Roofstock Review

Checking out your options for investing in real estate? There really is so much to consider.

Apart from the high fees, buying into rental property typically comes with a lot of responsibility and maintenance, making it anything but a passive investment.

Well, turnkey rental property Roofstock has changed all that by providing a transparent and innovative marketplace in the single-family rental investment space. 

And it continues to be an investor favorite. After only 3 years on the market, Roofstock had already surpassed an impressive $2 billion transactions and since, it has been recognized as the fintech to watch for in 2020.

In this review, we take a look at what exactly Roofstock is, if it’s legit, the platform’s rock-solid certification process, how much ROI you can expect over a 10 year period, and more.

Ready? Let’s jump in.

What is Roofstock?

Roofstock is a turnkey rental property platform, founded as recent as 2015. The company offers investors a marketplace to buy and sell single-family rental properties. 

The individual investments offered are unique and are a far cry from typical crowdfunded models. Roofstock investors are buying into entire homes with single family tenants to rent on a per month basis.

This is a more accessible, easier path to real estate. Roofstock users can choose from a huge range of properties in the marketplace, finance it or buy it cash in hand, get the title of the property, hire a property manager to look after all the property maintenance and tenanting (or manage it themselves — their choice).

The Roofstock marketplace allows you to buy and/or sell properties with current tenants that will offer an immediate cash flow once the deal is closed. 

This platform is ideal for those with a budget. It’s free to join and look through the properties, and it’s differentiated from most other crowdfunding platforms in that non-accredited investors are welcome.

Investors can easily set up search parameters to help filter and find the deal you’re after. And Roofstock’s massive range of over 70 markets is sure to produce the results you’re looking for. 

In addition, the platform launched Roofstock One, (for accredited investors only). With Roofstock One, you can buy shares in rental homes that are already fully managed. The shares offered represent 1/10th of the home’s equity.

Investors pay the company’s asset management fee in exchange for a mirroring of the economics of direct ownership, including tax benefits, rental income, and appreciation, without the hassle or responsibilities that come with being a landlord.

Once you own the property for 6 months, Roofstock offers owners liquidity options. For example, investors will have the option to convert traditional ownership and possibly even sell shares back to the company.

Roofstock’s Huge Property Selection

Since its launch, Roofstock has grown its inventory immensely. Today, Roofstock offers over 450 properties for sale. 

This is a significant number in comparison to some other turnkey places that offer little to no inventory, making you wait and often making you feel compelled to accept what you’re given once you get an offer. It’s not a nice experience, believe us.

However, the value of Roofstock is not in the size of its inventory. The value is in their pricing, categorization, and impartialness.

$3 Trillion Single-Family Rental Market

Roofstock currently has properties in 25 markets, with a serious expansion rate. Most, of course, are single-family homes.

Who Are Roofstock’s Competitors?

Roofstock has two key competitors: Fundrise, an online, crowdsourcing platform, and Peerstreet, a real estate investment platform, specializing in short term investments. Here are the back-to-back, raw stats for all 3 platforms.

Which Is Better: Roofstock or Fundrise?

As we can see from the quick-fire facts above, Fundrise and Roofstock offer investors different benefits, depending on what your individual goals are. As an online crowdsourcing platform, Fundrise specializes in eREITs. Roofstock, on the other hand, is a turnkey rental property platform focusing on single-family real estate rentals.

We’ve also done a back-to-back comparison of Fundrise vs Betterment that you can check out to help give you a better picture of the competitive landscape.

Is Roofstock Legit?

In December 2019, Roofstock reported its facilitation of over $2 billion transactions in the marketplace. One year later, in January 2020, Roofstock closed a $50 million series D funding round. This brought the total amount of equity to $133 million.

The ownership of rental real estate generally provides the opportunity to make money in one of two way:

• Rent provides a monthly income
• Market price appreciation of the property. This is realised once the property is sold.

Many of Roofstock’s offerings predict a cap rate of 6% to 10%.

It’s more or less impossible to try and determine what investors are earning from market appreciation but so long as you select your property carefully, it should go up at a similar rate to inflation. This will vary between markets, of course.

Roofstock Compared

How Does Roofstock’s Certification Process Work?

Putting your time and money into a property on the far side of the country is a big step and requires a lot of trust in those involved. Roofstock recognizes this, wholeheartedly.

To help ease any potential doubt that might come with your purchase, Roofstock aims to give you the most information on the property possible to help you make a confident decision. This information, in addition to its quality standards, combine to create the Roofstock Certification.

