Roofstock Review – Crowdfunding Rental Real Estate Investing
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Investing in real estate is a great way to diversify your portfolio but often requires huge capital. The cost of purchasing multiple properties could be significantly high and out of reach for an average investor. This keeps most investors away from the industry, but Roofstock is trying to change that.
The investment platform allows single-family rental properties without the high commission or fees. It reduces effort and minimizes the time associated with tracking high-quality investments. If you want to diversify your portfolio through single-family rental properties without the massive capital requirement, you can consider Roofstock.
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What is Roofstock?
Launched in 2015, Roofstock aims to transform the real estate industry into a more accessible and affordable opportunity for all investors. It combines AI with input and selects the best opportunities for rental property investors. Roofstock is based in Oakland and was founded by Gary Beasley, Rich Ford, and Gregor Watson. It was founded on the belief that the traditional process of buying and selling properties was outdated. The company aimed to build a marketplace that allowed investors to easily find properties and get all the necessary information to make decisions.
The crowdfunding platform acquired Streetland, a Dallas-based rental management company, in just three years. Roofstock has conducted more than $5 billion in transactions across 70 markets in the U.S.
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How Does Roofstock Work?
The online marketplace offers real estate investment opportunities and referrals for property management services in the case of single-family rental homes. You can use the platform to purchase an investment property and enjoy passive income through rent. It helps eliminate the agent from the buying and selling process.
It is easy to get started on Roofstock, and there are no sign-up fees. On the website, you click on “Get Started.”
Enter your email address and password on the sign-up page.
Once you have signed up, you provide your first name, last name, and phone number and choose whether you are interested in buying, selling, or inviting clients as a broker. You can browse all the properties available for sale.
You now need to provide basic information to build your investment profile. You need to mention your investment journey and whether you are an accredited investor. Next, you need to specify the investment amount and tenure.
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Next, you need to choose the area you prefer, your risk appetite, and the expected returns. This will take you to different investment strategies, and you have to choose from an investment strategy based on income, balance, or growth. In the last step, you need to specify the type of property you are comfortable with.
Once you have built the investor profile, you can start browsing the list of properties available, or you can bring your rental property to the market. It is possible to list an existing property on the platform.
If you like a property and are keen on buying it, you simply need to place a bid, and you will get all the information about the purchase, rent, initial investment cost, and more. Below is an example of a property for a purchase price of $85,000.
Roofstock will provide a complete estimate for you, but you need to consider the type of expenses, including down payment, management fees, and closing costs you may incur.
You also have the option to have the property managed by experts. Roofstock will connect you with vetted property managers, and you do not have to put in the time and effort to be a landlord to keep hold of the investment.
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Roofstock fees
Rootstock has no signup marketplace fee. Whenever you purchase through Roofstock, you will either pay a 0.5% asset management fee or $500, whichever is higher.
For sellers, there is a commission of $2,500 or 3%, whichever is higher. They also have closing costs for buyers and sellers, and the platform will provide an estimate before you invest.
Roofstock features
Roofstock has some key features that set it apart from traditional real estate agents.
Single-family rental properties
With Roofstock, you can own single-family rental properties at a much cheaper rate than the cost of owning property through the standard real estate agent. Rental properties can be intimidating due to the high down payment and transaction fees, but Roofstock has lower transaction fees than real estate agents.
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No minimum investment
Roofstock has no marketplace fee and does not require you to pay anything to sign up. You can monitor the properties until you can start investing in real estate.
Neighborhood rating
Roofstock has a Neighborhood rating, which allows you to understand the risks and rewards of investing in a property based on the neighborhood. The risk is low if there is a high rating since the property is appreciated in the market. A lower rating means a high risk with low purchase prices.
Bring your property to Roofstock
You can submit a rental property to Roofstock, which is not currently available on the marketplace. The team will screen the property and decide whether it fits. Once approved, you will be connected with a vetted real estate agent who will guide you. It is free to submit properties on Roofstock, and you can submit up to 10 properties monthly.
Roofstock Academy
Roofstock is doing its best to educate customers and has various free articles to read. But it also offers a self-study program of 13 courses for an annual payment. There is a Workshop program and a Mastermind program for a higher fee. However, they are not enrolling new members currently.
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Direct ownership
When you buy a property through Roofstock, you enjoy direct ownership, which means you collect the monthly rent from the tenants. If you invest through Roofstock One, you will be paid in distributions. If the investment makes money for investors, you will receive quarterly distributions.
Pre-vetted properties
All the properties on Roofstock are vetted thoroughly before listing on the marketplace. There is a walk-through from a property inspector and an inspection report; then, the short-term and long-term repair costs will be estimated. Next is a title report by a professional to ensure that the property is fit to be sold. There is a property valuation in the market, which allows Roofstock to compare properties. Lastly, a full review of the lease terms, tenant selection process, floor plan, and interior and exterior photos with a virtual property tour. This thorough process makes it safer for investors to make their decisions.
