A retired truck driver downsizing. A waitress saving to buy her first home. A college graduate launching his career. These are some of the low-income renters now using PadSplit, a startup trying to make affordable shared housing both prolific and profitable.

PadSplit works with landlords to turn vacant housing into income-producing coliving spaces by the room, similar to student or senior housing, that it markets online in Airbnb fashion. PadSplit has 1,300 rental units in its hometown of Atlanta, including single-family homes and apartments, and it's expanding across the nation this year with plans to have 4,000 units.

The company, which closed on a $10 million round of venture capital funding in August, expects to launch in the next few weeks in Tampa, Florida, on the heels of starting its first project in Houston. It also expects to expand into Richmond, Virginia; New Orleans, Louisiana; Charlotte, North Carolina; and Indianapolis, Indiana, this year. PadSplit is focusing on building its portfolio in cities and suburbs where prices are appreciating but have not reached the eye-popping escalation of some pricier East and West coast markets.

PadSplit says it can boost returns for landlords and owners while helping to address the affordability crisis plaguing most American cities, also while overcoming the risks involved with a decline in demand for shared housing during the pandemic and with dealing with many small landlords. The company argues its shared housing model can use the nation’s existing housing stock to make affordable units available faster than building from the ground up or going through traditional government affordable housing programs.

“The affordable housing crisis has plagued the country for decades, but the reality is that we can start solving it today by using only 1% of our existing housing,” said Atticus LeBlanc, founder and CEO of PadSplit, in an interview with CoStar News. "This is far more cost effective and efficient versus trying to build our way out of the crisis. We have seen our shared housing model empower individuals toward financial independence and save enough to purchase cars, rent out their own apartments and even purchase homes that they then convert to PadSplit to start the cycle for someone else.”

Boosting the stock of coliving spaces could make affordable housing more accessible to millions of low-income people, LeBlanc said. PadSplit and other coliving companies could also see a boost in demand after the Department of Housing and Urban Development said in January that federal housing vouchers can be used for shared housing spaces for the first time. Previously, housing vouchers were not commonly accepted in coliving arrangements, but in many cities they also weren't enough to cover the costs of a market-rate one-bedroom apparent, said Michelle Boyd, program director at Housing Lab, a nonprofit organization that supports entrepreneurs addressing affordable housing.

The average salary of PadSplit's members is $25,000. There are an estimated 11.2 million renter-occupied households making under $25,000 annually, according to the U.S. Census Bureau. And for extremely low-income renters, people making 30% of an area's median income, the National Low Income Housing Coalition estimates there are only 36 affordable and available homes for every 100 households in need. Extremely low-income renters face a shortage in every state and major metropolitan area, including the District of Columbia, according to NLIHC.

“We look at shared housing as completely normal, as do lenders, whether it's student housing or senior housing, but for some reason, between the ages of 22 and 65, it’s considered anathema,” LeBlanc said. “Whereas a lot of property managers would have a hesitation even around a student housing business, the value and the power of the PadSplit platform is it allows you as a traditional property manager to offer this by-the-bedroom model without really changing anything significantly that you do.”

Young professionals, single people and low-income individuals have long turned to roommate arrangements to save money. Craigslist and Facebook continue to be popular choices for finding roommates, but "there are trust issues there. ... How do you screen people?" LeBlanc said. There are dozens of roommate finders online such as Padmapper, Roomates.com, Roomster, Diggz and SpareRoom, which also help with roommate matching.

Coliving companies often aim to help tenants find and screen roommates faster, in addition to taking out the hassles often tied to deciding to live with strangers. Often the units are fully furnished with wireless internet and utilities included. Managing maintenance repairs, billing and cleaning services and even arranging catered parties can be done through apps.

“It’s about keeping the good parts of having roommates and getting rid of as many annoyances as possible,” Brad Hargreaves, CEO of Common, the largest U.S. coliving company, told Vox's Recode. “People had roommates but were running into lots of challenges that smart design and technology can solve.”

Even though coliving isn’t expected to replace the more informal roommate housing setup anytime soon, many coliving companies have been expanding to meet demand. There were 7,820 coliving beds in the United States and 54,300 beds under development by private companies including Common, Open Door, The X Company, Society, Starcity, Quarters, Ollie, Node, the Collective and WeLive as of July 1, according to a coliving report from brokerage firm Cushman & Wakefield.

But most existing and planned coliving projects are in urban areas in the country's most expensive cities such as New York City, Miami and San Francisco, all areas with high competition for sites from multifamily developers and lots of regulatory hurdles. Those challenges are driving coliving developers to look at opportunities in lighter regulatory markets such as in the Sun Belt, according to Cushman & Wakefield.

While coliving allows operators to scale up quickly, it can also come with risks. Operators are liable for numerous leases instead of flexible management agreements, and coliving companies must strike deals with multiple landlords who may be smaller and not have the financial backing of large institutional investors or reserves to weather economic downturns, according to the Cushman & Wakefield report. Throughout the coliving industry, leases average about nine months, which means coliving operators deal with more turnover than traditional landlords.

Like the rest of the apartment industry, coliving has seen declining occupancy during the pandemic, and some coliving operators such as Hubhaus and Bungalow struggled to stay afloat as tenants favored more spacious living without roommates they don't know, according to the report. Before COVID-19, coliving in multifamily properties saw some of the highest occupancy rates in the industry ranging from 96% to 99% depending on the operator, according to Cushman & Wakefield.

As of July, occupancy dropped to 91.2% for properties in Los Angeles, Seattle, San Francisco, Miami and Washington, D.C. However, within those same cities, coliving outperformed stabilized downtown Class A apartments, which overall saw occupancy dip to about 90% from 94.4% pre-pandemic, according to Cushman & Wakefield.

