Maximizing Space & Savings: The Insurance Guide for PadSplit Hosts

Scott Brown: Hey everyone, welcome to the Steadily podcast. My name is Scott Brown, partnerships account executive here, and today we've got Quinton at PadSplit joining us. He's the general manager. Quinton, appreciate you joining.

Quinton: Thanks so much, Scott. It's great to be here. The easiest way to describe it is using what you already know. Airbnb about 15 years ago was innovative in the sense that they figured out how to monetize time. People were renting out the same rental space, but they were renting it in blocks of time. We took that same approach — how can we do that with space? So when we think of innovation, we're just changing a different revenue stream for the existing piece of real estate.

For real estate investors, if you want to use layman's terms, PadSplit's the nation's largest platform for boarding houses, but it's done like an Airbnb. Very similar to Airbnb, we handle the demand side — tenant and member aggregation. We collect all the members that want to book and we provide that. Our service also provides for all of the digital revenue collection. All of our members pay digitally, so we handle a 97% accuracy for collections rates, and then our platform allows for all the communications in between.

It allows a different exit for real estate investment, and that's the most innovative way to think about it. But we attack it not from the Airbnb angle of expensive $3,000, $4,000, $5,000, $6,000 rentals. We do it from a need-based approach. Our focus is on affordable housing with a lowercase A. We talk about workforce housing, senior living, people that are on fixed incomes. Why are they paying 60, 65, 70% of their take-home pay in housing? We created a model where the investor can make more money doing something good for the populations they live in — providing affordable workforce housing in a single-room model in a shared housing facility. Simply put, we rent rooms individually. That's the easiest way to do it.

Scott: That's fascinating.

Quinton: We do the hardest thing in real estate, I think — how do you provide safe affordable housing at an affordable price? We went out and solved the hardest part. My vision of how PadSplit's going to blow up: we're going to be like Uber. There's going to be an Uber Black and an Uber Share version — we're going to have that at some point. But we're making our bones by doing the hardest part first, and then the rest will be easy as we grow into the full-size company we want to be.

Scott: Wow, that's fascinating. Quinton, I'm sure you could attest to this — there's probably never been higher demand for a product in that type of market, especially with how much housing costs have risen lately. I'm sure your demand is unparalleled right now.

Quinton: Yeah, Scott, I have a almost 16-year-old daughter, and this summer she introduced me to this TV show called The Summer I Turned Pretty. I came back to our company in every meeting and that was literally my line: "Guys, this is the summer we turn pretty." With high interest rates and all the headwinds everybody else was facing, every investor I talked to was on the sideline. They wanted to keep acquiring but couldn't exit — they didn't have a business model that allowed them to exit. And we're sitting over here like, "Come talk to me about our exit." All the flippers of the world, all the buy-and-holders, all the people that owned existing portfolios were like, "Wait a minute, you can make more money on the same piece of dirt?" Yes. You just have to adapt to what we're doing and then you're going to start thriving.

Even Airbnb hosts — if you own a short-term or medium-term rental and your occupancy is low, come visit our website. You're literally looking at a steady stream of income, because the people that live in our PadSplits aren't visiting for the weekend. These are the guys that work at the amusement parks you're attending. These are the folks working at hospitals full-time — nurses, essential workers. It's not going anywhere.

Scott: That's awesome. That sounds super interesting and that's got to be a great go-to-market strategy. So Quinton, segueing into this — PadSplit has a major relationship with both the host and the tenants. A huge part of your business is being able to protect both ends. Could you give a little more insight into how insurance plays a role in protecting both hosts and tenants at PadSplit?

Quinton: I'll start with the member side. Our members are members of our membership at PadSplit, and they can transfer from one house to the next. The best stories I've ever heard are of one member starting at a really reasonable rate — $139 a week. We charge by the week because we match up to how people get paid. In order to become a member, you have to pass a vigorous background check, a criminal background check, and an income verification so you can qualify for the room level you want to book. Everybody has a similar background. From there, it's highly suggested that you get renter's insurance because you are renting everything in your specific room.

Then how it applies to the investor — we work with partners like Steadily and get commercial liability coverage for the actual house, as you would for an LLC. That's always our assumption as best practice for owning real estate, from an identity, awareness, and liability coverage standpoint. There's a standard liability package that we have as guidelines, and then we work with you guys because you understand our business model. There are riders in place that understand what co-living is, so it's standardized.

Our investors are really interesting because they're not geographically limited. If you're a California investor, everybody loves the Sunbelt — you're going to Florida, Georgia, Texas, Arizona. Having a consistent insurance policy and provider like Steadily is super key because that investor is building a portfolio and they know they have consistent coverage. Unless you want to go head-to-head with a tornado in a hurricane state — that's a whole different thing with limitations — but in most of our markets, the partners that understand our business model and help us grow are the ones we do business with. I always joke with our guys inside the company: "We don't date our partners, we marry them." Because as a new business, somebody had to step up and say, "Can we work together?" and then go through the work of actually figuring out how. That's how the relationship with Steadily has evolved, and the beauty of it is when people come in new to our product, they realize all the vendor partners we work with actually know what we're doing. That helps our new investors get comfortable in this new line of business.

