Roofstock Review: Turnkey Single-Family Rental Properties
- Review by Andrew Fiebert
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Does Roofstock live up to their promises? In our Roofstock review, we dig into their selection of turn key rental properties and put our money on the line to find out.
I’ll admit, I’ve been obsessed with rental properties for a few months now. It took me about that long to wrap my brain around it all. There is so much to think about and consider – the topic of turn key real estate investing is littered with “rabbit holes.”
Now, before we jump in you may be wondering, “why would I ever want to get into rental properties?” If so you should probably start here: The Case for Real Estate Investment Properties.
Eventually, after much research, Laura and I decided that we were going to get rental properties far away from the NYC area. In starting our search for turn key rentals, here were some of the biggest sticking points for us:
- How could you possibly purchase a property sight unseen? Is the internet full of crazies?
- How do I find properties in my price range that aren’t in a war zone and produce a respectable cash flow? I’m not exactly a well-connected real estate professional.
- How can I be sure that I’m not being sold hot garbage by an “expert”? Is there any way to undo it all if I wake up the next morning in a cold sweat regretting my decision?
- How do I evaluate and track the profitability of these properties? There are a lot of moving pieces in turn key real estate investing.
- How do I make sure I don’t get stuck with “the worst property management company ever” and wind up with more work/stress than I bargained for? Few people say they love their management company, and that scares me.
- How can I set it up such that I do the least amount of work possible, today and in the future? Simply put, I ain’t got time for that shit.
- Does my ass need to be the only one on the line? Is there anyone that will stake their reputation on my continued success?
In this review, we’re going to cover the above questions and go into extraordinary detail of our experience with Roofstock.
After speaking with their CEO and many others on the team, we decided to go ahead and make a turnkey real estate investment with them.
What is Roofstock and what do they bring to the table?
Roofstock is a turnkey rental property marketplace. A core requirement for properties to be listed on their marketplace is that a property needs to be occupied by tenants who meet Roofstock’s strict screening guidelines. Since we’re investors and not real estate professionals, we only look at turnkey solutions.
This is the target market for Roofstock, busy professionals who want high yielding successful rental properties without the time commitment or the need to put work in themselves.
Unlike most places you’d go to find turnkey rental properties, Roofstock does not own any of the properties listed in their marketplace. Instead, their expertise is in evaluating, negotiating and closing property transactions. So they aren’t trying to sell you anything but instead are looking to add value to an existing and usually convoluted process.
What originally got me excited about Roofstock was their inventory. It’s probably what gets everyone excited.
Currently, there are over 100 properties available for sale, 20 awaiting listing and 75 with a sale pending. This dwarfs the size of any other turnkey seller Laura and I looked at. Most turnkey places have little to no inventory, so you’re forced to wait and when you are next in line on a renovation, often feel the pressure just to take what you’re given. We did that once, and we’ll never do it again.
However, the beauty of Roofstock’s inventory isn’t in its size. The beauty is in their categorization, pricing, and impartialness.
Roofstock is currently in 10 markets, and they’re expanding them pretty rapidly (two new ones just this month): Atlanta, Greater Tampa, Jacksonville, Las Vegas, Miami, North Carolina, Orlando, Riverside – San Bernardino, San Francisco – East Bay and Southwest Florida.
In each market, they give you the lay of the land, core fundamentals to watch out for when making a turnkey real estate investment and key local/national statistics. At the time Laura and I felt that Atlanta best represented our goals although with the addition of North Carolina I think we could potentially expand there as well.
Their market analysis helped us choose where we wanted to start, but it also helped us compare turn key rental properties in different locations. What sort of value do you get for a place in Jacksonville vs. Atlanta? This information helped us pick up something we wanted, not something that we were willing to accept. A big difference.
They also break properties down by high yield, high appreciation, great schools and so on so you can focus on the features you’re looking for. We’re high yielders so filtering out 38 properties from 100 was a great first step.
We went over pricing in How to Calculate Rental Yield, so we won’t go too deep on that here. I do however want to bring up the 1% rule.
The 1% rule is a general barometer on pricing for rental properties. It says that a month’s rent should be at least 1% of the purchase price. You’ll find a large share of properties listed in Roofstock exceed this. That is because the Roofstock team pre-negotiates pricing before properties get listed.
