Roofstock Review 2021: What rental property investors really need to know

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It wasn’t that long ago that the only option for finding residential rental property was the local multiple listing service. Since 2015 Roofstock has been disrupting the market for U.S. single-family rental housing, helping both individual and institutional investors to bet that single-family rentals will continue to boom.

That’s a bet that appears to make sense. Over the next 10 years the $4 trillion single-family rental market in the U.S. is projected to double in size, with more than 29 million households renting by 2030. 

While Roofstock is known for democratizing residential rental property investing, it’s important for investors to do their research before buying and selling rental property on the Roofstock platform.

 

What is Roofstock?

 

Roofstock is an online real estate marketplace where everyone from individuals to institutional investors can buy and sell single-family rental homes and small multifamily property. 

Investors buying property on the Roofstock platform receive passive monthly income from tenant rents, tax benefits from real estate ownership, and potential property appreciation over the long term.

  • Roofstock’s marketplace is an online marketplace perfect for remotely buying and selling individual rental properties and entire real estate investment portfolios.
  • Roofstock One offers whole or fractional ownership shares of fully managed investment properties in dozens of markets from coast to coast.
  • Roofstock Platform Services provides an end-to-end solution for large investors, family offices, and private equity funds to build and scale real estate portfolios.
  • Roofstock Academy is the training program to help people become successful real estate investors through on-demand lectures, group and 1-on-1 coaching, and a personalized investment playbook created by experienced investors.

Since its launch in May 2015, Roofstock has generated over $2 billion in transactions in more than 70 markets across the country. The company’s Roofsters (employees) consistently give Roofstock and the CEO high ratings on Glassdoor for culture and values, diversity and inclusion, senior management, and more.

 

Who’s The Team Behind Roofstock?

 

CEO Gary Beasley, Chairman Gregor Watson, and Chief Development Officer Rich Ford collectively are the driving forces behind Roofstock. These three Roofstock co-founders have a track record of starting and launching numerous successful companies including ZipRealty, Starwood Waypoint Residential Trust, 1Sharpe Capital, and 643 Capital Management.

Industry Recognition and Credentials

Gary Beasley was named a 2019 Top Fintech CEO by Financial Technology Report and HousingWire’s 2018 HW Vanguard. Gary received his BA in Economics from Northwestern and earned his MBA at Stanford.

Gregor Watson was selected as a HousingWire Rising Star in 2019 and is a member of the 2018 San Francisco Business Times’ 40 Under 40. Gregor received his BA from Regis University in Denver.

Rich Ford is a 2019 HousingWire Insider. Rich received his BS from the University of Victoria, an MS from the London School of Economics, and an MBA from the University of Chicago.

Board Members

  • Gregor Watson, Chairman & Co-Founder
  • Gary Beasley, CEO & Co-Founder
  • David Weiden, Khosla Ventures
  • Matt Harris, Bain Capital Ventures
  • Will Kohler, Lightspeed Venture Partners
  • Paul Hsiao, Canvas Ventures
  • Craig Robinson, Independent Director

Investors

  • Khosla Ventures
  • Bain Capital Ventures
  • Lightspeed Venture Partners
  • Canvas Ventures
  • Nyca
  • QED Investors

 

How Does Roofstock Work?

 

Roofstock isn’t a crowdfunding company or real estate investment trust (REIT). 

Instead, Roofstock is an online platform for buying and selling single-family rental houses and small multifamily homes where investors have 100% ownership of the property. 

Roofstock is ideal for both beginning and experienced real estate investors seeking passive income from residential real estate in more than 70 of today’s hottest single-family rental markets including Las Vegas, Orlando, Atlanta, Phoenix, Dallas-Fort Worth, and Indianapolis.

Signing up on Roofstock is free for both non-accredited and accredited investors. Buyers can search the Roofstock Marketplace with easy-to-create search parameters such as turnkey, higher yield, 1% rule, and price reduced to match every real estate investment strategy.

Remote real estate investing on Roofstock is made easier with neighborhood and school ratings, property inspection reports, and a complete forecast of potential financial performance including annualized return, cap rate, gross yield, cash on cash return, appreciation, and cash flow. 

Investors can hire a local property manager (either through Roofstock’s preferred network or through their own research) to handle day-to-day items such as leasing, managing, and maintaining the rental property. 