Scott: Wow. For a PadSplit host, what would you say is one of the more common misconceptions with insurance?

Quinton: That they can't get insurance coverage. Like they start there. It's amazing what people will default into — the answer's always no for so many people. I get it. There's a risk mitigation component to everything in life. The way I look at it is somebody has blazed the trail before you. It's not really hard when you are the second wave coming through, because somebody else has already bumped their head and that tree branch on the hike has smacked them in the face. Now we have partners that hold the branch for you as you walk by, just to make your life easier. So that's the biggest misconception.

And then the follow-up is: what kind of coverage is it? What am I liable for? What happens if member A has a problem with member B? That's what the insurance coverage we utilize for co-living covers. We've walked through all of these potholes, and the learnings are not so much about how to create it — it's about what does everybody else use, does it apply to me, am I covered for what I need to get covered for? You check the boxes, you move on, and then you can focus on being an investor, not an operator. Then you go look for your second house and your third house and build a portfolio.

Scott: That's great. What are some specific insurance needs that PadSplit hosts have?

Quinton: It's pretty straightforward. We have a $1 million commercial liability coverage and then a $2 million aggregate. Most hosts carry an umbrella on top — I do. I'm a host and an investor. That's just how I'm set up. The minimum is $1 million, $2 million, and that's what our leases require. As an individual, you can find an insurance provider that does it.

The interesting thing is that not all insurance providers understand what we do. It's kind of like property managers — they come to us and say, "I've been doing this for years." I've had property managers with 27 years of experience, and after the first month they say, "That is a different animal." Same thing for insurance. It's like, "Okay, why reinvent the wheel? The property is an investment property that fits our model. Here's our insurance partner, Steadily — go talk to them." They'll guide you through what you're actually stressing about and tell you the requirements, because you are one of hundreds of policies they are covering for our individual hosts.

As you grow and your portfolio grows, those requirements actually change because you're trying to cover liabilities differently at one house versus owning a portfolio. They can handle that evolution. It's not their first rodeo. The easiest way I put it in layman's terms: make it as easy as possible for yourself. Insurance shouldn't be the reason your investment goes sideways, but it quickly can be. I've heard horror stories about mom-and-pop coverage where someone thought they were covered right up until they had to get paid. The worst-case scenario usually ends with "and the insurance didn't cover it." When do you figure that out? When the check doesn't come. But if you work with someone experienced, they can tell you, "These are the things we need to mitigate against, this is what your policy covers." That's a much more comfortable night of sleep. That's essentially what insurance is for.

Scott: Awesome. Quinton, could you give a little more information on how shared spaces and short-term tenancies might play a role with insurance?

Quinton: As far as the policy goes, there's a rider around co-living and shared housing that simply covers what we functionally do in the house. The policies are similar to what you'd have for a long-term rental, just with a different coverage piece. The rider covers and understands our business model, and people don't always realize it's not short-term. Our members on average stay about 9 months. It's much more like medium-term rentals. Our leases are 31 days to start, but members actually stay an average of 9 and a third months across the country.

As far as insurance requirements go, it's not very different from standard rentals except for the rider covering the fact that multiple people are living there — similar to student housing. That was the most synonymous type of coverage when people asked, "Is it similar to this?" Granny Smith versus a Gala apple, but you get the idea.

As for whether you need specific single-room occupancy coverage, there was a simple rider created for our package. Our legal department and Steadily's legal department had a long conversation and came out with a document that covers what we needed to cover. That's the one implemented for every host coming inbound. The policies are uniquely the same with the caveats of what state you're in. Because we're national, there are some states — Florida, for instance — where no insurance provider really wants to provide coverage right now, and certain hurricane cities like Houston and New Orleans. We're well aware of which ones those are. But there are plenty of other states we're moving into where our hosts are defaulting to the easiest solution for their insurance needs, which right now is you guys. You guys are a wonderful partner for us.

Scott: Love to hear it. So Quinton, I've got a hypothetical for you. Let's say you're a brand new PadSplit host. How would you go about making sure you get quality insurance coverage — liability, property damage, loss of income coverage? How would you handle those three specifically?

Quinton: Because of our partnership, we actually have a landing page — I believe it's steadily.com/padsplit. Hosts go right to that landing page, submit their information, and it's routed to Steadily's agents per state because each state has its own individual pieces. From there, there's a default coverage that the platform requires for the house — covering what business is actually running inside. That's where the policy is essentially the same. What's covered and required by the state, that's up to Steadily to guide you through.

As you grow as an investor, unique things like loss of rental income or other specific coverages can be tweaked as needed. You'll find yourself tweaking it as you continue to build your portfolio. You may want to pay more for more coverage earlier because you need full coverage. Then as your portfolio grows and your cash flow is established, you may actually want to self-cover some things you were paying premiums for before. You will evolve as a real estate investor, whether on our platform or not. The beauty of our platform is that it's just one of many exits. You can have high cash flow in PadSplits subsidizing high appreciation in Airbnbs, subsidizing flips. And because you have an insurance provider like Steadily, they can play in all three of those, and it's up to you and the agent to find out which products are best for your multiple properties.

