The real estate asset class is seen by many investors as a more stable alternative to the volatility of the stock markets.
Until recently, though, investors who wanted to buy a single-family home to rent it out had limited options, as they were typically only able to consider properties within a reasonable driving distance that they could physically visit.
Property management is, after all, a very hands-on task. It’s not just about collecting the rent on a weekly or monthly basis, but also about maintaining the home and taking the time to find tenants, check their backgrounds and ensure that they don’t trash the place. It can eat up hours of time, hence the need for single-family home investors to find local opportunities.
A startup called Roofstock is aiming to change that reality, making it possible for investors to buy and rent out homes from anywhere in the country by radically simplifying the property management process through digitization.
Roofstock has created a marketplace of rental properties for sale and ranks each listing by a “neighborhood score” that calculates an investment’s potential profitability, including whether or not there’s an existing tenant in place.
In an interview with PYMNTS, Roofstock CEO Gary Beasley said his company’s main achievement has been breaking down the geographic barriers for real estate investors, making it easy to buy a home and rent it out anywhere in the U.S.
“When you look at the stock market, a lot of people think it’s very choppy at times and volatile,” he said. “Housing is not the same. You can get some income from it, and it’s easy to put a loan on it. It tends to go up in value over time. The returns are nice, and they’re uncorrelated to equities. It’s a tangible asset that you can understand, and all we’ve done is make it easy for investors to invest in this asset class.”
See also: New Jetty Rent Product Lets Renters Choose When to Pay
So easy, in fact, that investors barely have to do anything except make sure they have money to invest in the first place. Roofstock solves landlords’ biggest headaches by taking care of property management. Beasley said the company took time to vet different property managers in each of the markets where it operates, so it only works with those it considers to be the best. And it’s now able to offer its very own property management service in the shape of Great Jones, which it acquired in August.
“Now we can say, ‘Here’s the pricing, and here’s the service,’” Beasley said. “Then we can say, ‘Here are two or three other choices, so you can decide.’ We like offering choice to get people coming through the marketplace, and they tend to like it, too.”
There are additional benefits. Through its property managers, Roofstock collects the rent on behalf of the property owners and offers asset management features via its Stessa app.
“Stessa’s asset management software that shows your profit and losses and all your historic financial data — all the information on your loans and your property documents,” said Beasley.
Read also: Commercial Real Estate Firm JLL Invests in Rental Market With Roofstock Deal
With Stessa, Roofstock can monitor its investors’ performance and make offers and suggestions as to where it thinks they can improve. So, for instance, if a customer is paying 5% interest on their mortgage and Roofstock finds a better deal, it can inform that user and help them refinance at 4% instead. It can also appeal property taxes when it determines that there’s a chance it might succeed.
“It’s all about relevant offers that we think will help you manage your investment better,” Beasley said. “We’re adding about a billion dollars a month of assets using that software, and it’s free to use.”
It’s highly unlikely that Roofstock would be successful if it didn’t also offer benefits for sellers. On their side, people to sell their homes — especially rental homes that may already be occupied — more cost-effectively.
As Beasley explained, Roofstock offers a value proposition because it charges a sales commission of 3% of the transaction amount. That compares well to hiring a broker, who typically charges a commission of 5% or 6%. Also, with Roofstock, there’s also no need to vacate the home first, as would be the case when selling through traditional channels.
See also: Buyers and Sellers Put out Welcome Mat for Real Estate Closings Without Contingencies
Roofstock serves a niche market, with the average user on its platform owning 1.7 homes, according to its own data. Beasley said that something like 80% of rental homes in the U.S. are owned by people who have two or fewer properties. Of course, that means most landlords are just regular folks looking for an investment opportunity, so there’s a big potential market for the kinds of tools Roofstock offers to simplify how people manage those investments.
“It’s mostly people living in more expensive places who are looking at a home elsewhere in the country, and they’re buying their first investment properties through us,” Beasley said. “And they can do it sight unseen.”
Despite doing most of the work for those property owners, Roofstock has still found a few ways of generating revenue. Not only does it take cuts on both sides of the transaction, from both sellers and buyers, but it also takes a slice of the property management fees it charges. Lastly, it operates a differentiated iBuying model, buying homes that are currently occupied by tenants and selling them to other would-be landlords.
“We offer that as service, and we’ll typically buy it at a small discount and re-market it through our marketplace,” Beasley explained. “So, if you’re in a hurry and you don’t have time to go through the full marketing process, we can provide full liquidity quickly.”
Roofstock is well-placed to be an iBuyer of rental homes, Beasley said, because it has insights in the market and knows when a home will likely trade up. It also provides the advantage of getting paid while sitting on the property and waiting to sell it.
Read also: Homebuying Platform Rolls Out Welcome Mat for Investors
“We’ll usually hold onto them for a few months, they’ll appreciate, and then we’ll sell them on, so it’s a win-win for everyone,” Beasley noted.
Looking forward, though, Roofstock’s secret weapon could well be the massive database it has built up on America’s housing stock. Beasley revealed how the company has mapped the entire 90 million homes in the U.S. Known as its “portfolio optimizer,” that database contains information on every single home in the country.
“We know which ones are rentals, what the neighborhoods are like, how they’re all trending and what’s available for sale,” Beasley said. “So, we can go down into any city or neighborhood and tell which ones are rental homes. And if they’re not rentals today, we can tell you which ones are good candidates to become rental homes in the future, if there’s a demand for it.”
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More