The demand for real estate investment properties has skyrocketed over the past year. With extremely low mortgage rates and a hit-or-miss stock market, real estate investments are being snatched up in a matter of days — or in some cases, before they even hit the market — in cities and destination areas across the nation.
This drive for more real estate purchases has led to a shortage of housing in many markets. Add to it the ongoing demand for short-term rentals via AirBnb or VRBO and it can be tough to get your hands on a property to invest in, even if you offer more than the asking price. So, without a ton of inventory to choose from, what’s a would-be real estate investor to do?
Enter Roofstock, a real estate buying and selling platform that caters to investors who are interested in buying single-family rental properties in order to earn rental income. This platform differs quite a bit from some of the other popular real estate investing platforms like CrowdStreet or DiversyFund.
Here’s all the insight you need into how the Roofstock platform works and what it can offer you if you’re in the market for new rental investment properties.
What is Roofstock and Who is Behind It
Compared to some of the other real estate investment platforms, Roofstock is a relatively new online marketplace. Founded as an Oakland, California-based fintech startup in 2015 by Gary Beasley, Gregor Watson, and Rich Ford, this real estate platform serves as an online marketplace for investors who are interested in purchasing leased single-family rental homes.
Roofstock primarily specializes in helping investors find the right real estate rental investments in the right areas, but it can be utilized by both buyers or sellers who are interested in purchasing or offloading rental properties. Available rental investment properties are posted on the marketplace, which only features single-family houses available for purchase — there are no multifamily units available on this site.
While that may seem similar to your typical online real estate market, this platform is anything but. Unlike the properties listed on other online marketplaces, the majority of the properties listed on Roofstock are already occupied with tenants.
That focus on occupied real estate is due to the fact that this site caters to buyers who are only interested in purchasing rental investment properties — not traditional buyers who are looking for a new home to occupy. Having a property occupied with tenants is a major plus for real estate investors, who want to jump into rental homeownership with a steady stream of income in place.
This platform not only gives buyers and sellers a place to connect, but also offers multiple investment options that cater to a wide range of buyers. Buyers on this platform have the option of purchasing individual single-family properties, multiple property portfolios, property shares, and also have the option to bring their own property to the platform. We’ll go into more detail on these options below.
In addition to offering a marketplace and a way for buyers and sellers to connect over rental housing purchases, this platform helps to facilitate full service real estate transactions from start to finish. You’ll get access to everything from underwriting to lending partners and insurance providers, right on the platform.
All steps of the rental investment buying process, from the purchase price to the down payment and the fees you pay for your purchase, are handled right on the platform. This fully-online process not only helps buyers and sellers close transactions quickly, but helps to cut out the expensive middlemen involved in traditional real estate sales.
These unique informational features, along with a range of investment options and a slew of other benefits, are what helps Roofstock stand out from the competition in this niche.
Features and Benefits
One of the main benefits of using Roofstock is that it offers a wide range of buying options for investors.
To start, Roofstock offers buyers the option to purchase individual single-family rental homes for sale. These single-family options are posted on the marketplace and are available for potential buyers to virtually tour to find the right property for their needs.
Investors who are interested in purchasing multiple properties have the option to purchase real estate portfolios in bulk from the same seller on this platform. Using the portfolio option can increase your chances of getting the best deal from the seller, though it will obviously increase the purchase price since you’re purchasing multiple rental properties in one swoop.
Below is an example of a portfolio of 12 homes for sale in the Chicago area:
Taking the portfolio purchase route can also increase your chances of getting the best lending rates during the financing process. Because Roofstock’s lenders are well-versed in real estate investment funding, they won’t be scared off by multiple investment property purchases the way some traditional lenders might be.
The platform also gives buyers access to Lennar Homes’ newly-constructed homes across the nation for investment. These homes offer upscale features backed by Lennar Home Warranty, which can be purchased as vacation rentals or investment rental properties.
As with the other homes on the marketplace, you can sort through the available new construction homes from this builder, learn the nuances of these properties as they pertain to the rental market, and purchase a Lennar home through the platform.
