Roofstock Review 2020 – Investing in real estate markets

Roofstock Review 2020 Investing in real estate markets
Roofstock Review 2020 Investing in real estate markets

Roofstock gives non-accredited investors the opportunity to invest in single-family rental real estate. However, it requires a hefty down payment to begin, and the properties are a highly illiquid investment. So let’s begin with Roofstock Review How to get started.

Similar to other real estate companies such as Fundrise, Patch of Land, and 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 comps and documents… not to mention the hassles of fixing and/or managing a property.

However, here’s where Roofstock is different. 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 crowdfunding; 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.

And now, if you’re an accredited investor and want to invest in shares of rental properties and diversify your portfolio across multiple locations and homes, Roofstock has a new offering that might appeal to you.

Review Roofstock Features

Minimum Investment0
Account Fees0.50% setup fee
  • Free to Join — There are no membership or access fees to view properties on Roofstock.
  • Certified Properties — 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 — As with 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 re-list the property for free and will buy it themselves if it doesn’t sell within 90 days.
  • Roofstock One (New) — Own shares of individual rental homes with a totally passive security offering. All management is taken care of. See below for more details.

What Is Roofstock?

Roofstock was initially funded and launched in May 2015 and officially opened its marketplace less than a year later, with the first transaction taking place 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 are a healthy supply and demand for single-family rental homes.”

Roofstock currently serves nearly 40 markets, including Atlanta, Dallas, and Las Vegas.

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, it does pre-certify all properties before listing them.

To be certified, each property must have:

  • A property walk-through 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;
  • 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 more than 470 properties available on the site, connecting thousands of investors and sellers.

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 the certification process, Roofstock will not list a property if the company executives think the property is not priced appropriately.

CEO Beasley says the company’s mission is to use technology to efficiently match buyers and sellers and reduce the transaction costs for both parties. The 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.

Roofstock One Review

Roofstock’s newest offering allows accredited investors to buy shares of specific properties. Each share represents 1/10th of the home’s equity. Investors receive economic right in the underlying property, including any potential net rental income after expenses. But you won’t have to get your hands dirty – Roofstock takes care of all maintenance and management.

Roofstock itself will retain a minimum 10% ownership interest in each property for the first year, which should give investors some peace of mind.

After a six-month holding period, Roofstock One investors will be able to redeem shares or even convert to a traditional ownership model (if they own 90% or more of the shares).

The minimum investment to take part in Roofstock One is currently $5,000. If that seems high, remember you’re buying at least 1/10th of a property!

By owning shares in multiple Roofstock One properties, you can potentially diversify your portfolio across several different markets. This could make your real estate holdings stronger and perhaps even more lucrative.

Review Roofstock Pros & Cons

Pros

  • Own Real Property — 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 — 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 — 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 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).

Cons

  • 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.
  • Large Down Payment — 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 Review Summary

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.