Roofstock Review – The Best Way To Buy Long Distance Rental Properties?
Rental properties have many advantages, including tax benefits , inflation protection , passive income , and diversification of stocks.
They also come with a steep learning curve. And the challenge is compounded when your goal is to invest long-distance in properties you’ve never seen.
Roofstock aims to change that. If you’ve weighed the pros and cons of buying rental properties and feel ready to pull the trigger, here’s what you need to know about Roofstock.
Roofstock review: features and benefits
One way to think of Roofstock is as an Amazon for rental properties. It is a platform for the purchase and sale of profitable properties, backed with data and guarantees.
As a nationwide real estate listing website specifically for rental properties, Roofstock combines local partnerships with a rigorous certification process for each property listed. The result is an easy way to buy investment property in dozens of markets across the country. In fact, Roofstock claims that the majority (62%) of its transactions involve buyers who live more than 1,000 miles from the properties they buy.
The online marketplace includes an impressive set of features that makes it easy to evaluate, purchase, and manage single-family rental properties. Maybe too easy, but we’ll talk about that later.
Before buying any investment, astute real estate investors want data and lots of information. And Roofstock offers it.
First, Roofstock includes several measures of a property’s returns, including capitalisation (cap) rate, cash-on-cash return, annualised return, gross return, annual cash flow, and appreciation. They also allow you to adjust the purchase price, down payment, financing interest rate, and rent to see how these changes would affect property returns.
Similarly, investors can review detailed expense figures for each property: insurance, property taxes , property management fees, repairs and maintenance, vacancy rate, all broken down in detail, both for past expenses. As for the expected costs for the next year. Roofstock also includes estimated closing costs and allows you to modify them based on your own estimates.
And the data doesn’t end with real estate investing itself. Roofstock also displays neighbourhood data using a five-star rating system. Neighbourhood metrics include median home value, median income, quality of local public schools, local employment rate, and percentage of owner-occupied homes.
If you are familiar with the common letter grade system for neighbourhoods, Roofstock’s neighbourhood ratings are analogous. A five-star neighbourhood corresponds to an “A” grade neighbourhood, four stars to a “B”, and so on.
The listings also show the occupancy status of the property, whether it is vacant or occupied by a tenant. If you are busy, you can view the current tenant’s payment history and lease details such as rent, lease start and end dates, and the amount of the security deposit.
Property certification process
To collect the above data, Roofstock puts each property through a rigorous certification process.
They request a home inspection from a pres-elected, independent home inspector. The key findings are summarised for buyers to read, and the full inspection report is also available for download. Roofstock includes estimates for each required or recommended repair.
To make sure there are no surprise liens or encumbrances, they also request preliminary reports on the property’s title. They also check to see if the property is owned by a homeowners association and outline fees, restrictions, or other terms.
Lastly, they collect copies of leases and other rental history documentation to ensure accurate data.
Certified local property managers
The decision to hire a property manager becomes easier when you live 1,000 miles away from your rental property.
When Roofstock enters a new real estate market, they explore and evaluate local property management companies to find the most trusted and professional managers available locally. After interviewing and certifying property managers that meet their standards, they list the local options for each property. Each manager’s fee structure is listed next to them for easy cost comparisons.
After all, what Roofstock is selling is ease of purchase and ownership from anywhere in the world. They want buyers to feel safe and confident that they will not be scammed or suffer losses by a negligent property management company.
One of the most attractive features of Roofstock is its double warranty.
First, they offer a 30-day money-back guarantee. If you buy a property on their platform and you are not satisfied with it, you can “return” it within 30 days. Roofstock is putting the property back up for sale, waiving its normal rates (more on these shortly) and guaranteeing its original purchase price. If the property sells for less, they pay any shortfall. If the property is not sold within 90 days, they buy it back from you.
Beyond a satisfaction guarantee, they also guarantee quick rental income. For vacant homes, Roofstock guarantees that you will find a qualified tenant within 45 days of purchase, and if you don’t, they will pay you 90% of the market rent until you place a tenant.
Both warranties come with a long list of fine print, of course. The rental guarantee only applies to single-family homes, not multi-family properties, and you must use one of Roofstock’s certified property managers. The 30-day happiness guarantee can only be invoked for a maximum of one property every 90 days, along with a few other caveats. Be sure to read the fine print before getting too comfortable with the idea that warranties will protect you from any and all risks.