And, there are other buying options to note as well. Aside from single and portfolio purchases, Roofstock also offers buyers a “bring your own property” option. If there is a rental property you’re interested in purchasing, you simply submit the address on the platform as a rental property investment not currently listed in the Roofstock marketplace.
The property you “bring” to the platform will then be screened by Roofstock’s underwriting technology. If approved, the platform will connect you with a vetted Roofstock local real estate agent who will email a private link that gives you access to the underwriting details and pro forma return projections — which is exactly what you’d get with other properties in the marketplace.
Investors who prefer to buy into real estate property shares will also have that option through this platform. In 2019, Roofstock launched a property shares option called Roofstock One, which allows investors to buy shares of an individual rental home for as little as $5,000.
This option allows buyers to generate passive income without the operating responsibilities, and also allows buyers to diversify investments across multiple homes and locations. The properties are managed through Roofstock, and if you need to sell your shares, you can. This option is available to owners who need to offload their property shares at any time.
Buyers using Roofstock will start the process of vetting new rental investment properties by using custom filters to tailor the search by list price, desired return, location, or other important metrics. This makes it simple to find the right types of properties in the right areas.
You can also sign up for alerts on new property listings that match your search parameters. Doing this will allow you to be notified when a property that matches your needs becomes available — and gives you a leg up on the buyer competition.
Once you’ve found a property that matches your needs, you can virtually “tour” the property via pictures, floor plans, 3-D tour, 3-D model, and a curb view, all of which are available on the Roofstock platform. These features help to give you a clear idea of what the home looks like, both inside and out.
Buyers who use Roofstock are also offered lots of other insight into each home listed on the platform. This information is available via research, analytics, and in-house certification, all of which help to ensure that the homes listed on this site are good investment opportunities.
You also get access to a wide range of useful tools on this platform, which can help you make the right decision when it comes to your rental investment purchases.
These tools include:
- Neighborhood ratings — Roofstock offers buyers a system of neighborhood ratings that ranks important factors like home values, average rent, income levels, employment rates, education levels, crime data, percentage of owner-occupied homes and school district ratings. This system ranks neighborhoods on a scale of 1 to 5, with 1 being the most risky and 5 being the least risky.
- Property inspection and valuation — Properties listed on the Roofstock platform must meet the company’s strict certification parameters and must pass a property inspection, which are conducted by a Roofstock-approved vendor within four months of the purchase date.
- Title report and insurance quote — Roofstock also offers buyers title reports and insurance quotes as part of the buying process.
- A unique 30-day guarantee — Buying a home online can be tricky, which is why Roofstock offers a 30-day guarantee on purchases. If you’re not happy with your property purchase, Roofstock will re-list the property for free on our marketplace or any other channels. When the property sells, the company will refund the original purchase price at closing regardless, whether it sells for more or less than you paid for it. If the home doesn’t sell within 180 days, Roofstock will buy back the property and you will receive your refund when the property closes.
- Interactive cost tools — These tools help you visualize return and cost estimates so you have a clear understanding of what your costs will be, and what your potential returns will be, on each property.
- Current lease, tenant details, and payment history — This information gives you a clear idea of the type of tenants and the type of rental history the properties have. If a tenant is late on payments or if a property has been unoccupied for long stretches of time, you’ll know from the report.
- Built-in financing and insurance on Roofstock One — Roofstock One, Roofstock’s property shares service, also offers buyers built-in financing and insurance to help expedite the investment process.
If you find that a property matches your specifications and you want to make an offer, you do that right from the platform. If you’re financing your purchase, you can also use the platform to get pre-approved by a lender before submitting an offer. Just as it does with traditional real estate purchases, a pre-approval will strengthen your offer and set you ahead of buyers who make offers without any proof of funds.
If your offer is accepted by the seller, Roofstock’s platform allows you to complete the rental property home purchase online. The company’s service and transaction team will help to guide you from escrow through the closing process.
