Roofstock Rating: 8.0 out of 10
This is a complete, detailed review and real-life case study of Roofstock, which is a marketplace for buying and selling turnkey rental investment properties. There have been various reviews of the company posted online, but I’m not convinced all of the writers have actually used it to buy a rental property. In December of 2018, I bought my first rental property off of Roofstock and so far, have had a positive experience.
Please note that this is a review of Roofstock for buyer’s and not sellers, and it is based on my experience only. For my first deal, I liked the idea of a turnkey rental. I wanted a rental, but didn’t want to spend a lot of time trying to fix a property and would rather just hand the keys off to a property manager.
This article highlights my investment process from start to finish, buying an out-of-state real estate investment property through Roofstock.
What is Roofstock?
Roofstock is a marketplace for buying and selling rental properties, mainly single family rentals. The company has properties listed across 40 markets in the United States. Here are some key things to know about the company:
- Roofstock is not a real estate investment trust (REIT). With Roofstock, you are buying actual, physical real estate. You will be on the hook for repairs, maintenance and keeping it rented out, and it’s less liquid than REITs, meaning it’s harder to get your money out of the investment if needed, but the returns are typically higher.
- Roofstock does not own the properties. Instead, it partners with third-party sellers. Typically, I’ve found that these are turn-key real estate companies (aka flippers) or single family rental investors who are looking to trade up or cash out of a property.
- Roofstock is free to use. And provides a ton of information on its properties. You can filter results by list price, monthly rent, location, and more. Each property has a summary (is the property vacant or rented?), financials (which are based on Roofstock’s estimates, more on this later), and detailed analysis, including a property valuation report and an inspection report. Roofstock also provides its own neighborhood rating (1-5 stars) to help you compare different neighborhoods.
- Returns are not guaranteed. Real estate investing carries risks, and investing through Roofstock is no exception. However, Roofstock says it vets every property on the site and it may provide you with a “Roofstock guarantee” – if you are not happy with your purchase, you can get a refund on it within the first 30 days of closing. It also offers a separate rent guarantee program, where it pays you up to 90% of the estimated market rent of a vacant property until it is leased. More details can be found here.
Pros and cons
I’ve found that there are a few pros and cons to buying a rental on Roofstock:
- Low-cost. You can start researching markets and properties immediately, for free. The company has an investment calculator that will show you the property’s projected returns. You can get a lot of practice for your first deal. It’s also free to make an offer; you’d get Roofstock’s fee refunded if you don’t move forward with a deal.
- Roofstock provides inspection reports for nearly all of its properties. The inspections are done by third-party companies which are not affiliated to Roofstock. It is completely free to browse inspection reports. I’ve found that these inspections reports are very detailed and covered all of the necessary components of a property (although hiring your own inspector isn’t a bad idea either). I like to search through inspections just for fun.
- Roofstock provides a 30-day guarantee to buyers. If you are not satisfied, the company will refund your money. The rent guarantee program also seems like a really good deal, as it reduces the risk of not being able to rent out your property from the start. On the downside, you can certainly argue that 30 days is not enough time to provide a money-back guarantee for a long-term investment.
- BiggerPockets discount. Roofstock normally charges .50% of the contract price (so $500 for a $100,000 purchase). However, if you are a BiggerPockets Pro member ($39/month), you can get $500 off this fee. Also note that you are free to use a real estate agent to assist you in the transaction, and you can get your own inspection if you want (on properties with an inspection contingency).
- You may not find a good deal. The properties are turn-key rentals, which means they are rent-ready (or already rented out). If you go over the numbers on several properties, you may be disappointed (I’ve found 4% – 6% cash-on-cash returns as common). However, this is also partially due to the hot real estate market and higher mortgage rates.
- Limited markets; mostly single family homes. Roofstock does not offer properties in several states (although they are definitely expanding). There aren’t a whole lot of multi-family homes listed on Roofstock. Multi-family homes typically produce more income than single families and can be an attractive investment.
- The numbers may be rosy. I’ve found that Roofstock’s figures on its property listings may be a bit inflated. For one, the market rent on the house I purchased said $1,350, but it ended up renting for $1,300 (more details below). The calculator on its website also has pre-sets for expenses that may not be realistic (it lists 8% for management fees, most property managers charge 10%) and only 5% for repairs and maintenance (I would use 10% total). You really need to do your own research on all figures, and be conservative!
- Roofstock has no fiduciary duty to you. Unlike a real estate agent or financial advisor, Roofstock does not need to act in your best interests. However, I found that Roofstock does care if you are happy with your experience (after all, the company needs buyers to make its business model work!).
My Roofstock real estate investing strategy
I had about $30,000 to invest in my first deal. I started searching in November 2018 and closed on the first deal just a month later.
