If you’re in a position where you want to gain exposure to the US real estate industry, but you don’t have the required funds to purchase a property outright, then you might be considering the merits of a conventional crowdfunding site.
However – Roofstock is anything but conventional, insofar that investors are required to purchase homes outright. As such, doesn’t this defeat the object? Well, in theory, no, because Roofstock is a rental property marketplace for buyers and sellers.
With that being said, the platform specializes in single-family properties across 25 states – with more states planned for support in the very near future. They also now offer multi-unit properties, fractional investments, and other features.
Crucially – and unlike a number of other real estate crowdfunding sites in the space, you get to choose the individual properties that you wish to invest in on a DIY basis.
Moreover, you might be eligible for financing via one of their recommended lenders if you can’t quite meet the demands of an outright purchase, albeit, this will still require an initial down payment of 20%.
Nevertheless, if you’ve heard the buzz surrounding the platform and would like to find out more, then we welcome you to read our comprehensive review on Roofstock. Within it, we’ll show you everything you need to know – such as how Roofstock works, what you can invest in, how much you should expect to make, how much the platform costs, and more.
Let’s start by getting an overview of what Roofstock actually is.
At a Glance
- 1 At a Glance
- 2 What is Roofstock?
- 3 How Does Roofstock Work?
- 4 Renting the Property out via Roofstock
- 5 Roofstock Fees and Associated Costs
- 6 Financing a Property Purchase at Roofstock
- 7 What Properties Does Roofstock List?
- 8 How Much can I make at Roofstock?
- 9 Roofstock One
- 10 Roofstock Review: The Bottom Line?
- 11 Roofstock
- 12 Pros
- 13 Cons
|Roofstock Rental Property Investing - Visit|
|Product Type||Equity, Direct Ownership|
|Potential Return||Varies by Property|
|Fees||0.50% setup fee|
|Min Investment||From $500 with Roofstock One|
|Property Types||Single Family|
What is Roofstock?
In a nutshell, Roofstock is an online website that allows you to invest in US-based single-family properties. The platform was first launched to US consumers in 2014 and since its inception – has executed more than $1 billion in real estate transactions.
Roofstock is a marketplace for properties so it is important to note that you will not have the opportunity to pool your funds alongside other investors when purchasing properties. On the contrary, you will need to purchase your chosen property on a solo basis, meaning that the amount of funds required is going to be substantial.
Note: The company does have a subsidiary platform – Roofstock One, that allows you to purchase 1/10th of a property, although we’ll cover that in more detail further down.
While you might be thinking that Roofstock sounds more like a third-party listing website like Zillow, this isn’t strictly true. The overarching reason for this is that by using Roofstock, you are essentially removing the role of a conventional real estate agent. For those unaware, real estate agent fees in the US will typically average 6% of the sale price. While this is usually split between the buyer and seller, the seller will often be required to foot the entire bill.
In this sense, it would appear that Roofstock is more suited for home sellers. However, this isn’t true per-say, as you will often find that Roofstock buyers benefit from lower market prices, insofar that sellers are able to pass these savings on and still make more than they would have done by using a traditional real estate agent.
Most importantly, the vast majority of properties listed at Roofstock are already rent-ready, meaning that they currently have tenants living inside the property. This is highly beneficial for those of you that are seeking passive income in the form of real estate. As such, transacting through Roofstock is potentially a win-win situation for both buyers and sellers.
Moreover, it is also important to note that while you will be required to purchase a home without other crowdfunders, you might benefit from financing. Although we will cover this in more detail further in our review, financing will allow you to purchase a home with a minimum down payment of 20%. As such, this is going to be the absolute minimum that you will be able to get started with at Roofstock.
So now that you have a brief understanding of what Roofstock is, in the next section of our review we are going to look at how the investment process works.
How Does Roofstock Work?
If you’ve never invested in a real estate project before, then you should know that the process is reasonably straightforward. In fact, you should be able to make your first investment pretty much as soon as your account is verified.
However, Roofstock is different from other marketplaces operating in the market, so we thought it would be a good idea to list the step-by-step process that you will need to follow.
Step 1: Open an Account with Roofstock
Your first port of call will be to head over to the Roofstock website and open an account. This will require you to provide the platform with a range of personal and financial information – much like you would with any other investment site.