Once you officially own the property, you can opt to use Roofstock’s concierge services to manage your properties. This optional service gives you access to property managers who are vetted by the platform who can handle the day-to-day management duties of your rental properties. This includes repairs and maintenance and tenant communications. These property managers make it much easier for investors to focus on the other aspects of property rental investments.
Average Return to Investors
There are multiple purchase options available to investors on this platform, which makes it tough to estimate exactly how much investors earn as returns on their property investments. How much income you earn will depend heavily on the type of investment you buy into, the rental market in the area, and other factors unique to your purchase.
That said, you aren’t expected to invest in properties on this platform without any information on the return on your investment. As noted above, Roofstock offers insight into each property on its platform.
In general, the single-family properties listed for sale on this platform typically have a cap rate of between 5% and 8%. The gross return on most properties listed on the Roofstock site is generally estimated to be between 11% and 12%, though it’s important to note that the estimate is before expenses.
You can also find the expected appreciation on each property right on the site, which gives you more data to work with when calculating the potential return on your investment. All of these factors: the cap rate, the gross return, and the potential appreciation, will play into what your return on investment is.
And, it’s important to remember that the type of property you purchase will also play a significant role in your ROI. If you’re buying a portfolio of properties from a single investor and are able to get a significant discount for your purchase, you may see returns much higher than the average.
On the other hand, if you’re buying into property shares, you’ll have a different way of calculating the ROI on that type of investment. Ultimately, what you earn on your investment is not cut and dry with this platform because of the number of options you have for investing with Roofstock. You can learn more about calculating your return on Roofstock investments here.
While there are plenty of potential perks to using this platform, there are also potential drawbacks. These include:
- Accreditation requirements for Roofstock One — If you want to invest in property shares with Roofstock One, you’ll need to be an accredited investor who is able to meet the SEC guidelines. This can be tough for smaller investors because the SEC requires accredited investors to meet one of the following requirements:
- An individual income of more than $200,000 per year in each of the last two years and expectations to exceed the threshold in the current year
- A joint income between spouses of more than $300,000 per year in each of the last two years and expectations to exceed the threshold in the current year
- A net worth exceeding $1M, excluding your primary residence, either individually or jointly with your spouse
- An investment on behalf of an entity with at least $5M in assets or an entity in which all the equity owners are accredited investors
- An individual income of more than $200,000 per year in each of the last two years and expectations to exceed the threshold in the current year
- A higher cost for most investors — While you do have the option to invest in property shares via this platform, the primary purpose of Roostock is to allow you to buy individual investment rental properties from sellers. Investing in these properties can be more costly than taking the REIT route, so it generally requires a larger investment from buyers for the down payment and ongoing maintenance or repair costs.
- Longer-term investment — Unlike many other types of investments, you own the property you invest in on this platform. That requires a longer investment than buying stocks or shares of an REIT.
- No multi-family investment options — Roofstock does not offer multifamily properties at this time. The only options for investors are single-family homes or shares of single-family homes, not apartment buildings, duplexes, or other multi-family units.
Cost Associated with Roofstock
It’s free to create an account on Roofstock. Where this platform makes its money is through buying, selling, and property management fees and associated costs.
For example, as a seller, you list your property without paying anything upfront. If your property is sold, you’ll pay a fee of either 3.0% of the sale price or $2,500, whichever is greater. That may seem pricey, but it’s typically just a fraction of the traditional 6% broker fee that is charged by most real estate agents.
It is also free for buyers to make offers on properties when using this platform. The costs trickle in when an offer is accepted. Still, it’s much less costly for buyers than sellers to use this platform. When an offer is accepted, Roofstock charges buyers a marketplace fee equal to 0.5% of the contract price or $500, whichever is higher.
You will also pay fees for the optional property management services listed on this site. These fees will vary based on the property manager you choose, but according to Roofstock, you can expect to pay a setup fee, or on boarding fee, of about $300 or less at the start of the contract.
This fee covers the cost of setting up your account with a property management company. It may also cover an initial inspection upon closing to assess the current condition of the property. You may also pay a one-time leasing fee of between 25% to 75%, or a flat fee, whichever your property management company prefers.
