How PadSplit Works: Room-by-Room Rentals, Property Management and Cash Flow

Michael Harouni (00:00)
I convinced them when it was vacant to invest $58,000 to remodel it. It needed some extensive upkeep as well as some changes for it to support the PadSplit model. And about

two months after the remodel, she called me. And despite having, I thought managing her expectations and say, hey, the data shows three or four months before you get 80% occupancy, she called me up screaming and saying, What the heck did you make me do to my beautiful house? I spent this much money and what’s going on? And it was only a few weeks later, now that the home had finally been finished and was now at 80%, almost 87% capacity, that she called me up very cheery and asked me, when can we do the next one?

Joseph Crooms (02:11)
Hey everyone, welcome to Investor Fuel Real Estate Pros Podcast. And today, ⁓ by the way, I’m your host, Joseph Crooms and today I’m joined by someone who’s been looking forward to chatting with. His name is Michael Harouni. And I hope I’ve got that correct. Is that the correct?

Michael Harouni (02:30)
You na you nailed it. Thank you, man. Very rarely does it happen, but you nailed it, Joseph.

Joseph Crooms (02:34)
Thank you so much, Michael. Mike is my guest. Guest and by the way, Mike, say hello everybody.

Michael Harouni (02:38)
Hey everybody, my name is Mike. I’m the owner and managing director of Keyrenter Property Management in Las Vegas.

Joseph Crooms (02:44)
We’re gonna talk a little bit about how Mike is doing business. So I think our listeners are gonna take something away from how you’re approaching business, something that you mentioned to me about PadSplit, and but we’ll get into the but first before we dive in, or let’s dive in. For people who may not be familiar with your world, give us the short version. What’s your main focus these days and what markets are you operating in?

Michael Harouni (03:06)
Yeah, the main focus is property management. I own a brokerage that does not do any buying and selling. We stay in our lane. We focus just on managing residential properties and we are based in southern Nevada, specifically Clark County, Las Vegas, Henderson, North Las Vegas.

Joseph Crooms (03:21)
Well, and s when you I know sometimes people are are traditional but you you’re one of the few property managers well we’ve been having a few. Let me tell me how you’ve leveraged property managing and being so instrumental in this field of real estate as a whole.

Michael Harouni (03:40)
Sure sure. I mean it started off with just managing traditional long-term rentals as a property management group. Before that, I was actually a nurse for 15 years. I still have my license. And how I got started in all this, I was helping travel nurses that were coming to Vegas during the COVID crisis to find housing that was affordable for them, safe for them, and what they were looking for, which is very unique for nurses that are, for example, working a night shift. And that then got me started as a co-host in furnished midterm rentals.

But eventually I was doing so well there that I went and got my real estate license and my property management permit where I began to do traditional long-term unfurnished and then got really excited when I learned about and got into something called PadSplit, which is room-by-room co-living style properties. So this background in nursing allowed me to naturally approach the management space with systems and documentation and risk management in mind.

Joseph Crooms (04:32)
Michael, how do you match up the co-relationships? Do you do that or you know, male to male? What do you do? How do you do that?

Michael Harouni (04:42)
You’re you’re leading with the heavy questions is easily one of the most difficult parts of the job is the psychology of having, in my case for the homes that I manage, up to nine completely different individuals in one shared space. And the management of those personalities is one of the main things that’s done here that’s done differently from even in the short-term rental space, but definitely in the long term or furnished midterm rental space. To answer your question, you have to manage them very delicately.

You have to figure out what people’s motivations are, you have to get to the bottom of them, and you have to make them feel h heard and seen and not just write it off. It doesn’t mean anything to you. Each individual complaint, there’s something behind it, you have to get to the bottom of it. And I think at the end of the day, it shows the people in the house that while I’m not there to be a referee, I am there to try to find reasonable solutions with those that want to be reasonable. And if that doesn’t work, then someone’s gotta go.

Joseph Crooms (06:23)
We’ll come back. Mike, when you were a real estate person, you know, you got your license, how much book of business did you gain before you cut it loose and say, no, I’m going to this in this direction?