In my own experience, the insurance component was originally taught to me as just a cost item. As I've gotten more sophisticated about it, I realized it's a support mechanism for what I'm trying to do. If you use it like that — as a partner, talk through it instead of just writing a check every month — you get so much more value out of your relationships with all your vendors. They're not going to volunteer all of that if you're not asking. And it's hard to know what questions to ask if you've never done it before. So my suggestion to anybody watching: if you have an insurance provider and you're not talking to them about the benefits of your coverage, you're missing out. That's what they do for a living.

Scott: Quinton, you absolutely hit the nail on the head — and I'm a little jealous because you stole my talk track. Each real estate investor really does have their own risk threshold. That's something Steadily caught on to very quickly. Investor A is going to be very different from investor B — 10 properties across different markets looks very different from two properties in the same area. It really is a situation-by-situation, property-by-property conversation a lot of the time.

Quinton: And I think that's the fun part. Partners like Steadily have more experience up and down the pipe of working with different investors. So when I actually talk to agents about, "Hey, how are other people handling this?" you get some really creative answers. Especially when you start adding things like ADUs, converted garages — those seem really fun when the contractor wants to charge you to build them. But then you realize your insurance coverage didn't factor in the add-on you did over here. Everything's got to go together, because if there's a fire or a flood — and I will say, until I became a real estate investor, I didn't realize how much I hate water. Water is the worst. It's a perpetual downstream domino effect of terrible.

You hear stories where something flooded in the basement and the coverage wasn't right, and all of a sudden you're coming out of pocket $25,000. I don't care how wealthy you are, nobody wants to cut a $25,000 check. The first question you want to ask is, "What is my deductible?" — and it's not $25,000. Great insurance partners talk you through worst-case scenarios just so you have an understanding, not to scare you, but so you know the risk you're comfortable eating. As you get wealthier and things get bigger, you can self-insure a little more, your deductible can go up because it's covered by more cash flow. It's an evolving piece that you adjust along the way. But for very new investors, you don't have the bandwidth to go out of pocket. You'd rather pay the deductible and save your money to buy another investment property.

Scott: Seriously. Quinton, I really appreciate this — it's been a super insightful conversation. Could you give a little detail on how insurance plays a role in maximizing your PadSplit investment as a host?

Quinton: What it does is mitigate the downside risk. Coming in, everything's new — most people have never done rent-by-the-room before, never done PadSplit before. They're attracted to us because our revenue model is so high. Then they put six people into a house and realize there's risk after risk after risk. It comes back to my favorite question: is the juice worth the squeeze? That's ultimately what real estate investors come to when they come to our platform. "I want to squeeze the juice out of it. I'm going to get multi-family returns out of a single-family acquisition — but is the juice worth the squeeze?" That's where the insurance piece comes in, as their mind starts wandering through worst-case scenarios.

The thing I want to point out is that the premiums our hosts are paying relative to a long-term rental are significantly lower than you'd expect. I thought it would be exponentially larger, but it's not. It's underwritten in a way that's very similar to what regular long-term housing would be — actually lower than student housing near campus. I've shopped it around multiple ways.

The insurance question is actually a barrier that new hosts get stuck on: "I'm not going to be able to insure this because it's new." The value of having partners like Steadily and PadSplit together is that we've already solved for that. So move on to the next concern. Here's what the invoice is — put it in your underwriting. Does it work? If the math doesn't work, go get a better deal. Beat up your realtor, beat up your wholesaler for a better acquisition price so it underwrites correctly. You're not going to have a blank on your P&L for insurance — that's just not how it works. And on our platform, they don't let you do it anyway. Don't complain about the expense cost; complain about the acquisition cost. Be a good real estate investor. That line item's going to be there, so you might as well make sure you're covered for what you need.

Scott: Wow, that's great. Well, Quinton, I appreciate your time on our video this afternoon. I think this is going to be really insightful and helpful for PadSplit hosts and anyone looking to purchase rental property insurance. Just to review — in this video we discussed innovative housing and the role insurance plays in it, common insurance needs for PadSplit hosts, selecting the right comprehensive coverage, and maximizing your PadSplit investment.

Quinton: Scott, I appreciate you guys inviting me on. The biggest message out there is: just because economic conditions change doesn't mean you have to sit on the sideline. The people that are adapting and thriving are ultimately going to win. In real estate, time is the ultimate winner. If you are on the sideline waiting, somebody else is taking action and adapting to what the economy allows. The investors that are converting into our model for single-room occupancy and shared housing are just collecting more revenue. And because our revenue is what it is, it allows them to keep acquiring properties while everybody else waits for 6% interest rates to come back. You can adapt and apply all the same skills you've always had as a long-term, short-term, or mid-term landlord — and using our exit, find a different revenue stream.