Requirements for the Property Certification

Property’s will only become Roofstock certified once they pass the following list of requirements: 

• Property is valued and a rental market analysis is conducted to ensure property prices are reasonable.
• Property is inspected by an experienced national inspection firm.
• An estimation is given for the cost of any and all repairs, as well as a bid from the local vendor to finalize the work at the quoted price.
• A title report with no liens or uninsurable encumbrances and preliminary title commitments, where applicable. 
• A full review and summary of the concerned tenant to make sure that rent is up to date and consistent, as well as meeting all credit qualifications and background checks.
• A full review and summary of the terms of least to confirm the lease is in line with market standards, and crucial terms disclosed, including monthly rent, term, and utility responsibility.
• Home disclosure reports summarizing any and all potential local risks including local crime rates and natural hazards.
• Certified and Roofstock vetted property managers, all of who are experienced in their given area.
• Roofstock 3D Virtual Tour of the property. This lets interested inventors take a virtual tour of the property and offers a unique tool for releasing it.
• Professional marketing photos of the property and a professional property floor plan.

Guaranteed Rent on Selected Roofstock Properties

Roofstock carries a one year rent guarantee for those who buy a home and work with a rent-guarantee eligible manager.

Roofstock pay’s those who meet the terms and conditions an amount equal to 75% of the estimated market rent which started 45 days after the property was rent ready. This removes a huge amount of risk from buyers.

Full Property Analysis

A critical component of the Roofstock Certification process is its Full Property Analysis. This is made up of three parts. These are:

1. Pricing Appraisal
2. Title Report
3. The Inspection Report

The first two listed are pretty clear-cut and support the listing price. The inspection, however, is where the fireworks happen. This is an essential part of the final walk through.

Roofstock’s Inspection Report

The inspection report is an extremely thorough, detailed report on all major aspects of the property.

Here’s what the first page looks like:

This report is usually around 12-15 pages and delves into some deep information on all areas on the summary above. In it you’ll find pictures and descriptions, where required.

The aim of this is to inform interested investors on the exact state of the property before it’s bought.

Roofstock doesn’t want investors to uncover any surprises post-purchase. The platform profits when its users profit.

Roofstock Self-Directed IRA

Those looking to boost their retirement savings can utilize Roofstock’s Self-Directed IRA program.

Roofstock’s IRA service enables investors to put your real estate earnings to a tax-deferred retirement account. The biggest benefit to this is that it protects your money from income taxes on rental income earned from Roofstock properties. Just be aware of the IRA contribution limits for 2019 and 2020.

Roofstock One

Roofstock One was launched in February 2019 and allows accredited investors to purchase shares in properties. One share equals 1/10th of the home’s equity. 

With this, investors will receive economic rights in the property including rental income. Roofstock will look after all of the management and maintenance aspects, leaving you free as a bird to collect some passive income. 

Roofstock will take 10% or more ownership interest per property for year one, which should help ease any worries.

After an initial 6 months holding period, investors can redeem shares or alternatively, move to a traditional ownership model (once you own 90% or more in shares).

To take part in Roofstock One, there is a minimum investment of $5,000. Keep in mind, this buys you a minimum of 1/10th of a property.

Owning shares in a variety of Roofstock One properties will help diversify your portfolio, potentially creating stronger, and potentially more lucrative estate holdings.

Am I Eligible to Invest in Roofstock?

Luckily, Roofstock accepts non-accredited investors. This doesn’t mean that you’re exempt from doing extensive due diligence and independently checking out all projections on Roofstock offerings.

Accredited investors have the option of investing in Roofstock One. Those interested in gaining a better understanding of how to deal with everything that comes along with buying, selling and closing, especially in a pandemic, can check out the Roofstock Academy.

What Is the Minimum Investment With Roofstock?

Essentially, the minimum investment will be the price you pay for the house, unless you need to finance the purchase. For loans, lenders generally ask investors to put down a minimum of 20% of the purchase price. There will also be closing costs which generally run at about 4% to 5% of the purchase price. 

That is, a property costing $80,000 will require a minimum investment of about $20,000. 

On the other hand, Roofstock One requires a minimum of 1/10th of the price of the house. A house costing 50,000 would need a $5,000 minimum investment, for example.

What Are Roofstock Fees?

When it comes to investing your money, you don’t want to be ripped off with fees and pricing.

Roofstock takes the lead on its competitors by not only offering a quality platform that is easy to navigate, but meeting users half way by also charging reasonable fees. Here’s the detail:

Firstly, it’s free to set up an account or, indeed, to put in an offer. Should your offer be accepted, you will be required to pay a marketplace fee of $500 or 0.5% of the contract, whichever is higher. 

For example, a home priced at $100,000 will be charged a fee of $500.This is the fee on the buyer’s side.

Property management, closing costs, HOA, maintenance, and other additional costs are property specific.

With Roofstock One, investors will be charged an asset management fee. Initially, this is set at 0.5% of the home price or an interest price that is calculated each year, divided and charged per quarter. 