Where do they find their properties?
Roofstock’s core team has years of experience building and managing large real estate holding companies and have stuck to what they know.
Real Estate Investment Trusts (or REITs) need to buy and manage hundreds of not thousands of properties. Some of the biggest REITs have valuations measured in the tens of billions of dollars.
In addition to buying, rehabbing and renting properties, REITs often need to sell properties. Reasons can range from the need for fund liquidity, required selling after a certain holding period or even the inability to “reach scale” in a particular market.
Selling properties is usually time-consuming and costly, even for large REITs. That in addition to selling their homes mostly to investors makes it even more challenging for them to sell properties when needed.
Roofstock works directly with larger holding companies to certify, document and competitively price these properties removing much of the overhead for the funds. They also charge a much smaller fee than would typically be charged by realtors. Because Roofstock can sell a property quickly and for less, properties can be listed for less, and those savings are passed on to the investor.
Unpacking the Roofstock Certification
Buying a property on the other side of the country without stepping inside takes a lot of trust. Roofstock apparently does not take your trust lightly.
To help you be confident in your purchase, they strive to provide as much information as possible on the property before you decide to buy. All of this information, coupled with quality standards make up the Roofstock Certification.
These are the base requirements as per their website:
- A property inspection conducted by an experienced national inspection firm
- Property valuation and rental market analysis to ensure properties are priced fairly
- An estimate of the cost of major and minor repairs along with a bid from a local vendor to complete the work at the quoted price
- Full title report with no uninsurable encumbrances or liens and preliminary title commitments, where applicable
- Full review and summary of lease terms to ensure lease complies with market standards and key terms are disclosed, including term, monthly rent, and utility responsibility
- Full review and summary of the tenant to ensure tenant is current on rent and met background and credit qualifications
- Roofstock 3D Virtual Tour of the property, which allows you to virtually tour the property and provides a unique tool for re-leasing the property
- Home disclosure reports that summarize any local risks including natural hazards and local crime rates
- Certified property managers, vetted by Roofstock, which are experts in the local area
- A professional property floor plan and professional marketing photos of the property
In addition to the above, Roofstock provides all purchases with a 30-day money back guarantee. Even though they don’t own the properties, they are so confident in their analysis that if you don’t get what you expected, they will buy the property back from you and eat the cost.
It’s also worth noting that they occasionally run deals. For example, this August/September they are running a One-Year Rent Guarantee. I’m sorry but that’s insane – it removes an enormous amount of risk from the buyer.
How do you eat a Full Property Analysis? One bite at a time.
An essential part of the Roofstock Certification is their Full Property Analysis. There are three main pieces to this analysis.
- Pricing Appraisal
- Title Report
The first two on the list are pretty straightforward and support the listing price. The inspection is where the magic is.
This inspection report goes into extreme detail on all the major components of the property. The first page of the report looks like this:
The full report tends to be about 12 – 15 pages and goes into detail on each area of the above summary. It includes pictures and where necessary, descriptions. The goal is that you know the exact state of the property before purchase, and this is a major piece of the 30-day money back guarantee.
Roofstock doesn’t want there to be any surprises with the property. They make money when you make money and are clearly trying to cultivate a savvy client base.
The Roofstock Process: Be an Investor, not a Manager
The biggest value-add to the whole process is the Roofstock Team. Our experience with them was the single largest reason we came back for a second property.
On our first property purchase, we selected a property that had a fixed price. The first business day after we clicked “buy now,” we were called by Lizzy and inducted into the Roofstock process.
She spent nearly an hour with us on the phone explaining how things work, asking us questions about our experience and helping us understand how the whole purchase process would unfold. Lizzy recommended lenders and insurance agents to us. The deals we were presented were pretty clearly awesome, so we just accepted her finds and moved on. It was hilariously easy; Laura and I went out to dinner that night to celebrate doing nothing.
A few days later Zach called, he’s the director of client services. He wanted to congratulate us on our purchase and see if we had any questions. Little did he know how many questions I would have – I had him on the phone for nearly two hours. I asked pretty much everything I could come up with down to their business model and the extent to which people can negotiate prices on the “make an offer” properties.