Property management also includes ongoing monthly fees each month. What you pay for these fees will depend on the property management rates, which are determined by the company you choose. You may also be responsible for lease renewal fees and maintenance costs, though it will depend on the property management company you choose.
How are Roofstock’s Investments Sourced
The investments on this site are sourced primarily by sellers posting their property listings on the site.
Sellers create a free account and then enter the property information by answering a series of questions and uploading photos of the property. They receive a free price estimate based on the information submitted to the platform.
Once Roofstock has the information it needs, the company performs up-front due diligence before it’s listed for sale, which includes securing a property inspection, ordering a preliminary title report, and gathering key documents for potential buyers.
If everything checks out, the listing is posted to the site in the marketplace to be showcased to buyers.
The process of sourcing investments for Roofstock One is similar. Unlike REITs, which generally include several properties, Roofstock One offers investors shares of individual properties, and investors choose the properties to invest in. Sellers offer these properties for sale to Roofstock, and the company performs the same due diligence, including inspections, title reports, and key documents.
Who is this Platform For
It depends which part of Roofstock you want to utilize. If you want to use Roofstock to purchase individual properties for sale to investors, you don’t need to be accredited to do so. All you need is a desire to buy an individual single-family rental investment property, a down payment or cash for the purchase, and/or the ability to secure funding for your purchase. This opens the platform up to a wide range of investors — both large and small.
If you want to invest in property shares via Roofstock One, you’ll need to be an accredited investor. The SEC accreditation requirements can severely limit who is able to invest via this part of the platform. If you aren’t accredited and don’t meet the requirements to be accredited, you’ll need to invest in property shares on a different platform.
Is Roofstock Safe
As with any type of investment, there is risk to investing with Roofstock. That said, this platform does its due diligence with the properties it offers for sale, and you should, too. The tools are available on-site for you to vet properties thoroughly and make the best decision for your needs.
If you carefully survey the rental and tenant history as well as the other information made available to you, this platform is about as safe as any other investment. Plus, the 30-day guarantee offered by Roofstock adds some added protection to the mix. You have a full month to learn whether or not you are happy with your purchase, and if you decide it wasn’t the right move, this protection offers you a way out of your investment without significant losses.
How Roofstock Differs from the Competition
The main difference between Roofstock and the competition is that this platform offers full-service single-family rental investment purchases from start to finish. It connects you with lenders, offers underwriting in-house, does the background work for you, and walks you through the closing process, from escrow to ownership.
Having access to information like rental histories or tenant payment histories is also a unique feature. Roofstock gives you this information up front, which allows you to see a clear picture of what the history of the rental property truly is. That’s a huge plus for investors, who will know exactly what to expect from the tenant, and what to expect in the rental market, before making any purchases.
It also allows non-accredited investors to buy into property investments via the single-family investment options. You don’t have that option with most REITs, so this platform is more accessible than much of the competition.
The fees differ from other competitors, too. Roofstock is upfront about the fees it charges to buyers and sellers, and they’re much lower than you’d get with other similar platforms. Sellers pay about half of what you’d expect to pay when selling a house, and buyers pay even less for their portion of the translation.
The 30-day guarantee is also a feature worth noting. There aren’t many investment opportunities that offer similar protections to investors, even in the real estate space. This alone sets Roofstock apart from the competition.
The only real downsides to using this platform are that the Roofstock One platform is limited to accredited investors, which severely limits who can buy into property shares via this site, and that the returns on your investment vary significantly from property to property. You also can’t purchase multi-family units on this site, which may put off buyers looking for these types of properties.
That said, this platform shouldn’t be overlooked simply because of the accreditation requirements or other limitations. The Roofstock marketplace offers a surprising amount of tools to real estate investors interested in single-family rental purchases. Those tools, coupled with the low costs and streamlined transaction process, far outweigh any potential negatives with the platform.
As long as you do your homework, vet the properties, and use the information provided to you, Roofstock can be as safe — and potentially as lucrative — as most other types of investments.