My plan: Invest in a home that sells for $80,000 – $130,000 and rents for $800 – $1,300 a month.
The property MUST meet the 1% rule, meaning the total monthly rent should exceed 1% of the purchase price of the property. For example, a $120,000 house must bring in at least $1,200 in rent. This will give me a good chance of bringing in $100 per month in cash flow, which is my goal per house.
Aim for no major repairs in the first five years of owning the property, so the roof and HVAC must be new or not in need of near-term replacement. Hopefully, when the major repairs need to be made, I can borrow out of equity in the home or decide to sell.
6%+ cash-on-cash returns each year. This means that if I put down $30,000 upfront, the property would earn $1,500+ per year in cash flow. The total returns would be higher when you factor in debt paydown, tax write-offs, etc.
What Roofstock markets are best to invest in for cash flow?
Scouring through online resources, I’ve found a few markets that have properties meeting my criteria:
- St. Louis
- Kansas City
I did hours of research on each of these markets and considered offers on several properties. Milwaukee is a pretty attractive market for a couple of reasons.
Milwaukee average home price: $116,700
1-year forecast: 6.8% increase
Average rent: $1,125/mo
1% rule met! (Statistics from Zillow)
- There are tons of properties that meet my investment criteria in this city. I can easily find properties that are in my price range and can meet my rent requirements. I think it will be easy to find a SFR that brings in the cash-on-cash returns I am looking for. And the neighborhoods I’m looking at have good schools and lower crime.
- The real estate market trends are mostly positive. The current market temperature is “cold” meaning it is a buyer’s market for real estate, but at the same time, Zillow predicts home values will rise by 6.8% in the next year. I take that prediction with a grain of salt, however. I’m not banking on that to happen.
- Milwaukee has a fairly diverse economy. It’s not all about the breweries, although MillerCoors is a major employer (and I love beer myself). The city is also home to six Fortune 500 companies, including Harley Davidson and Northwestern Mutual. Major employers in metro Milwaukee include various health care systems, another positive as health care is considered a recession-proof industry (I’d love to get a tenant that works as a nurse, for example).
- I can get there if I need to. There are flights which would only cost a few hundred bucks round trip and the flight time isn’t too bad at a few hours or so.
- I wouldn’t mind visiting the city. This is a huge bonus, because it wouldn’t be any fun if I invested somewhere I hated to visit! I like beer and baseball, so Milwaukee is a pretty good fit for me if I want to visit.
On the downside, the current unemployment rate (6.4%) is higher than the national average and job growth is also expected to lag. The economy only grew by 1.2% in 2017, according to BizTimes. I’m not expecting a ton of appreciation from an investment property in a B or C neighborhood in Milwaukee.
Still, I like Milwaukee as a real estate investing market. I think I should be able to get a reasonably priced property that can attract a solid tenant and earn steady cash flow (fingers crossed).
My Roofstock deal
I started searching for properties in November, and it took about three weeks to land my first property. I found it by simply searching on the site.
While the numbers don’t look fantastic on paper, I think this is a solid deal that should provide stable income. This house is choose is small (2 beds, 1 bath, 980 square feet), but the location is great (3.5 / 5 stars).
This is a turnkey rental which just underwent a complete interior and exterior rehab. It has a long-term life expectancy on major systems, according to Roofstock. The only thing that came up in the inspection was some landscaping work needs to be done and the HVAC unit is near the end of its useful life.
The seller renovated the property and replaced the flooring, carpet and updated the bathroom. The furnace likely has 10+ years of life remaining; The roof may need to be replaced in 5 years, as well as the water heater, according to the inspection.
The exact numbers on my property
Home details: Vacant home. 2 beds, 1 bath, 950 square feet.
List price: $118,000
My offer: $115,900
Counter (accepted on Dec. 10): $116,900 (plus credit for replacement of HVAC; it works fine and doesn’t need immediate replacement)
Total cash needed to close: $28,825 (when factoring in seller credit)
Appraised value: $126,000 (my estimate)
Mortgage: $87,675 at 5.75% and no points
Cap rate: 7%
Monthly cash flow: $179
Cash on cash return: 6.6%
(Credit: BiggerPockets rental property calculator).
This house is the worst house in a great neighborhood, and I mean that in the best possible way! All the homes on this street have Zillow estimates well above $120,000. This particular home’s “Zestimate” is $139,000. I checked property tax assessments and most of the houses on this street have tax-accessed values greater than $120,000, too. Same goes for recent home sales in the area.
Homes typically have a fair market value that’s at least 10% higher than the tax accessed value. Recent sales in this neighborhood range in price from $140,000 to $180,000. This is definitely a nice neighborhood and I think the house will get appraised for at least the purchase price. With 2% annual appreciation, I would have $60,000+ equity by the fifth year.