Option to buy full wallets
Hungry for multiple properties? Some sellers list multiple properties as a portfolio for the combined purchase. They establish a minimum number of properties that must be purchased simultaneously. You can specifically search for property portfolios if you are looking to buy in bulk, perhaps at a discount compared to buying individual properties.
Robust search filters
Sorting by portfolio is not the only search filter available. Buyers can also sort by factors such as price, capitalisation rate, local real estate appreciation rates, quality of the neighbourhood, occupancy, and age of the home.
Once again, Roofstock’s goal is to make it easy to shop anywhere in the country. Given the number of properties listed at any given time, the powerful sorting options are critical to the mission.
Roofstock’s pricing and revenue model is refreshingly simple and transparent.
For sellers, they charge a market rate of 3% of the sale price, with a minimum fee of $ 2,500. That’s half the typical commission for a real estate agent, which ranges from 5% to 7%.
Roofstock also charges buyers a transaction fee, equal to 0.5% of the sale price or a minimum of $ 500.
Disadvantages and risks
No service is without its drawbacks. In Roofstock’s case, those downsides are subtle and possibly the result of the platform being too successful in making rental properties easy for anyone to buy. When it’s too easy to invest, buyer demand increases, lowering returns and putting some investors at higher risk than they bargained for.
1. Moderate returns
At the time of this review, there were 728 properties listed for sale on Roofstock, with only five of them offering projected cap rates above 10%. Not surprisingly, almost all of them were in one- or two-star neighbourhoods.
That makes sense; Traditionally, rental properties have offered strong returns for savvy investors due to relatively high barriers to entry. One of those barriers is knowledge; it takes some skill to invest profitably.
Roofstock aims to minimise the skill and specialised knowledge required by streamlining the process as much as possible. But by simplifying the purchase of a rental property for anyone, anywhere, it leaves the doors open for more investors to flood the market.
Most of the properties for sale on Roofstock offer only median returns in the range of 3% to 8%, enough to justify a purchase, perhaps, but not enough to congratulate yourself smugly on landing a stellar deal. .
2. Temptation to skip due diligence
Yes, Roofstock offers outstanding data and reports, so much so that it is easy to leave the research there and not do your own independent study.
But when you buy a property long-distance, you probably don’t know the local market very well. A smart investor researches the local market thoroughly, from population trends to labor market trends and future development projects. What are the demographics of the neighbourhood? How are they changing? What kind of rotation does the neighbourhood see?
Yes, it helps to look at recent rents and home appraisals, but they don’t tell the whole story. And because Roofstock offers a wealth of data, it can lull investors into a false sense of security.
Don’t make the mistake of thinking you know a market just because you’ve read some charts and a property inspection report on Roofstock. Do your own due diligence, ideally visiting the city and neighbourhood yourself and talking to property owners and managers on the ground about local vacancy rates and other trends.
Skimp on due diligence today, and you’ll have poor returns or losses tomorrow.
3. Temptation to invest without learning the basics
Just as Roofstock data can make first-time investors think they know the local market, ease of purchase and management can make them think they know everything they need to know about rental investing.
Yes, Roofstock can connect you with title companies, property managers, and home inspectors. They make it perfect and easy. But none of that prepares you for the reality of managing tenants or property managers, budgeting for fluctuating expenses, or understanding the forces that can drive rents and values up or down.
Being an effective landlord is not always intuitive. Tenants often push their limits, and no amount of data or process optimisation can prepare you for the challenges of owning a rental. Learn all you can about the rental property appraisal, buying and owning process long before you make your first offer, regardless of which platform you use to search for properties to buy.
Roofstock offers an easy way to buy turnkey rental properties and invest long-distance. It also democratises the investment process, opening the door for new investors to generate income from rentals.
You can use that income to help pay for your children’s college education , achieve financial independence and early retirement , or simply improve your lifestyle. And no one says you have to use Roofstock properties like traditional rentals; You can always use the platform to find your next property to rent on Airbnb.
Just be careful not to lean too heavily on Roofstock data and rationalisation as an excuse to avoid your own due diligence. It is a well organised platform, but ultimately it is still just a platform for finding properties for sale. You are the one who has to live with profits or losses, so you are the one who has to learn how to invest in real estate correctly.