After Lizzy had teed up the property, Rebecca took over. She took “white glove service” to a whole new level. After sending my lender proof of my finances, I did almost nothing. Rebecca coordinated with everyone and, in 30 days a notary scheduled an appointment at our house for our remote closing. It was too easy. If you’ve ever purchased a home, you know how much work closing on a property is. This was as far from that as you could imagine.
I was cc’d on key emails and occasionally asked for my preference on random details. Probably the most work I did was digitizing everything in Evernote. Ever digitize 50+ pages in one sitting? You’ll need a good beer for that, trust me.
There’s safety in numbers, and they’re already negotiated for you
It was phenomenal to have someone else should sweat the small stuff during the purchase. That’s not even the best part of the whole process.
A week or so after the transaction I get an email from Rebecca asking how everything is going. Did the property transition ok? Did I collect my first month’s rent yet? And, of course, was I ok dealing with the property manager going forward or did I want the Roofstock team to handle that?
Wait, what? Did I want Roofstock to deal with my property managers for me? Apparently, for no additional fee, Roofstock will willingly place themselves in between you and your property manager further insulating you from the dramatics of day to day operations. My mind was blown. There’s a huge difference in treating me poorly vs. the company whose clients manage the majority of their properties.
All of a sudden, Laura and I, proud owners of three rental properties gained the negotiation power of a small REIT. Who better to negotiate repairs and handle shitty situations than people who have years of experience doing just that?
In Georgia, our properties are managed by Excalibur Homes. They seem awesome and expect they will be. That said, I don’t need any more emails in my inbox than I already have. I want to invest, not babysit. So, while I have every intention of working directly with my property managers, if things get out of control I’m just going to pass it off. Who’s got time for that, amirite?
Also, because I went through Roofstock, I’m only paying 6% of rent a month to my property manager. #humblebrag. Seriously, put anything into our real estate analyzer and then mark down the property management from 10% to 6%. And you thought you were cash flowing well before.
Evaluate, Track and Compare Properties – Automatically
You certainly need a strong team if you purchase a rental property. However, the most important part of the process is evaluating the deal. Is the purchase price too high? Do property taxes destroy your cash flow? How do two similarly priced properties stack up side by side?
These are all questions that I struggled with, and I wound up with a freakishly complicated spreadsheet that took me hours to build and far too much time to maintain.
A real estate deal is constantly evolving as new information becomes available and to be successful, you will need to rerun calculations quickly and frequently. Since all the existing tools out there are shamefully bad; I decided to make my own.
Right now the tool is free, and we’ve gotten tremendous (see what I did there) feedback on it. Not only does it automatically pull in pricing data for your properties and help you calculate key numbers, but it also allows you to save your evaluations in Property Groups so you can track properties you already own and the ones you’re looking to buy.
To check it out, head over to Listen Money Matters Pro.
Key Roofstock Features
Here I’ve attempted to distil all that Roofstock is into a classic feature table. How novel.
|Fees||One time 0.50% fee per property purchase. First fee is waived.|
|Turnkey||Yes; Roofstock goes out of their way to make sure you need to handle as little logistics as possible.|
|REITs||Yes; While you can purchase an investment property directly from Roofstock, you can also invest in a REIT.|
|Markets||Atlanta, Greater Tampa, Jacksonville, Las Vegas, Miami, North Carolina, Orlando, Riverside - San Bernardino, San Francisco - East Bay and Southwest Florida.|
Our chat with their Founder and CEO Gary Beasley
We have a bit of a habit interviewing CEOs (especially famous ones). Coincidentally, all of them have also been the founders of their company as well. I don’t think that’s much of a coincidence; great vision needs to come from the top.
Roofstock is no different, and while we spoke with many of the team, we wanted to hear it from the one steering the ship.
It was a ton of fun chatting with Gary, and he shared a lot of the inner workings of the company. Even if you’re not in the market for turnkey rental properties at this time, we think you’ll find the conversation interesting.
Apparently, Gary’s office is hidden behind a bookcase because damn, who doesn’t want a hidden secret office? Did I mention it has a bar?