For example, a home costing $100,000 will be required to pay an asset management fee of 0.5% x $100,000 = 500 per year / 4 = $125.

Any changes to the price in gross will also result in changes to the fee, and could change at the discretion of the manager, just like the property management fee.

The reason Roofstock can charge lower fees than traditional real estate agencies is because of its use of technology. The platform uses technology to couple interested buyers with sellers efficiently. This creates a more streamlined process which results in a trickle down of overall lower expenses.

How Does Roofstock Make Money?

Now that we’ve established how Roofstock can afford to charge lower fees than traditionally high fee real estate companies, let’s talk about how they actually make money. 

The platform makes money through each transaction. It also charges a 2.5% to sellers, and 0.5% to buyers.

What Kind of Return Can I Expect With Roofstock?

The majority of properties on Roofstock are projected to have a cap rate of between 5% and 8% along with a gross return of between 11% to 12%, net of expenses. Projected appreciation is listed alongside the properties, too. 

In addition, potential investors will be able to view a neighborhood score and some details on historical and projected trends.

Average Return on RoofStock

Wondering how much exactly you would be projected to earn if you invest in a Roofstock property? 

If you were to invest in a property of between $80,000 you would pay a minimum investment of about $20,000. Assuming a gross return of 12%, we have calculated what your average return on Roofstock would be over a 10 year period.

On-The-Go Investing: Does Roofstock Have a Mobile App?

Roofstock does fall short in the area of real estate mobile investing because of its lack of an app. That said, while it doesn’t provide an app, its website is mobile optimized, at least. This ensures users will have access to all the information and functions needed to carry out their task.

Users can put in an offer, move a transaction forward through the online signature process, and close the transaction on any mobile device.

Roofstock Risks: Is Roofstock Safe?

Due to the fact that Roofstock offers a satisfaction guarantee, there is reduced risk involved. Granted, you might need to pay some costs with this, but having the opportunity to get a refund in the real estate industry is pretty much unheard of!

Were you to buy a home the traditional way you would certainly not have this opportunity. Properties on Roofstock all have preliminary insurance quotes but you can get a policy from another insurer too, if you like.

In line with the position that Roofstock sells properties that offer immediate cash flow, the company also guarantees an income on properties that do not have tenants at the time of sale.

Were Roofstock to file for bankruptcy, it would not affect investor’s ownership interests in the properties they’ve previously bought on the marketplace. New buys might be impacted while the company transitions to a third party.

How COVID-19 Has Impacted Real Estate

With the crushing effects of COVID-19 being felt all around the world, real estate companies are feeling its wrath in different ways, mostly dependent on asset class and region.

In the near-term, executives in real estate are worried about maintaining its liquidity and value, keeping tenants and visitors from harm, including increasing cleaning, and staying in line with governmental requirements. 

Practical Next Steps

A Deloitte report on understanding the impact of COVID-19 suggests that leaders in real estate will be defined by their actions and how they manage the crisis; respond, recover and thrive. It highlights some items including;

• Prioritizing the safety and well-being of people and tenants
• Short-term liquidity needs
• Remote working considerations, including location and access to information/data, cyber IT infrastructure complaints, and financial reporting processes and internal complaints.

Summary: Is Roofstock a Good Investment?

Similarly to crowdfunding platforms like Fundrise, Roofstock offers a marketplace where interested investors can look at and buy rental homes with an enticing cash flow potential, and sellers can put homes on the market to attract potential investors.

The availability and opportunity with single-family rental properties makes it easy to buy and build a diverse portfolio of cash-flowing homes. 

After launching only 3 years ago, Roofstock has since been funded with $133 million in venture capital, finalised its first transaction in March 2016 and brands itself as a marketplace “created by investors for investors.”

With each property, users can utilize the research, analytics, and insights that enables them to thoroughly asset and buy independently certified properties. 

Use the search filter to easily find certified investment properties that match your needs, whether you’re looking for a specific price, location, neighborhood rating, gross yield, estimated annual appreciation, funding type, or other criteria. 

Once you are Roofstock registered, you can save the custom filters so you don’t need to waste time doing it every time.

A key aspect of buying and owning a rental property is managing the property. This includes placing tenants and managing the tenant turnover, screening, collecting rent, and taking care of maintenance issues. 

If this isn’t thoughtfully looked after, it can cost more time and money than anticipated. Investors can access. Roofstock provides “preferred property managers” who’ve been screened, but the investor themselves decides how they want the property to be managed after closing. 

The location is the huge factor to take into consideration and it will determine how reliable your monthly income will be. For this, Roofstock offers information on the local area. 

Then, if you want to do some more digging on neighborhood ratings, crime rates, schools, job availability, commuting experience, and other things that matter to tenants when choosing a rent property.