with a vacancy or a late payer, the other rooms keep chugging along and your income is diversified across many rooms. So, that's the nice thing about it. There's the operational cost. You must budget our utilities of course cuz the renters
[04:28] are not coming in and setting up power or water or internet or all that stuff. That is one of the beautiful things about uh the benefit to them is the simplicity of moving in and the speed of which they can do so. So you're covering power, water, uh sewer, trash, internet, uh lawn care, and of course cleaning. So
[04:47] Fred with PMI Palms and many other owners um recommend one common room cleaning per month. Now, you know, do we clean up after ourselves? Yes. Are people supposed to do that? Yes. But ultimately, messy houses lose members and not everybody's clean. So this and listen, this also helps keep the rules
[05:06] intact because when they see people coming in monthly, as Fred talks about, it kind of puts a standard out there. So, there's also turns roughly $40 per basic room turn. Now, it might vary depending on where you are and who you're using to to manage your property, but I I like to see $40 per basic room
[05:25] turn cuz you're just cleaning a room. So, if you're turning eight bedrooms a year, factor 8 time 40 into your numbers. Now, maybe a little bit more depending on how long your average stay is, but you know, that's that's more advanced. Platform fees and payment processing. So we have 8% by padsplit
[05:44] and they charge 10 days worth of the first rents to Padsplit as their tenant placement fee. Hopefully that makes sense. So Padsplit has a tenant placement fee of 10 days worth of your rents. So churn is costly. I also budget 6% to the property manager but you know
[06:02] depending on who you use it could be 8% it could be less. Uh again Fred at PMI Palms he talked to me he charges a flat rate. Um, now in tandem with the monthly cleanings and some of the other miscellaneous costs, it ends up being about 6% a month. So we have insurance, that's pretty standard. And then we have
[06:20] taxes and vacancy. So I am underwriting at 10% vacancy right now. It does depend on what zip code you're in. So I'd look at it, but I think 10% is pretty average. Some places it could be as low as five, could be as high as 15. Next, let's talk about capex and maintenance reserves. So I like to set aside a
[06:36] healthy reserve, right? especially the first 12 months, 10% maintenance and capex, which is quite a lot at 6,600 gross. If numbers still work after these, I think you've got a deal. If they only work before them, you better be careful. We should talk about the layout and the design. Um, that really
[06:54] allows for your property to be profitable. So, we have our property managers or padsplit account executives that can step in here to help you get this piece correct and design really to your specific property. But there are a few things we can hit on right now. I believe in opening master bathrooms to
[07:12] common areas if allowed and accessible. Master bathrooms do generate more income for that singular room, but listen, I think a I think a better ratio is preferred long term for convenience of the members. So more bathrooms towards like a 1:2 or 1:3 ratio bath to bed is desirable to members, right? Because you
[07:32] want to have more options when necessary when the urge strikes. I think it's important to have keypad locks on every bedroom keeps everything quiet, safe, and trackable. Uh durable floors are a must. Wipeable paint, similar furniture feels consistent. Uh there's storage hooks, there's desks, mini fridges,
[07:48] shelves per room, and labeled kitchen zones are very helpful as well. Now, these are all things that your property manager can really help you not just like think about, but also put in place. And I think, you know, you're selling convenience and predictability. So, members will pay a
[08:07] little bit more for that. All right, let's do a sample under right here. Let's say a purchase price of $390,000. Um, let's do all in. Let's do um let's do $20,000 for the rehab budget. This will be a mostly turnkey property. So, the 20,000 is like walls, doors, you
[08:33] know, electrical out extra outlets and stuff like that. And then we'll do $10,000 for the pads split um uh furnishings. So, the onetime setup cost. So, we're just going to do I'm going to remove points here. Depending on who you're using as a lender, you can always add those in. You know, we we'll just
[08:51] keep a point actually just for uh kicks and giggles here. So, we'll do a 7% which I think is a little bit um very fair and reasonable right now. Could probably get lower. And we're not going to increase the after repair value because we're not really increasing the value of the
[09:08] property. We're reconfiguring [music] it with the 20,000 and the and the extra cost. Our all in here is 420 because you have 390 plus the 30 and then we're going to have uh all of our financing costs are set up here. We're not using HELOC. Uh taxes we're going to estimate it uh 1.7%. Insurance 1%. It's pretty
[09:27] fair and reasonable. Could be a little bit less. And then our passplit fee is 6%. Down here we're going to modify this to a $325 a month electric. We're going to modify this to aund I don't know $75 a month water sewer uh water sewer and trash. I'm going to turn that off. And
[09:48] internet 65 lawn 120 and pest control will do 75 a quarter which is 25 a month. [music] No pools and pads split cleaning roughly 110 a month. So, I'm going to go down to the pad split tab I have built out here, and we're going to do eight rooms at uh 190 a week, 10% vacancy, which means
[10:14] 90% occupancy. We're going to do this is a longer stay than normal. This is a year average. So, if you have one move out per year and you have eight rooms, that's about one move out per year per room. Uh it could be a little bit more, it could be 10, right? And you can see how that affects your monthly and your
[10:31] total annual uh churn costs per year. I'm just going to move this back to eight. If you do a property right, I think you'll have more than eightmonth average. So, we have um effective gross income is just under 6,600 a month. And that's because this is already taken out the
[10:50] occupancy. So, effective gross income is um basically your gross minus your your vacancy. And we're going to do the pads split platform fee of 8%. We already have our 6% for the property manager baked in. And we have utilities, internet, cleaning line. I went through all that stuff already. Tax, insurance,
[11:09] now capex and maintenance right here. 5% each. I think that's pretty fair. Um, and listen, this is not like a unicorn deal by any means, but I think a couple years ago, you would have been ecstatic to just put um, you know, 117,000 into this property total and be getting back 334 positive cash flow a month. So, I
[11:35] think if you underwrite, if your underwriting clears your target cash on cash, you should probably move on it because there's not many things in Tampa right now that are cash flowing in the low 300 range or the high 300 range or the 400 range or the Well, I could go on. Next question. Debt or cash?