And the latter, this will cover your experience in the investment space – with a specific focus on real estate. It will also require you to confirm that you understand the risks of investing in property, and the length of time that you might be required to hold onto your investment before the funds are realized in the form of a sale.
Step 2: Find a Property to Invest in
Although there is no requirement to open an account to view the properties available at Roofstock, you do need to create an account if you want to save a filter, view the property inspection, and make an offer.
As such, it is well worth getting yourself verified beforehand so that you can avoid a potential delay once you do find a suitable investment.
Nevertheless, as the Roofstock platform will often have a good number of single-family homes listed for sale at any given time, you might be best to utilize the search function. This allows you to find suitable properties based on factors such as the listing price, expected returns, location, and more.
Step 3: Perform due Diligence on the Project
Once you find a property that you like the look of, you should then proceed to perform some due diligence on the home. One of the greatest things about Roofstock in this respect is that the platform offers a wealth of information on each of its listed properties.
For example, this initially includes a range of high-level pictures, floor plans, and even a 3D model. You will also have access to the fundamentals, such as information linked to the property valuation and inspections that Roofstock performed, as well as data on insurance, titles, and projected returns.
Regarding the last point, this includes expected yields on rental income and appreciation growth. Furthermore, you will also have access to information on those currently renting the property out, such as how long the contract is in place for, and whether any late payments have been encountered.
Finally, you will also have information pertaining to the specific location of the home, such as what local amenities are located close to the property ( note: not all properties have this feature), as well as a proprietary score linked to the neighborhood called “Neighborhood Rating”.
Ultimately, while we would suggest utilizing all of the information that you have at your disposal prior to making an investment, in reality, this isn’t compulsory. In other words – and as we will discuss further in our review, Roofstock will perform due diligence on all of its available properties prior to listing them on its site. In theory, this indicates that the team at Roofstock is confident that all of their listed single-family units represents a viable long-term investment.
Step 4: Make an Offer
Once you have found a property that you wish to invest in, you will then need to make an offer via the Roofstock online portal. As is typical in the offline real estate arena, you will have the option of offering the full asking price, or a lower amount that you think the seller might accept. If you opt for the latter, then your offer will be forwarded to the seller, which they can then accept, reject, or counter.
Moreover, once you do make an offer – whether that’s at the asking price or at a lower amount, you will be required to pay the platform’s marketplace fee. This amounts to 0.5% of the offer amount, or $500 – whichever is greater. Although you need to pay the fee without knowing whether or not your offer will be accepted, this is to ensure that offers are only made by serious buyers.
Otherwise, a failure to install any safeguards could impact the integrity of Roofstock, insofar that individuals would be able to make senseless offers at will.
If your offer isn’t accepted, then the marketplace fee is not charged.
Step 5: The Closing Process
If your offer was accepted by the seller, you will then begin the grueling closing process. If you’ve ever engaged in a purchase or sale of a property previously – irrespective of how the deal was done, you will know first-hand just how much red tape is involved.
Roofstock offers a Transaction Coordinator to help every investor with their closing process to make this a concierge-like experience.
The good news for you – regardless of whether you are a buyer or seller, is that the team at Roofstock will guide you through the end-to-end process. Here’s a breakdown of some of key events involved in the closing process at Roofstock.
- The closing process will typically take 30 days if you are buying a house with financing, although a cash purchase should take no longer than 15 days.
- Roofstock will send you a Purchase & Sale Agreement via email. You will need to sign this electronically and return it back to Roofstock within 24 hours of receiving it.
- You will then need to pay your Earnest Deposit. This will amount to $1,500 and it is sent to the title company. Take note, you’ll need to pay this within 3 days of returning the Purchase & Sale Agreement
- If you require a home inspection and/or appraisal of the home before proceeding to the next step, you can arrange this via Roofstock. You will need to pay for this yourself, and costs will vary depending on where the home is located.
- If you are engaging in a cash purchase and thus – you are not bound by the requirement of a lender, we would suggest proceeding with both an appraisal and a home inspection anyway, as this is a crucial part of the home buying process.
- Finally, you will need to sign and return your closing documents, and proceed to wire the funds to complete the purchase of your new home!
