- Review: Roofstock
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Similar to many real estate crowdfunding companies that have come on the scene since the 2012 Jumpstart Our Business Startups (JOBS) Act, such as Fundrise, Patch of Land or Realty Mogul, Roofstock offers an easier path to a more passive form of real estate investing than the normal route of finding an agent, touring home after home and manually researching all the property comps and documents.
With most real estate crowdfunding marketplaces, the investor is loaning money to a rehabber or real estate developer for a particular project within a defined timeframe. On Roofstock, the investor is buying the property outright. This is not crowd funding; this is simply an easier and less expensive way to buy a rental property.
Through Roofstock, busy professionals or investors, who simply don’t want to put in that much work themselves but still would like to own rental property, can easily invest. Similar to turnkeys — where a standard condition to closing is to have the property leased with a paying tenant in place — Roofstock’s properties are ready to generate cash flow for the owner on day one.
Roofstock was initially funded and launched in May 2015 and officially opened their marketplace less than a year later, with their first transaction just a few months ago in March 2016.
According to CEO Gary Beasley, previously the Co-CEO of Starwood Waypoint Residential Trust, one of the leading single-family rental companies in the United States, Roofstock is “focused on markets where there’s a healthy supply and demand for single-family rental homes.” Roofstock currently serves Atlanta, Tampa, Orlando, Jacksonville, San Francisco and southwest Florida. The company is considering other markets with good characteristics, including Dallas, Las Vegas and Phoenix.
Roofstock provides research, analytics and insights to evaluate and purchase independently certified properties at set prices. Roofstock doesn’t own the properties posted in the marketplace; however, they do pre-certify all properties before listing them.
To be certified, each property must have:
- A property walkthrough inspection conducted by an experienced investment property inspection firm;
- An estimate of the cost of major and minor repairs necessary in the short and near terms;
- A title report with no uninsurable encumbrances or liens and preliminary title commitments where applicable;
- A valuation analysis of the property and market conditions in the local rental market;
- A 3D virtual tour of the property;
- A property floor plan;
- Photos of the property;
- A review and summary of the lease terms; and
- A review and summary of the tenant selection process.
Roofstock currently lists 120 properties — ranging from retail sellers to midsize and large institutions mostly located in Florida — available on the site. The platform claims thousands of investors and sellers. It has facilitated closings or pending closings on 40% of the listed properties.
So you might be wondering why an individual would want to sell a cash-flow positive rental property. According to Roofstock, sellers typically list for one of three primary reasons:
- The seller was not able to accumulate enough homes in a specific geography to obtain the economies of scale desired;
- They are reshaping their broader portfolio to focus on a more specific strategy or type of property; or
- They wish to have capital returned or to redeploy funds into other geographic areas or “fix-up” properties.
Roofstock may provide selling price recommendations, but the property seller determines the list price. However, as part of their certification process, Roofstock will not list a property if the company executives think the property is not priced appropriately.
CEO Beasley says their company mission is to use technology to efficiently match buyers and sellers and reduce the transaction costs for both parties. Their business model is to charge half of the 6% typically charged by realtors. Sellers pay a 2.5% marketing fee and buyers pay half a point in commissions.
|Minimum Investment||Varies (home purchase)|
|Fees||0.5% one time fee|
|Offering Types||Direct Ownership|
Free to join — There are no membership or access fees to view properties on Roofstock.
Properties are certified — To be listed on the platform, each property must pass a vetting and review process verified by Roofstock. All documents are posted with the property details, so any prospective investor has full access. There are estimated projections on each property as well.
Rental cash flow and possible capital gains from property appreciation — Like any other rental property, investors earn returns from the rental cash flow and any appreciation in the property value when it’s sold.
Online searchable database — The platform is easy to use and allows you to quickly search for properties that meet your desired criteria.
30-Day satisfaction guarantee — Roofstock provides a 30-day guarantee to buyers under a Roofstock Realty LLC Purchase and Sale Agreement. If a buyer is not satisfied with a property, they can notify Roofstock in writing within 30 days of the closing. Roofstock will relist the property for free and will buy it themselves if it doesn’t sell within 90 days.
- Own real property — If you live in an expensive part of the country where you are priced out of the market, like the San Francisco Bay Area or New York City, you might not be able to qualify to buy your personal residence. Buying a rental property in an area where you can take advantage of high rents and low real estate prices can turn out to be a great investment. Rental properties offer the opportunity to become a homeowner while adding another revenue stream to an investment portfolio.
- Non-accredited investors welcome — Unlike real estate crowdfunding platforms, you do not need to qualify as an accredited investor to invest in Roofstock properties.
- Cash-flow positive investments — Unlike house flipping that might require significant repairs to make a home livable, a Roofstock investment is already rented and is cash-flow positive the day it’s purchased.
- Affiliated property manager not mandated — Like any rental property, you either need to manage the property yourself or hire a management company. A good property manager will handle almost every aspect, from cutting the grass to ensuring mortgage payments are made.
Roofstock provides access to certified property managers for investors that choose not to self-manage their properties. However, unlike traditional turnkey operators, Roofstock doesn't require the use of an affiliated property manager for any of the properties listed on their site.
- Lower real estate commissions — Through technology, Roofstock is able to charge less than the usual 6% charged by real estate agents. Sellers pay a commission of 2.5% and buyers are charged ½ of one point (a point is a percentage of the agreed-upon price — ½ point of a $100,000 property is $500).
- Lower closing costs — On either side of a real estate transaction, as the buyer or the seller, you must go through a “closing” like you would if buying any other property. Closing costs can be expensive, however Roofstock has considerable leverage with those providing the services that comprise closing and has negotiated lower fees than you’d be able to get as an individual homebuyer or seller.
- Long-term investment — Rental property is highly illiquid, and it can be much easier to buy than to sell. And unlike investing in a REIT or loaning money on a real estate crowdfunding platform for a specified term, you’re buying a home on Roofstock. The process is likely to be research-heavy, and it may require a lot of time to carefully review all the documents and adequately perform due diligence. The only way to minimize risks is to do extensive due diligence and be sure to invest in quality.
- Emergency cash — You will need to have funds set aside for emergency repairs and expenses. Rent-paying tenants expect a broken dishwasher to be repaired without delay. Any rental property investor should have an emergency fund buffer to handle the typical loss of money that’s part of owning any rental property: vacancies, maintenance and tenant turnovers.
- More sizeable down payment required — Like any other property, you can apply for a mortgage. However, be prepared to pull together a more sizeable down payment as mortgage lenders for homes that are not your primary residence usually require 20%–30% down.
Roofstock makes use of technology to provide a platform that simplifies a historically cumbersome real estate buying process and gives investors access to localized deals they might otherwise never see. The result is that investors seeking rental properties can research, review and buy properties from anywhere with transparency and efficiency. Roofstock’s mission is to make investing in U.S. real estate from anywhere in the world as simple and efficient as buying stocks.