Michael Harouni (06:23)
Okay. Well, I mean, real estate for me started twenty years ago. I was working at JPMorgan Chase in with a the Community Reinvestment Act Division. So my interest in single family homes and real estate in general started about two decades ago. However, my journey’s pretty truncated once I got my license. I had a single-minded focus about just doing property management. So I got my license because in the state of Nevada, you need a license as a realtor in order to attach your property management permit. These things are not exclusive. They they have to happen together. So I had my license, did zero sales. I’m one of the few agents I believe that will proudly tell the internet and the world I’ve done zero purchases and zero sales. It’s not my focus. Jumped right into property management.

Joseph Crooms (07:18)
How did you know this is was your niche?

Michael Harouni (07:20)
I knew it was my niche when the very first investor that trusted me in the idea that I had about converting their single family home in North Las Vegas that was getting at the time, this is 2022, an average rent of about 2250 a month, which for the area was very good.

I convinced them when it was vacant to invest $58,000 to remodel it. It needed some extensive upkeep as well as some changes for it to support the PadSplit model. And about

two months after the remodel, she called me. And despite having, I thought managing her expectations and say, hey, the data shows three or four months before you get 80% occupancy, she called me up screaming and saying, What the heck did you make me do to my beautiful house? I spent this much money and what’s going on? And it was only a few weeks later, now that the home had finally been finished and was now at 80%, almost 87% capacity, that she called me up very cheery and asked me, when can we do the next one?

And that’s when the switch flipped for me. It was a matter of people don’t understand, but they know there’s an idea behind this. But when you show them the gross income potential, and then you show them what the net income is after that, and then you actually hand them that money, and you see the reaction going from I don’t understand, I’m very angry and scared, to I understand now, when can we do more of these properties together? That’s when the the switch for me flipped and I realized this has to be my niche. This has to be something that I tell the world about.

Joseph Crooms (08:41)
And how how how what is your book of business like now, Mike? I mean what is your revenue or or your your volume? What is it like now?

Michael Harouni (08:50)
When I was co-hosting, I was taking any referrals for people that wanted placement in house or a room. ⁓ From then until now, I’ve stood up nine different PadSplits. I don’t manage all of them, I didn’t host all of them, but I learned enough and had enough vendors that knew what they were doing to be able to help do that. Eventually, as a host, without my license and permit, I realized that what I was doing gave me a lot of liability. So I went and joined a brokerage with that brokerage, and we had a couple of hundred doors under their book of business.

But then when I went out and put the shingle out for my own, which was about a little bit more than a year ago, I had to start from scratch again. So right now, we’re just under thirty properties. And of those properties, it’s a mix of midterm rentals, with the majority of them being these PadSplit properties.

Joseph Crooms (10:06)
So those thirty per so about a year in, but how how does that translate to revenue?

Michael Harouni (10:12)
So PadSplit on its own is a higher revenue game. There are some strict laws about what I can talk about with regards to what my fees are because of the NAR settlement. Yeah, which But I can tell you that we similar to Airbnb, where it’s a specialty, you are charging more as a percentage of management because of the added work, but it’s certainly not the same level of work or the same level of charge that is needed. I would say though that having these thirty homes under management as specialty homes, that my book of business resembles more like a

a book of about a hundred to a hundred and ten single family long term rentals with regards to income potential.

Joseph Crooms (10:47)
Michael, ⁓ what is the PadSplit model? ‘Cause you told me that you speak to that lady first and say, No, you need the remodel from a three bedroom or what did you do?

Michael Harouni (10:51)
We had su

Do

yeah, so I’ll give you the example from that house. It was a beautiful two-story, five-bedroom, three-bathroom house. That home today is a nine-bedroom, three-bathroom house. And it’s currently has eight residents inside them. They’re referred to as PadMates. The platform called PadSplit specifically refers to them as PadMates because everyone in order to be in a PadSplit home must be a member of the PadSplit platform. It’s very unique. There are some advantages and disadvantages to this.

