Roofstock is an online marketplace built to facilitate buying or selling of turnkey rentals. For those investors looking to diversify, the website has a section dedicated to portfolios of single-family or multifamily properties.
The platform is robust with numerous features to facilitate the buying and selling of properties. From new property alerts to cash-flow calculations, their website provides a wide range of support for buyers and sellers. The processes to list and purchase properties are complex, but that's not surprising given that you are processing real estate transactions.
Account Creation & Funding
Roofstock's account creation is very straight forward. That makes sense because they are focused on the transaction itself. They use a thorough vetting process to review and approve individuals listing and purchasing properties.
To start, visit their website (roofstock.com) and create your account. If you're a seller, you'll be able to start the process to list a property for sale. If you're a buyer, you'll be able to explore available turnkey rentals, property portfolios or shares of properties.
There is no requirement to fund your account. Since Roofstock is a marketplace, they do not actually handle the funds. It's up to you to transfer the required funds to complete the transaction. They do have lending partners, which may be more likely to understand the investment and supportive of your goals.
For those seeking straightforward investments, Roofstock offers the opportunity to invest in shares of a property. With a minimum investment of $5,000, these shares are a larger commitment than we've experienced on other platforms. Additionally, the partial shares are open to accredited investors only (for more information on accredited investors see their page join.roofstock.com/buy-shares). So, while not an option for everyone, they are worth exploring if you're interested in diversifying across multiple properties.
Discussions with Roofstock
We completed a call with a Roofstock rep on 6/20. See updates below for details.
Rental properties are great income generating investments, but they carry a lot of risks including tenant risk, vacancy risk, depreciation risk, property damage and legal risks.
Vacancy and low-quality tenants pose a significant risk. Investors lose money every day a property is vacant or filled by a tenant that fails to pay rent. The investor continues to pay the mortgage principal, interest and escrow regardless of the lack of income. Additionally, the property management company will charge a hefty fee for finding or replacing a tenant. This could be as high as 50% of the first month's rent. In cases of eviction, you'll incur legal fees to remove the occupants, and you'll likely have additional costs for repairs the property and finding new tenants. As you can see, vacancy or low-quality tenants pose a huge risk to investors. Purchasing turnkey rentals with tenants in place has the potential to mitigate this risk.
Property damage is another potential pitfall. Investors usually insure their properties with a fire insurance policy, which covers catastrophic losses and lost income during reconstruction. However, it does not cover all potential losses - including tenant damages. Plus, you'll pay the deductible for any covered losses. While unlikely, property damages present a noteworthy risk to your investment income.
Property depreciation is a very real possibility. During the mid-2000s, real estate depreciated dramatically. That period was the excpetiona nd not the norm. Most investors assume a 1-3% appreciation rate, but an increase in property value sis never guaranteed. If you're forced to sell in a down market, you will likely take losses on the value of your property.
Finally, your property is subject to legal risks. If your property is in an area controlled by an HOA, you may find yourself in a dispute with the association due to changes made by your tenant. It's important to consult an attorney to ensure the lease addresses the process for any external changes including landscaping, mailboxes, etc.
Is Roofstock a good platform to invest in real estate?
Under the right circumstances, rental properties are great passive investments capable of providing a steady stream of monthly income. If properly leveraged (you borrow money to purchase), the returns on your investment can be substantial. Roofstock is a good resource for investors to find turnkey rentals, vet properties, deal directly with the seller and reduce the costs of acquiring the property.
In our very simple opinion, an investor considering purchasing a rental property will benefit from using Roofstock's platform to learn about markets, view nationwide opportunities and identify high potential properties that meet their investing goals. Even if you do not purchase a property through the platform, you'll benefit from the features available and you'll make a more informed decision.
As with all of our posts, this is not intended to provide any financial advice or solicit investments. This is only our opinion of the platform, services provided and potential risks we see. For more information please see our services page.
Managing your investments is never easy. It's difficult to navigate the options and ensure you’ve invested your money in the best possible places. What to Invest in Today (WIT), is intended to provide clear, straightforward explanations of the platforms I explore. I started investing in stocks after graduating college in the early 2000s. From there, I progressed into bonds, options and, eventually, alternative investments. Along the way, I earned a master’s degree in Economics from Johns Hopkins University and an MBA from UVA's Darden School of Business. This blog is a way to share my experience researching new investments and tracking performance of past investments. Join me and, of course, share your experiences as well. Feel free to connect with me on LinkedIn - www.linkedin.com/in/bcarruth
This weekend we received our market valuation for a property we are listing for sale through roofstock. Screenshot below.
As you can see, the report is pretty basic. The property value is in line with other estimates we've received. However, the rental value is considerable higher than we've seen before. Unfortunately, they use the same property twice for the valuation. Their algorithm wasn't able to identify the duplication and we cannot be sure how much that skewed the valuation.
Just ended our call with the representative from Roofstock. It was about a 10 minute call to discuss the company and review the property we were considering listing.
- Valuation is based on the cap rate or expected rate of return. They do not work with properties that have less than a 4% cap rate. Unfortunately, our rental's cap rate is just over 3%. So, to boost the cap rate we must lower the listing price or increase the rent.
- If we choose to pursue either option and list with Roofstock, there is an agreement that we have to enter into with the company to allow them to act as our agent.
- The contract stipulates that they will be the only agent we use - pretty standard.
- Specifies the time-frame they will act as agent. Looks like 45 days followed by 6 one-month renewals.
- Provides for an $800 fee if we list the property above Roofstock's estimated value.
- Provides for a $300 fee if Roofstock transfers the property to a local agent (if we pay the $800 fee this $300 fee is waived.)
- Covers standard Agent/Owner contract verbiage.
Although we decided not to list through Roofstock, the concept is interesting. For buyers, it provides an opportunity to buy income generating properties. For sellers, it could be a quick way to flip houses without a huge investment and risk on the open market. Buy, fix-up, rent and sell. If you use Roofstock, let us know. We'd love to hear/share your story.