[11:51] Sometimes we get this question and you know, uh, both can work. Obviously, it's your call. With financing, your cash on cash looks amazing because you can buy more of those properties with, you know, the same amount of of uh leverage. With cash, you mitigate risk near zero and you probably sleep a little bit better,
[12:08] but it just depends on on where you are right now in your life. Now, this is crazy, but let me show you the numbers on a cash deal. I'm going to switch this over to cash and we're going to go back. Now, this is like a tiny like a small salary. One house is like a small salary with a cash
[12:26] deal. Now, if we bump this up, let's say we were able to get nine rooms out of this, which is not unreasonable at this price. Um, you know, that is like a, you know, your your your total a year is almost $35,000 from one house. So, you know, run both versions, see what makes sense for your
[12:47] situation. Next, let's talk about the appreciation and exit options. Because in Tampa, most zip codes, and I have this chart here, which I forgot to show you, but there's a uh a zip code chart that I put together that shows you the 20-year average uh annual appreciation rates for
[13:04] each zip code in Tampa Bay. Your upside isn't only monthly cash flow. You have market appreciation over time, which on average, I think the lowest zip code was like 4% and some of them were in the in the sixes. But you also have your NOI increases over the years. basically your rents and
[13:22] then your expenses a little bit and the property value. So, um let's talk about exit pass because this is like a a concern obviously no matter what you do. You're always taught to have multiple exit plans. I think keeping it as a pad split makes obviously the most sense because to deconvert is more money. Um
[13:40] especially to to shift it to a traditional rental which is going to make less money. But perhaps selling it as retail uh in the future probably will not make much sense. though you could that might be the best plan is to shift it to a uh to decon convert it and sell it to a traditional family. Now I think
[13:57] probably what will happen is you're going to have a lot of demand for uh padsplit buyers in the future and that's likely what you're not going to have to do is decon convert it at all and sell it more as like an operational padsplit. To be fair, there are some risks associated with padsplit. So let's talk
[14:11] about those. There is higher wear and tear. Um, I think you can solve a lot of that with durable finishes and inspections and like the the monthly cleanings. There is more member churn than you would have your traditional single family rental. I think you can solve some of that with photos which are
[14:26] honest and accurate and transparent. Uh, if you clean the common areas and you you you get to maintenance fast. So, when they report a ticket, don't delay. Don't have a good property manager who takes care of those things promptly and and improves their experience. And, uh, regulation, let's talk about
[14:42] that. It's a common question and I I talked about it a little bit with Fred on the the podcast a uh a couple days ago. I think you just should just stay inside local rules, right? So it's it's not that uh absurd. Maybe permit your conversions of the garages and just keep records of the things you do. I think
[14:59] most of all maybe the most important thing is is like don't buy outside where you should be buying. If you if you purchase in too nice of an area, you'll probably experience some more problems. you may your lot sizes may not be large enough to support um the cars parking and like that type of thing.
[15:17] So, you know, we have one house, eight rooms and multiple payers. This this is a platform that brings you steady demand and you know, you get cash flow today. You don't have to wait years for it. You get cash flow today and a Tampa asset that will grow indefinitely with inflation because we know how that's
[15:37] going to go. Now, um that's how you can diversify into hard assets without buying a 20 unit apartment building and waiting for income, you know, over the course of a year while you stabilize it. So, if you want my underwriting template, which honestly is just my calculator, drop Tampa in the comments
[15:54] with some feedback if you don't mind because YouTube hates seeing multiple identical comments and I'll share it with you. If you're serious about learning more or finding one of these deals, contact me or call to go over if you think this makes sense for you. Thanks for watching.
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