Investing in Affordable Housing Amid the 2024 Election: A PadSplit Success Story

As the 2024 election approaches with Donald Trump and Kamala Harris leading their respective campaigns, conversations about the future of America are intensifying. Affordable housing is one topic that's bound to take center stage, with housing prices and rental rates continuing to rise across the country. In the midst of this, innovative real estate strategies like co-living and affordable housing models, such as PadSplit, are gaining traction as viable solutions.

One investor who is capitalizing on this trend is Desmond Pollock, a real estate professional with a knack for creative financing and turning properties into profitable ventures. I recently had the opportunity to interview Desmond, diving into his experience with PadSplit and how he's navigating the affordable housing market during these turbulent times. His story provides a blueprint for other investors interested in real estate and co-living solutions.

The PadSplit Model: Affordable Co-living at Scale

For those unfamiliar, PadSplit is a co-living housing model designed to make renting more affordable for tenants while generating strong returns for property owners. The basic idea is to convert larger homes into shared living spaces, renting out individual rooms rather than leasing the entire property to one tenant. For tenants, this makes high-quality housing more accessible, especially in markets where affordable housing is scarce. For property owners like Desmond, PadSplit represents an opportunity to maximize cash flow by turning single-family homes into multi-tenant properties.

Desmond's journey with PadSplit began in Orlando, Florida, where he purchased a 3-bedroom, 2-bathroom home with 1,800 square feet. He saw the potential to convert the property into a profitable co-living space but quickly ran into challenges, particularly with one room that had been extended by the previous owner. According to PadSplit regulations, each bedroom must have a second form of egress, or a direct exit to the outside. Unfortunately, the extension on the home did not meet this requirement, rendering the room unusable for rental purposes.

Despite this, Desmond was able to convert the home into a 5-bedroom property, capitalizing on the other available spaces. The process wasn't without its hurdles, as he had to carefully weigh the costs of making additional renovations. At one point, he considered transforming the unusable room into a sixth bedroom, but the $30,000 estimated renovation costs made the investment unfeasible, given that the additional room would only bring in around $900 a month.

Rather than overextending himself on renovations, Desmond took a more calculated approach, leveraging his capital to purchase a new property instead—a decision that would pay off more quickly.

Creative Financing Strategies: Sub-To and Business Lines of Credit

One of the standout aspects of Desmond's story is his use of creative financing, specifically the "subject-to" method and business lines of credit. In the real estate world, subject-to deals involve taking over the mortgage payments on a property while keeping the original mortgage in place under the seller’s name. This strategy allows investors like Desmond to acquire properties with minimal upfront capital and at interest rates lower than what’s typically available on the open market.

For his PadSplit property, Desmond acquired it through a subject-to deal at an interest rate of around 6%. While this rate was slightly higher than typical VA loans, it was still lower than the rates he had been quoted for other financing options, such as debt-service coverage ratio (DSCR) loans or bank statement-only loans, which were hovering around 7.7%.

In addition to the subject-to strategy, Desmond also utilized business lines of credit to fund his property conversions and furnish the units. His total out-of-pocket cost for the PadSplit property was $15,000, which included $8,000 in closing costs and $7,000 for renovations. For furnishings, Desmond took a hands-on approach, working with his handyman to keep costs low, ultimately spending around $4,000. By using an 8% business line of credit from Wells Fargo, he was able to avoid traditional private money lenders (PMLs) and retain more control over his investments.

“Everyone talks about private money lenders, but you can become your own PML with business lines of credit,” Desmond explained. “It saves a lot of headaches and gives you a better interest rate, too.”

Expected Returns and Future Goals

While Desmond's PadSplit property is still relatively new, he has high hopes for its profitability. In the first few weeks after converting the home, the rooms were booked out almost immediately, signaling strong demand for affordable housing in the Orlando area. Based on initial projections, Desmond expects the property to net around $1,500 a month after factoring in PadSplit fees, utilities, and maintenance costs—a figure that aligns with the broader trend he’s observed across other PadSplit properties in Florida.

What makes this deal even more impressive is that the property didn’t cash flow as a traditional long-term rental, making PadSplit the only viable option for turning it into a profitable investment. By choosing the co-living route, Desmond was able to take a non-performing asset and transform it into a high-yielding property with relatively low upfront costs.

Desmond’s success with PadSplit has encouraged him to expand his portfolio further, and he recently closed on another subject-to property. He’s also exploring additional funding options, including corporate funding and working with private investors. However, his preference remains using his business lines of credit, which he has mastered to fund future deals.

“I’ve kind of cracked the code on how to get business funding for these projects,” Desmond said. “It allows me to grow my portfolio without having to rely too heavily on outside partners.”

Lessons for Aspiring Investors

For those looking to break into the real estate investment space, particularly in affordable housing, Desmond’s story provides several key takeaways:

1. Creative Financing: Subject-to purchases and business lines of credit can dramatically reduce upfront costs and lower interest rates, making it easier to acquire and renovate properties.
2. Co-living as a Solution: PadSplit and other co-living models offer a unique way to generate strong returns in markets where traditional rental properties may not cash flow.
3. Cost Management: Careful budgeting and weighing the cost-benefit ratio of renovations can be the difference between a successful investment and a money pit.

As the 2024 election looms and housing policy continues to evolve, now is a pivotal time for investors to consider how they can contribute to solving the affordable housing crisis while also building profitable portfolios. Desmond’s story demonstrates that with the right strategies, investing in affordable housing can be both socially impactful and financially rewarding.

If you’re interested in learning more about Desmond's investments or collaborating on future deals, you can connect with him on Instagram @DesmondPollockOfficial

1. #AffordableHousing
2. #RealEstateInvestment
3. #CreativeFinancing
4. #PadSplitSuccess
5. #CoLivingSolutions

Call to Action

If you're ready to dive into creative financing and transform your real estate business, join SubTo today: https://join.nre.ai/mQ9TgWk . Learn how to leverage strategies like subject-to and seller financing to build wealth and achieve financial freedom.