Renting the Property out via Roofstock
One of the overarching benefits of using Roofstock is that homes within it’s portfolio are highly conducive for earning rental income. In fact, this is the main selling point of the platform, insofar that Roofstock allows you to start earning rental income straight away, not least because most homes already contain paying tenants. With that being said, it is crucial that you understand how Roofstock will play a major role in bridging the gap between you and your tenants.
First and foremost, Roofstock typically have 2-3 preferred property managers who they recommend to investors, but similar to lender partners, investors by no means are required to use one of these partners.
In terms of choosing a property manager for you, Roofstock notes that it vets all applicants to ensure that the entity is licensed and in good standing. Moreover, the vetting process will see Roofstock assess the manager’s current and historical portfolio of properties, as well as check referrals provided by the manager.
Once you have spoken with your assigned property manager and you are happy to proceed, the manager will then take care of everything on your behalf. As such, there is no requirement to actually be based in the location that the property is situated, as all communications will be made via email or telephone.
Here’s a breakdown of some of the key tasks that property managers will perform on your behalf.
- Rental Payments: The property manager will collect all subsequent rental payments from your tenants and forward them to you on an agreed date. This will be dispersed in the form of a direct deposit into your specified bank account.
- Tennent Communications: Any issues, questions, or concerns that the tenant has will be taken up directly with the property manager. As such, you can avoid unwanted calls and allow the manager to take care of this on your behalf.
- Repairs and Maintenance: If certain issues arise around the property and thus – work needs doing, the property manager will take care of the fundamentals. For example, if the tenant calls the manager to report a leaking pipe, the manager will then arrange for a third-party contractor to come and make the necessary repairs.
- Pre-Authorized Repairs: If you are concerned about your tenants requesting unnecessary repairs, or repairs that they were personally responsible for, you can install a pre-authorized limit via your property manager. For example, you can instruct the manager to approve all repairs automatically up to $500, with anything over this requiring authorization from you.
- Routine Inspections: If your property is being rented out on a long-term contract, then it makes sense that you will want to engage in regular checks to ensure the property remains in good condition. As such, the property manager will perform scheduled inspections on the property, as arranged with the tenant on your behalf.
- Security Deposits: As per US regulations on security deposits, your assigned property manager will take care of collecting, holding, and disbursing funds from your tenants. This also includes moving-out inspections.
- New Tenants: The process of finding and vetting new tenants for your property can be a highly cumbersome task – especially if you are not based in the area that the home is located. Fortunately for you, your Roofstock appointed property manager will find you suitable tenants as and when the situation arises.
- Profit and Loss: To ensure that you keep on top of your financials, your property manager will provide you with monthly profit and loss statements.
Roofstock Fees and Associated Costs
You will, of course, need to pay a fee to utilize the services of a property manager. Roofstock notes that the specific fees will vary from provider-to-provider, as well as on the size and location of your property. Nevertheless, the platform also notes that on average, this should amount to around 8% of your gross rental payments. For example, if your property is being rented out for $1,000 per month, your property manager would deduct $80 before forwarding the balance into your checking account.
Moreover, you will also be liable for other related costs, such as insurance on your property, as well as any respective property and city taxes. There is also the likelihood that the property manager will ask you to put some money into a reserve fund, which will then be used to cover the costs of emergency repairs or maintenance.
Financing a Property Purchase at Roofstock
As we have noted throughout our review thus far, Roofstock is unlike other real estate marketplace sites operating in the space, not least because you will not be able to buy a property alongside other investors.
On the contrary, you are responsible for owning the property outright. At the time of writing, the lowest priced property currently listed on the platform comes out at a cost of $40,000 – plus just over $3,000 in closing-related fees.
At a projected annualized return of 11.9%, this represents an excellent investment opportunity, however -this might be out of sight if you don’t have the required cash on hand to pay for the purchase outright. With that being said, you might be able to obtain financing via the Roofstock platform to help pay for your investment.
If this sounds like something you would like to explore further, we have outlined the fundamentals below.
- Roofstock uses a number of partnered lenders to facilitate homeowner loans via its platform. This includes better.com and Agora Lending.
- Irrespective of your credit profile, you will be required to commit to a 20% down payment on your chosen property.
- If you are unable to fund the down payment yourself, Roofstock has partnered lenders that might be able to assist.
- You will need to enter information pertaining to your current creditworthiness, such as how much you currently earn, the assets you have under your belt, and what debts you have outstanding.