Before I signed the purchase and sale agreement, I received a call from a Roofstock representative to check in and see how it was going.
The rep knew that I had put several offers in and just wanted to see if I needed any help. We discussed the property and my reasoning for the offer price.
Roofstock confirmed that the seller is a turn-key flipper and made renovations to the house. They put in new floors, paint and updated the bathroom from what I can see. I found an old listing of the home, and indeed, the house was renovated quite a bit.
At this point, I followed up with several property managers. I spoke to one local manager in particular who I felt comfortable with. He was easy to reach on the phone and by email and answered all my questions easily. He also happens to have the lowest fees.
The next day, I received a disclosure from the seller and I also had 24 hours to sign a purchase and sale agreement, but I had a few follow up questions for the seller. Mainly, I wasn’t sure if there was a refrigerator or stove included in the house, because it wasn’t clear from the inspection photos, it wasn’t clear if the automatic garage door opener worked or not, and I didn’t see a washer/dryer connection anywhere. Small stuff really.
[Note: I found out no appliances are included other than the microwave and dishwasher, which is a bit disappointing, but not a deal breaker. The property manager said it will cost around $1,300 to install a stainless steel stove and fridge. Again, not a big deal].
The house went under contract after I digitally signed the PSA. This contract includes a contingency that the seller replace the HVAC prior to closing.
A few days after signing the PSA, I finished completing my mortgage documents with Better Mortgage (it took about 3 weeks) and wired $1,500 to the title company. Better Mortgage ordered an appraisal on the property.
1 week passes.
I find out the house has actually been rented by the seller at $1,300/month. The property was supposed to be vacant. It’s not clear why Roofstock marketed the home as vacant; it hasn’t been mentioned at this point.
On the bright side, I don’t have to spend $1,400 for appliances, as the tenants were responsible for bringing appliances into the house. And it’s already rented out, so I don’t have to worry about vacancies.
The seller did not require a credit check of the tenants which is a little odd to me. However, the tenants meet the 3X income to rent requirement and put down $8,000/month income on the rental application, according to the lease. It is a couple who work in healthcare, with no kids or pets. They seem like they could be pretty good tenants. And they’ve paid rent on time for the first 3 months of the lease.
Another week passes.
I’m moving forward with financing. The appraisal on the house comes in at… $130,000! This is well above my estimates and above the purchase price of $116,900. This is excellent news and I feel way more comfortable buying this property since it’s worth more than what I’m paying for it. So, to summarize, I am investing around $29,000, but will have $42,325 equity in the property from day one.
Holiday break comes, first rent check comes in with no issues. There was a few days delay because of the holidays, but rent came in on the fourth of January.
Roofstock rating: 8.0 out of 10
Here’s how I would rate Roofstock based on my own personal experience buying a rental property from the company.
Customer service: 9.0 out of 10
Roofstock’s employees were pretty friendly and were very easy to reach. They answered all of my questions. I did feel like my transaction coordinator got annoyed when I asked to follow up with the seller to ask about the appliances and garage door opener. Perhaps that was a newbie question, or perhaps I had been calling him a bit too much over the course of the purchase. Other than that, I can’t complain about the customer service.
Ease of use: 10.0 out of 10
Roofstock’s website is really easy to use and helpful. You can search by markets, neighborhood rating, projected returns, and more. The fact that you can sign up for free and get access to all of the property inspection reports is also really cool. I’ve found myself browsing through properties and inspections for hours on end. I found my house pretty easily.
Transparency: 7.0 out of 10
This is one area where Roofstock can improve. I would not solely go off of Roofstock’s numbers. I STRONGLY recommend you run your own analysis of a property and use actual figures instead of Roofstock’s own estimates. Use Rentometer, Zillow and tap into local experts to get a better idea of home value, rent estimates and more.
The vacant house I bought on Roofstock actually was rented out by the owner at a price of $1,300 per month. I’m confused why Roofstock didn’t know this key detail; they had marketed the home as vacant and with a market rent of $1,350. I
Promotions: 10.0 out of 10
This is one area I think Roofstock excels. Roofstock offers a rent guarantee program on certain properties, where the company will pay 90% of market rent if your property is vacant, up to a year. That’s a pretty good deal, especially if you are worried about your rental not securing a tenant right away.
The company also refunds $500 of your marketplace fee if you are a BiggerPockets PRO member (as of Dec. 2018). And if you go through Better Mortgage for a loan, you can get $1,000 credit on closing costs also for being a PRO member.
Overall I am happy with my experience using Roofstock thus far.
What do you think of Roofstock? Please comment below.