Many homes listed for sale on Roofstock are certified with documents including photos and 3D tours, a detailed home inspection, estimate of any needed repairs, tenant lease information and rent roll, and title report. 

 

Advantages of Roofstock

 

There are currently 16 million single-family rentals (SFRs) with a market value of about $4 trillion. The Urban Institute predicts that more than 13 million new rental households will be created by 2030. Investing in single-family rentals can provide strong, stable cash flow through all parts of the economic cycle.

1. Immediate cash flow

The Roofstock Marketplace has hundreds of investment properties listed for sale with a tenant already in place. Investors can start collecting rents right away, with immediate cash flow the day the home closes escrow.

2. 100% property ownership

Rental property investors buying homes on Roofstock have 100% property ownership instead of crowdfunding with hundreds of other investors. Net income, numerous tax benefits, and potential gains from long-term appreciation flow directly to the investor.

3. Low fees and commissions

Sellers pay a sales commission of just 3% (compared to the standard 6% real estate commission) while buyers are charged a service fee of only 0.5% or $500, whichever is greater. On a $100,000 single-family rental property sellers can save $3,000 by listing on the Roofstock Marketplace.

4. Financing on Roofstock

Roofstock’s lending partners can offer preferred rates, or investors are free to use their own lender. Buyers can be pre-approved for a rental property loan and receive a pre-approval letter to make their offers stronger.

5. Multiple ways to invest

The global reach of Roofstock helps investors from around the world to buy and sell single-family and small multifamily rental property. Sellers who list their property on the Roofstock Marketplace can reach a global network of investors without showings or removing tenants.

6. Remote real estate investing

Roofstock’s technology advantage streamlines the process for remotely investing in real estate in 70 different housing markets from coast to coast. Investors use proprietary data and technology to invest in the hottest single-family rental markets in the U.S. entirely online.

7. Best-in-class property management

Real estate investors can enjoy the benefits of owning a rental home in a different city with Roofstock best-in-class property managers. Local property management firms take care of the day-to-day details such as rental collection and repairs so that investors can focus on growing a passive income stream.

8. Non-accredited investors are welcome

Oftentimes the best real estate investment opportunities are limited to accredited high net worth individuals. Not so with Roofstock. Instead, Roofstock democratizes real estate investing by making it simple, cost-effective, and radically accessible to non-accredited investors who are buying rental property for the very first time.

9. Many Homes are Roofstock Certified

Most properties undergo an intensive inspection process before being listed on the platform. The Roofstock Certification process includes an in-depth property inspection, home disclosure report, estimated repair costs (if any), and valuation and rental market analysis. 

10. Roofstock Guarantee

Rental property investors can buy a vacant home on Roofstock with a lease-up guarantee. Buyers who don’t secure a signed lease on a rent-ready home within 45 days receive a rent guarantee for up to a year. In addition, investors who aren’t satisfied for any reason receive a 30-day money back guarantee.

 

Drawbacks to Roofstock

 

Although there are numerous advantages to buying and selling rental property on Roofstock, investing in real estate isn’t right for everyone. Potential drawbacks include:

1. Large down payment

Financing rental property generally requires a down payment of between 20% - 25% of the purchase price to obtain the best interest rates and fees and a conservative loan-to-value (LTV) ratio. That means on a $100,000 home the minimum down payment would be between $20,000 and $25,000, excluding closing costs.

2. May require additional funds

Rental property investors should also maintain a reserve account for extra funds needed for capital improvements such as a new roof, money set aside to pay for the mortgage in between tenants, and repair costs that can’t be paid using the monthly cash flow.

3. Passive investments still require work

Investing in real estate requires extensive research on the local housing market and neighborhoods rental property is purchased in. Remote real estate investors who hire a local preferred property manager still need to review monthly financial statements and operating reports, and speak periodically with the local management team.

 

Can You Sell a Rental Property on Roofstock?

 

Since Roofstock is an open marketplace, anyone can come list their rental property on Roofstock. 

Property owners can keep tenants in place and keep earning rental income through closing, while Roofstock takes care of the marketing and busywork from start to finish. The fee for selling a property on Roofstock is only 3% of the sales price, about 50% less than a traditional real estate commission.