But basically anyone that’s that went to college or when they first move out of their parents’ house, they probably have roommates, and maybe more than one. I know I did in New York City. You needed to do that in order to afford an apartment in the city. And so you are renting out rooms in this house on an individual basis. And these individuals are interacting with the PadSplit platform for most of the inquiries they have about tasks regarding maintenance or inquiries they have about communication with a host about a question they have or concerns they have or questions that they have.

And so it’s all done on a platform similar to Airbnb, but where Airbnb is focused on short term rentals, PadSplit is focused solely on room by room rentals and properties.

Joseph Crooms (12:03)
How long is the average?

Michael Harouni (12:05)
That’s a great question. And it varies in the markets. I’ll tell you that what you want is to have a PadMate that stays there for a substantial time. The business model and the profit model for PadSplit is that they get as a platform, as a booking fee, completely the first 10 days of income from that person moving in. And then 8% of every dollar made thereafter. And so if that person moves in only for 20 days, the the owner’s actually probably looking at a loss with the cost of having to flip the room and get it prepared and put it back on the market.

And so what you want, at least in Las Vegas, is have people stay there for as long as possible. Las Vegas is unique, not so unique anymore in that it has laws in the books about stays of 30 days or less. So if you have a stay of 31 days or more, it’s not considered a short-term rental. PadSplit by default shows the suggested stay time for its PadMates in Las Vegas as a 12-week time. For me, my average stay for my house, I was looking at the data earlier, is about 150 days per PadMate per room.

And we use some strategies and in order to get those types of numbers because we know that the the details in the financials really really play out the longer that someone stays in the room, the less transient that one is.

Joseph Crooms (13:15)
Michael, do they have to r like like if they go over say that thirty day period, do they s is is sort of like a re ring up that that that lease or time? You know, how do you do that?

Michael Harouni (13:26)
So you touched some questions involved.

In that question, you’ve touched on a few things actually. So PadSplit holds the master lease. The PadMates are signing membership agreements to be PadMates and are signing onto the house rules that you have for the house. So you’re not necessarily signing individual leases with each PadMate, although you can. Instead, what’s happening is that they are coming as members following the rules of PadSplit the Platform.

And then staying in the rooms and abiding by the house rules. These leases don’t have anything that stipulates that you can not move out at any time, but there are some penalties if you move out early. And again, Las Vegas is unique. Well, PadSplit in other markets will allow people to stay for one or two or three weeks in Las Vegas because of the law regarding the 30 30-day minimum, 31 plus days, in order not to be considered a short-term rental platform, which then requires special licensing.

The platform defaults it has a 12 week stay. And I’ve had people in the military that have PCS’d and had to move out. Now that’s something that again, you you’re gonna abide by federal law. You’re not gonna penalize that person for having orders from the military to move on to another duty station. But you’ve also had people that have moved out because of a job change from one warehouse to maybe the Amazon fulfillment facility and they’re moving their house, and that person will pay a penalty if they’re moving out earlier than what their agreed upon stay time would be.

Joseph Crooms (15:23)
Let me ask you a question. Do you think that is the this the that business model is can be an answer to the homeless situation across America?

Michael Harouni (15:33)
I would say that PadSplit Corporate positions itself not as a solution to homelessness, but as a at least a temporary solution to the affordable housing prices that we’re having. Right now, we hear a lot about the housing shortage. I think what’s actually going on, and I think a lot of people, maybe that are listening to this podcast, would agree with, it’s not a housing shortage, it’s a housing affordability shortage. There’s not that much affordable housing and shelters of all types. We’ve seen Airbnb prices go up, we’ve seen hotel prices go up.

Short-term prices go up, we’ve seen midterm rental prices go up. PadSplit’s something unique in the space that’s offering a very clear-eyed view to what’s being sold here is that you get a house that you have access to with other individuals, a room that you can call your own with a bed in it, and hopefully certain basic amenities. And for one low rate, you get your internet paid for, your utilities paid for. And that’s very attractive to different types of people. And I’m surprised actually in the last few years, the types of people I’ve seen move in.

It’s older Americans on a fixed income, maybe disability or Social Security, that are saying, hey, eight hundred and twenty-five bucks a month. I’m all in. That’s it. Where do I sign? And you’re seeing younger people. You know, PadSplit skews about 80% male across its national data. And I’ve seen that to be mostly true in the houses that I manage here in my market. And I think it’s because of the type of work that men are doing. You might see them being manual laborers or construction workers, and whether on a job site as a journeyman for a few months.