- Once the partnered lender has cross-referenced your information with its third-party sources, you will then receive a pre-approval decision.
- If you are pre-approved, Roofstock will ask you to upload your pre-approval letter to its platform. A Roofstock agent will then contact you to guide you through the remainder of the process.
What Properties Does Roofstock List?
All of the properties listed at Rofostock are single-family homes and small multi-family (2-4 units).
The platform is yet to operate in all US states, although 25 states are currently serviced at the time of writing. This includes:
- Alabama, Arizona, Arkansas, California, Delaware, Florida, Georgia, Illinois, Indiana, Kansas, Kentucky, Michigan, Minnesota, Mississippi, Missouri, Nevada, New Jersey, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Wisconsin
As noted earlier, properties start at just $40,000, up to a maximum of $445,000.
How Much can I make at Roofstock?
With heaps and heaps of properties listed at Roofstock, the amount that you are able to earn will depend on a number of key factors. Notably, this includes the specific housing market that your property is based in, with certain regions currently performing better than others. However, there is no hard and fast rule as to how much income your property will generate, as certain homes perform better in the appreciation department, while other properties generate most of its income via rent.
With that being said, Roofstock makes it super easy to make a judgment on how much you are likely to yield from your investment. While there is never any guarantee on the accuracy of the project annualized returns, you are able to back a lot of the information up by looking at historical records. For example, as many of the properties listed for sale at Roofstock are already being rented out, you can view the current rental payments that the property is collecting.
Moreover, you can also view the dates of the tenancy agreement, meaning that you will know how long the tenant is contracted to remain in the property. This gives you an element of security, insofar that you know how long you will be collecting payments before a new tenant is required. However, this is, of course, of the provision that your tenet meets all of their payments, and you will also need to factor in unplanned costs such as repairs and maintenance.
On top of your annualized rental income, you will also need to factor in appreciation. Fortunately for you, Roofstock will also present projected appreciation gains. It bases its estimations on figures released by Zillow.
Although we have noted throughout our review that Roofstock is only suitable for those of you that are prepared to purchase and own a home outright, it is important to note that the company also has a subsidiary platform – Roofstock One.
Note: Roofstock One is only available to Accredited investors.
In a nutshell, Roofstock One allows you to purchase a fraction of a property, with each fraction representing 1/10th of the home.
For example, if you were interested in a property that was listed at $300,000, you would be able to make a minimum investment of $30,000. Furthermore, larger investments are permitted, but you would need to make your purchase in increments of 1/10th – or $30,000 in this example.
It is also important to note that Roofstock One will own 1/10th of the property themselves for the first year. This is to provide investors with confidence that the platform will assist their members throughout the process, and that a stringent due diligence process goes into choosing suitable investments.
If you do decide to invest via Roofstock One, your investment will give you ownership rights on the underlying property – proportionate to the amount that you invest. This means that you will get your share of the rental income, as well as proceeds on the sale of the home once this eventually occurs.
Your investment via the Roofstock One platform will be 100% passive, meaning that a dedicated property manager will be assigned to the property so that you can simply sit back and enjoy your returns. In even better news, Roofstock One also offers a possible share redemption scheme that could allow you to offload some of your invested funds after an initial 6-month lock-up period.
Roofstock Review: The Bottom Line?
If you have read our Roofstock review from start to finish, you should now have a good idea as to whether or not the platform is suitable for your long-term investment goals. Crucially, the platform might not be suitable for you if you do not have the financial means to purchase a property outright – without the aid of other investors. Although Roofstock can assist in obtaining financing for your chosen property, you will need to cover the initial 20% down payment.
On the flip side – and assuming that you do have the required funds to invest via Roofstock, we really like the fact that the properties listed on the platform are usually rent-ready. In other words, most properties listed on the site will already have tenants living in the property, so you know exactly what sort of rental yield you will be able to generate.
Moreover, with the assistance of a Roofstock appointed property manager, you can enjoy your rental and appreciation gains without needing to lift a finger. This also permits a property investment without you needing to live in the respective region or state.
Finally, it is also worth making reference to the company’s subsidiary platform – Roofstock One. The platform allows you to purchase 1/10th of a property, which might be better suited for those of you without the required funds to make an outright purchase.