The brokerage is projecting coliving occupancy rates will recover post-pandemic as more workers return to work and economies reopen.

While PadSplit can help owners boost cash and take away some of the hassles of resident management, some property owners may still face certain risks when working with a coliving affordable housing model, said Boyd of Housing Lab.

“One risk that property owners face is interfacing with resistance from neighbors who may not be interested in having these types of housing units as their neighbors," said Boyd. “Additionally, the base of PadSplit members are working in lower-wage jobs, which in our society comes with job insecurity that is always a risk for a landlord."

PadSplit helps mitigate that risk by providing some services to tenants to help them maintain work such as credit building programs, job placement and telemedicine. Those services are unique for a coliving company to provide and could help tenants keep a more stable income, Boyd added.

Prior to PadSplit, founder LeBlanc spent most of his career as a commercial real estate broker negotiating multifamily land deals and assisting clients with site selection. But he jokes that his first name, after "To Kill a Mockingbird" fictional character and lawyer Atticus Finch, gave him a social justice streak. He’s always had an interest in solving inequalities in housing and focused his college thesis on the topic. He started buying and renting out single-family homes right before the 2008 housing crisis underpinned the need for more affordable housing.

Over the years, he’s worked with various traditional affordable housing programs and found the regulatory programs clunky and arduous. For example, while working with a government program in Atlanta as a developer between 2009 and 2013, he built 20 affordable units, but during that same time, with private funds and less red tape, he was able to put 400 affordable units on the ground.

“I was just really frustrated by how slow those things were [with government funds]," LeBlanc said. When he got to the point where he had enough stable income to support his family, he said, he decided to take a risk to address the problem head-on. LeBlanc launched PadSplit in 2017, and the company has raised at least $14.6 million in private funding since then. Core Innovation Capital, a venture capital firm, led its most recent funding round, which also included Alate Partners, Citi, Kapor Capital, Impact Engine and Cox Enterprises.

By renting rooms individually, the platform keeps rents at an average of $600 per month, which includes internet, utilities and access to telemedicine. Residents can save about $420 monthly compared to renting out a traditional space, according to PadSplit. They can pay on a per-week basis, which can help people living paycheck to paycheck, LeBlanc said. It also allows individual residents to stay in good standing with landlords even if their roommates miss a payment.

PadSplit also works with local nonprofit groups, government agencies and private companies to connect members with social services such as First Step Staffing for job placement, Teladoc for 24/7 telehealth and Esusu Financial for savings and credit building.

Landlords can generate more income by increasing occupancy within an apartment unit or single-family home, according to the company. Reducing vacancies and turnover costs increases net cash flow by an average of 80% on a monthly basis, LeBlanc said.

The average PadSplit resident only stays 8.5 months, which is a short time frame compared to most residential leases but on par with the rest of the coliving industry. But because landlords are only responsible for turning over a single bedroom at a time while the rest of the space is filled, they can still generate income on a property during turnover, according to PadSplit. Common areas are also better maintained because the space is always occupied, so tenants can flag any maintenance concerns in common areas before they become major issues, PadSplit said.

An apartment complex with excess two-bedroom units can turn those units into two leases rented to two single residents, for example. One-bedroom units are often in higher demand as the number of single-person households rises across the nation. PadSplit said a landlord can convert underutilized space within a home into a rentable bedroom that meets basic housing and fire safety standards by transforming a spacious dining room into a bedroom by adding a wall or door.

PadSplit only earns money when it successfully fills a space. It markets the properties, processes payments, vets resident applications, performs background and income checks and helps handle resident relations remotely.

In Atlanta, PadSplit has 1,300 rooms across 200 properties including single-family homes and multifamily units and expects to have more than 2,000 rooms in the Georgia capital this year. In Houston, PadSplit expects to have at least 500 rooms this year, LeBlanc said, and has 104 rooms across 13 properties under development that are all single-family homes. Most of the units are concentrated between the Interstate 610 Loop and Sam Houston Tollway, including southeast Houston and Pasadena as well as Greater Inwood and Acres Homes in northwest Houston.

To launch in Houston, PadSplit seeded a fund to create a third-party entity called ORT Asset Management that owns the single-family home rentals that PadSplit is developing. Eventually ORT could sell the single-family rentals to other investors, but for now the rentals are being used as a case study in the market, LeBlanc said. In addition to developing single-family rentals, PadSplit is interested in adding apartments to its platform in Houston like it has in Atlanta.

“We figured the easiest way to convince landlords who are historically very skeptical is to just show how it's already working in those areas,” LeBlanc said.

The company is expanding to markets that have an affordable housing problem but where it is still attainable for investors to purchase a property and rent it out and make money.

“We are early enough in the life cycle of these other cities in the Southeast where we can intervene before the affordable housing crisis gets out of control,” LeBlanc said.

Once PadSplit proves its model in relatively affordable markets, it could possibly expand into pricier cities such as San Francisco or Seattle where it likely would have to work with government entities or another subsidy program, LeBlanc said.

LeBlanc argues that the pandemic has underscored the need for affordable housing for the nation’s essential workers.

“When it comes to affordable housing, the question I always like to ask is, ‘Do the people who serve your community deserve an opportunity to live there?’ Most people don’t realize that there is an invisible workforce, and the people you interact with everyday — the person stocking shelves at your grocery store or the security guard at your office complex — they can’t actually afford safe and clean housing that’s nearby despite working one or even two jobs,” LeBlanc said. ”At PadSplit, we believe the answer to this question is a resounding yes, and the pandemic has only made our team more resolute.”