How to sell a property on Roofstock:

  • Submit a listing by entering property information, uploading photos (if available), and answering a short series of questions to receive a free price estimate.
  • Proceed with the Roofstock Certification where up-front due diligence such as ordering a property inspection and a preliminary title report to prepare the listing for sale.
  • Property listing is launched on the Roofstock Marketplace where hundreds of thousands of investors from around the world can review relevant details and documents, photos and videos, and financial projections for the listing.
  • Receiving offers and negotiating is conducted completely online, with closing generally occurring with a 30 day period after the purchase and sale agreement is executed.

 

Does Roofstock Offer Fractional Investment Opportunities?

 

Through Roofstock One, accredited investors can purchase fractional ownership shares of select single-family rental property on Roofstock. With a minimum of only $5,000, fractional share investors can enjoy potential passive income, tax benefits, and long-term appreciation of single-family rental property fully managed by Roofstock:

  • Search inventory of properties vetted and selected for their investment potential.
  • Fractional ownership shares are offered in select properties representing 1/10th of the home’s equity value.
  • Economic rights including potential net rental income (after expenses), tax benefits, and appreciation are passed through on a pro-rata basis.
  • Alignment where Roofstock One retains a minimum 10% ownership interest the first year so investors can purchase fractional shares in rental property with confidence.
  • Fully passive investment including professional, in-house property and asset management to free investors from time-consuming tasks and decision making.
  • Liquidity options include converting to traditional direct ownership and possible share redemption after an initial 6-month holding period.

 

Roofstock FAQs

 

Q: Can homes listed on Roofstock be used for a 1031 exchange?

Yes. Single-family rental houses and small multifamily properties listed for sale on the Roofstock Marketplace qualify as like-kind investment property that can be used in a 1031 tax deferred exchange. Investors must still meet the 1031 exchange guidelines and timelines required by the IRS.

Q: Can funds from a self-directed IRA or 401(k) plan be used for Roofstock?

Yes. Funds currently held in an IRA or 401(k) can be used to diversify some retirement savings away from traditional stocks and low-yielding bonds into residential rental real estate that may provide recurring cash flow and long-term appreciation tax free while held in a retirement fund. 

Q: What is the cost for buying and selling property on Roofstock?

Listing a property on Roofstock is free. Sellers pay a 3% sales commission while buyers pay a 0.5% service fee, in addition to normal closing costs such as property inspection and escrow fees.

Q: What is a Roofstock Certified home?

Homes listed for sale on the Roofstock Marketplace go through a certification process that includes a property inspection, valuation report and rental market analysis, summary of key lease terms for property with a tenant in place, and a home disclosure report. Buyers have the opportunity to review these documents before making an offer on a Roofstock Certified home.

Q: How does customer service on Roofstock work?

The Seller Certification Tracker and Transaction Tracker for Buyers and Sellers allow investors to monitor the progress of a listing or property transaction entirely online. Investors are also assigned a dedicated account executive who can be reached by phone or email before, during, and after the entire transaction process.

Q: Does Roofstock offer a guarantee?

Roofstock offers two guarantees. Investors who purchase a vacant property on Roofstock receive a lease-up guarantee, with rental income guaranteed for up to one year if a signed lease isn’t secured within 45 days of a home becoming rent-ready. Buyers who aren’t satisfied with a home purchased on Roofstock also receive a 30-day money-back guarantee.

Q: Do investors have to be accredited to use Roofstock?

No. Unlike some other real estate investing platforms, Roofstock works with both non-accredited and accredited investors. However, real estate investors seeking fractional ownership investments must be accredited.

Q: How do Roofstock fractional ownership investments work?

Accredited investors can purchase fractional ownership shares of select single-family rental property through Roofstock One. The investment minimum is $5,000 with each fractional share representing a 1/10th ownership interest in the property.

 

Final Verdict

 

Roofstock offers beginning and experienced individual real estate investors, institutional investors, family offices, and private equity funds a cost-effective way to invest in the $4 trillion residential rental real estate market.

The stringent property listing process on the Roofstock Marketplace, the tech-friendly platform, and company guarantees help make Roofstock one of the best ways to invest in single-family rental homes and small multifamily properties today. 

Real estate investors who buy property on Roofstock own their property (or fractional property share) directly, and receive all of the benefits of investment real estate, including potential net income, tax benefits, and increase in property value through long-term appreciation.

 

 

This content was provided by Roofstock. Kiplinger is not affiliated with and does not endorse the company or products mentioned above.