They don’t need a year-long lease, they don’t want a year-long lease. Maybe their credit’s so bad that a year-long lease would be cost prohibitive. That’s not to say they don’t have the income to pay for a room. And that’s interesting about PadSplit as well, is that PadSplit cares about your background, it does background checks, sexual criminal history check, eviction checks. But regarding credit, it looks at it, but it cares more about income validation, income verification. Is this person employed in making the money necessary to stay in a room? And in our houses,

all the people that stay in the room do make well above what they could make, and that’s part of our strategy for us at least, is that we want people that are choosing to stay in PadSplit and not desperate and thus backed into a corner and find themselves in a PadSplit. You try to have a type of PadSplit that appeals to people that are making a choice to stay here versus a Siegal Suites or a Budget Inn, to stay here versus trying to find a condo to rent for a few months.

Joseph Crooms (17:52)
Thank you for sharing that. So though that ideology is is it it sounds complex but makes sense, let me say that. W and and and especially in this climate, you seem like you guys got a niche to and you you went with it. Kudos to you, Michael. What’s been t the key to keeping your machine running softly?

Michael Harouni (18:12)
I’m gonna say it, and I have to admit that it’s a living thing, and that’s having systems. And then using those systems, and then making sure that it’s a living document that can be changed by people that are they have the ability and trust to make those changes that are on the ground, boots on the ground, seeing things happen. You don’t your worst day is not going to be great, but

it can be gauged based on how well you’re gonna follow those systems and how well you’ve adhered to creating these systems. So having systems, you know, not every situation’s cook cookie cutter, but enough are and enough are close enough that if you have systems that have been pressure tested, not just what someone on a podcast online talked about, not what you might have seen on YouTube, but systems that work in your homes, in your market. And I’ve really benefited from coming in this from a place of having been a nurse.

And systems and processes being a part of that job and the life alter life altering effects, honestly, that could happen if those systems aren’t followed. But also the flexibility you need to go, hey, we followed the system to its natural endpoint. We now need to do something else here. And that applies in PadSplit. And that applies, I think, in most business models. But if you’re going to scale in PadSplit and not just have, for example, an owner that and this happens, who lives in their own PadSplit and rents out the other rooms.

If you’re going to be an investor that does this on your own, you need to invest your time and your money and your energy in creating systems. That’s the only thing that’s kept us to the point that we’re able to scale. And we’re adding about one PadSplit to our inventory about every 40 days now. In the past, it would have been once every three months because we didn’t have these pressure tested systems in place to do that.

Joseph Crooms (19:55)
Michael, did you how did you find the market in Nevada? What what you know did you grow up in New York or did you start your real estate career in New York or how did this how did this

Michael Harouni (20:08)
Yeah, I grew up in New York. I grew up in New York City. That’s why I speak so quickly. I just don’t have that Brooklyn accent that my father does.

I fell in love with a girl that was a ballerina. She had two degrees in ballet. I didn’t even know you can get one degree in ballet. And I was working in New York as a nurse, doing pretty well. I was surrounded by friends and family. And her job opportunities were I guess closing up. There’s not that much need for ballerinas in New York anymore. And she was knocking at the door at the possibility of an audition for Cirque du Soleil in Vegas. And I love this girl and I wanted to marry her, and I thought, let me support her dreams. And we moved out here with a

a Camry packed with a bunch of stuff and we thought we’ll give Vegas six months and here we are about 12 years later living in Vegas because it’s it’s been good to us. And I started off in Vegas as a nurse, but as I said the transition for me came during COVID when I saw this need for travel nurse housing. And I saw that people were all really focused on Airbnb and that market was flooded. But these travel nurses were being put to the side when they were making $20,000 a month on these travel contracts and I thought, these people have money. They’re looking somewhere to spend it.

Maybe I can find a niche here. That eventually led into the midterm rental space as a space in real estate, which then led me down the path of PadSplit. So, like I said, I do long-term rental unfurnished, I do midterm rentals for nurses and corporations and insurance free housing, but PadSplit is part of the niche that I don’t see many people doing. Although recently I’ve been seeing a lot of interest from property managers to get into something that we’ve been doing for a few years now. And I think it’s because they’re seeing the writing on the wall. They’re seeing, like I saw in this market, that

where Airbnb was in twenty thirteen to twenty fifteen, where people heard of it, weren’t really sure about it. Before it really got considered an asset class, I think PadSplit will be filling that space in a few months or a few years. I think a lot of institutional investors will start looking at this as a legitimate option. And it’s not just because of the profit model, it’s because of the the resident base that exists for this type of housing, the need and the desire for shared housing like this.

Joseph Crooms (22:06)
Thank you, Mike. Michael, let me ask you this question. So you have book of business from let me ask what is your total book of business? Because you you talked about

Michael Harouni (22:14)
Sure. What I said earlier is true. We’re just under thirty.

Joseph Crooms (22:17)
And that’s just in the platform.

Michael Harouni (22:18)
And that’s just in the past 13 months. And then and that includes PadSplits as well as midterm rentals. And we’ve also taken on, and we do do unfurnished rentals, but that usually comes when we’re taking over a portfolio and then remodeling one of the houses that’s and that’s a good point actually. You know, someone will bring us portfolio and they want to do PadSplit all of them. They want the profit for all them. PadSplit, maybe one of the most valuable things I do for investors is when I tell them when a house is not appropriate for PadSplit. And there could be a very long list of reasons why that is.

It could be in a very strict HOA. It could be in a neighborhood that wouldn’t support PadMates, even if it’s a nice neighborhood. It’s not what the PadMates are looking for in a house. And so when we take over a portfolio, a home might be converted to a furnished midterm rental. And a PadSplit might be converted, a home might be converted to a PadSplit. But we’ll also have other homes that are unfurnished long-term rentals that are doing great. And that we’re not going to change that because that’s what works. And I do believe in diversification of portfolios, and that’s part of what I do as an asset manager. It’s not just

being a property manager with broken toilets and collecting rent. We want to look at this whole thing and the goals of the owner and what the property could do based on what the owner’s goals are.

Joseph Crooms (23:23)
⁓ That’s exciting, man. That sounds really exciting. Thanks, Mike, for sharing that. We’re getting getting down to the wire. First of all, I like to say I’m from New York too. Really? So it’s really nice meeting. I I love your creative and your your keen eye and ear to jump on this. So now every operator I know ma ha has a moment when things just got real. Would you mind sharing one of those deals that that you had to pivot fast?

Michael Harouni (23:33)
Yeah, I could hear that in the voice. I love it.

Joseph Crooms (23:51)
And would you mind sharing one of those to us?

Michael Harouni (23:53)
Sure. PadSplit reached out to me. Well, one of their regional reps reached out to me a few months ago. And it was because they had known that I was someone that was helping owners become PadMate owners, PadSplit owners. And either I was helping them stand up the property, or there was one or two that I was hosting, or one that at this point I was managing. And they had preferred vendors, and these vendors are outside of the state. Nevada by law is a turf state. If you want to be a property manager real estate realtor in the state, you must have a license.

That’s under a broker that’s being hung in an office in the state. It’s a turf state. And some of their vendors, and nothing against PadSplit because other states allow this, are outside of the state. And the owner of this property was new enough to be dangerous and knew that, hey, that I need someone that’s in the state, who do you have? And so they reached out to me and I and I had a couple meetings with them and I learned that the actual decision maker was the the owner’s mother. She was on title. And I learned that what was happening here probably wasn’t the right thing to do.

And even though this was going to be the easiest layup I’ve ever had in sales at that point in my life, I realized that I was being looked to as an expert. And at the time, I think I was going through a bit of imposter syndrome, because it was only a few years in, maybe less than two years actually. And I realized that the wrong thing for this person was to turn this house into a PadSplit. And that what their goals were, goals were and what they are today, because now they are clients for me, but not as a PadSplit.

Is that the switch flipped for me when I realized people are looking into me, not to make money for them, but to answer questions for them that they can’t find the answers for on Google or ChatGPT. And that’s when I realized that I have a responsibility here. One of the most valuable things I do for investors that are not even my clients, is if I have a quick 15-minute phone call with them and point out the three things they’re not seeing, that makes it a no-go. That this is not a property that should be purchased and turned into a PadSplit or should be

as it is turned into a PadSplit. That’s when the switch flipped for me, when I realized the responsibility that I had that come that came with PadSplit sending me referrals, with people looking me up online and seeing, this is the PadSplit guy was that comes with not every property is appropriate and not every client is gonna be a good owner for a PadSplit either. There’s some financial stamina liquidity that’s needed for these remodels.

Joseph Crooms (26:02)
Right Mike, so now I know a lot of people listening are are either early in their journey or looking to level up and I think they benefit from hearing this. When it comes to building relationships and growing a network, what’s made the biggest difference for you?

Michael Harouni (26:16)
The answer sounds cliche, but it’s something that I just re-encountered last week. 80% of the battle is showing up. Show up to those networking events, show up to the meetup groups. If you yourself are an investor, find your own vendors. Don’t rely on a third party that might be getting a cut or might be pushing their vendor because things are better when they work with that vendor. What’s best for you? But also that might mean finding a property manager or a realtor that has a preferred vendor network that you’re able to get into.

Because you trust that person and they trust you enough to introduce you to their vendors. You know, I I’m sure we’re not the only market. Handymen, good handymen in Las Vegas are in very short supply. They just rolled out some new legislation about having a restricted contractor’s license, and that’s even shorter supply to find these licensed and bonded handymen where previously people were just doing it on the arm. I would say showing up to networking events, showing up to meetup events, show up, show up there and expect to hang out until the end of it and a little bit longer.

Network and meet people. If you’re just an investor, get some business cards made. And be prepared to put time and effort into the relationships.

Joseph Crooms (27:22)
Thanks, Mike. Wow. Sure. Time flies. You can’t fake that. Relationships are everything in this space. All right, before we wrap up, if someone wanted to reach out to you, connect with you, and maybe collaborate or learn more about what you’re doing, what’s the best way to reach out?

Michael Harouni (27:38)
Honestly, at this point, the best way to reach me, and it might provide some value for the listeners, our viewers as well, is that I’m going to actually I just got permission from our latest PadSplits client to begin documenting our journey of taking the home as it is. And then the remodel process and the post-remodel and the furnishing and the renting and out process, we’re going to start putting that on my Instagram page. And it’s a it’s a silly name. It’s pretty easy though. It’s @staymanagedmike.

M-A-N-A-G-E-D stay managed mike, M-I-K-E. That’s my handle on Instagram @staymanagedmike. Find me there, follow me, send me a DM. You know, I only work in the Nevada market. I don’t know everything there is to know about PadSplit, even in my own market, although I think I’m one of the most knowledgeable people here currently. If you’re outside of that market, which I’m sure many of your viewers are, I’m happy to help, but what I can do is limited, but I’m happy also to point out some areas or some resources you might be able to go to to help yourself.

Joseph Crooms (28:34)
Mike, just just give us that that that that how to how to watch it and and and

Michael Harouni (28:39)
It’s on Instagram. It’s at one word at stay managed mike.

Joseph Crooms (28:43)
Thank you, Mike. So perfect. Perfect perfect. Listen, I appreciate your time, your story, your perspective, your niche. And I’m glad that we got a chance to speak about that. We need more people in this space who are doing the right doing it the right way. Thanks again for being here. I I mean that sincerely man. And for those of you tuning in,

Michael Harouni (29:02)
Really happy that you had me on, Joe. Thank you, Joseph.

Joseph Crooms (29:06)
I know you got value from this. Make sure you subscribe. We got more conversations coming from operators just like Mike. I like that. Who are out there doing real business, helping people and willing to share his knowledge. That’s key. So we’ll see you on the next episode of Investor Fuel Real Estate Pros Podcast. Mike, tell him we’ll see you later.

Michael Harouni (29:29)
See you guys later.