Rental asset management
A unique feature of Roofstock is the opportunity to have your property taken care of by expert property managers. It is an optional feature where you can manage Roofstock properties, ensure they meet your standards, and get to know the tenants.
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30-day money-back guarantee
If you are unhappy with your property purchase, the company could re-list it for free on the Roofstock Marketplace within 30 days of your purchase if you qualify. Once the property is sold, you will get a refund on your original purchase price, even if the property has been sold for less. If the property does not sell in six months, the company will buy it back and refund the money once the sale closes. All eligible properties carry the guarantee badge on the Marketplace listing, which does not include the VIP program, portfolio, multi-family, short-term rental properties, and Select. However, you can only make one guarantee claim in 6 months.
Roofstock One
Roofstock One is more like a managed real estate portfolio and is only available to accredited investors. It has a minimum investment requirement of $5,000. Through Roofstock One, you buy Tracking and Common Stock shares, valued at 1/10th of the property's equity, and you have the freedom to find Roofstock properties that fit your goals. The investment will require five years, and you must provide evidence of your home.
1031 Exchange
Investors keen on building a portfolio on the online marketplace can make 1031 exchanges. This way, you can avoid capital gain tax and upscale your portfolio.
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Vacancy protection
The biggest concern in rental properties is vacancy, and Roofstock aims to eliminate them. You can receive up to 75% of the predetermined market rent for six months or until the date your lease has been signed in case of the purchase of an eligible single-family property. To be eligible for vacancy protection, you should work with a Roofstock-approved property manager. The property should be vacant or subject to the written owner lease agreement of one month or less at closing time. This feature is unavailable for portfolios, short-term rental properties, duplexes, VIP programs, and multiplexes.
Self-directed IRA
You can easily integrate your investment properties into a self-directed retirement account (IRA). It will allow you to defer taxes on the rental properties since it becomes a part of the retirement savings.
Roofstock offers
If you do not want a property, you can sell it by listing it on the marketplace. Alternatively, you can request a quick cash offer from the Roofstock Offers program. There will be a 3% commission for selling on the platform or a 3% service fee for the Roofstock Offers program.
Lennar marketplace
Lennar is a U.S. homebuilder, and Roofstock has partnered with the company to offer investment opportunities with new properties built by Lennar. You can choose to keep the property or rent it. Lennar has homes available in multiple cities, and it offers multiple warranties.
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Who should use Roofstock
Investors looking for low transaction fees
Roofstock is an ideal platform for investors who do not want to pay the high transaction fees applicable when investing in single-family rental homes. It also offers vetted properties, so you know what you are getting. It is also suitable for accredited investors exploring the real estate market.
Who shouldn't use Roofstock
Investors with low cash flow
There is no need to be an industry expert to know about the ownership that comes with the down payment. It is not for you if you cannot make a high down payment, which can be as high as 20% to 30% of the purchase price. It is only accessible to those who have saved a specific amount. But you can still track the properties you are interested in.
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Pros and cons
Pros
- There are no sign-up fees when you join Roofstock.
- Roofstock has a thorough vetting process that ensures only quality properties on the platform.
- Great way to generate passive income in the form of monthly rent.
- Roofstock also offers property management services, making it easier for you to be a landlord without taking all the responsibilities that come with it.
- Low transaction fees for buyers and sellers
Cons
- Roofstock will require you to make a large down payment, which is at least 20% of the property's listing price.
- Real estate investment is illiquid, and you must hold it for at least a few years.
- Roofstock does not have a mobile app yet.
- Roofstock One is only available for accredited investors.
Roofstock vs. competitors
Crowdfunding Platform | Open to Non-Accredited Investors | Investment Minimum | Management Fees |
Roofstock | Yes | $0 | 0.5% of the contract price or $500, whichever is higher |
Fundrise | Yes | $10 | 1% |
RealtyMogul | Yes | $5,000 | 1%-1.25% |
Yield Street | Yes | $10,000 | Between 1% and 4% |
Fundrise
Fundrise is a great choice if you do not have a lot of capital to invest in. It also offers an opportunity to invest in real estate investment trusts (REITs) and has several plans for you to choose from based on your investment capacity. Fundrise has the lowest management fees for all the platforms listed here.
RealtyMogul
RealtyMogul is a good alternative to Roofstock and is ideal for short-term investors. It has a minimum investment requirement of $5,000, which is still lower than the 20% down payment requirement of Roofstock. The platform also offers REITs.
Yield Street
When it comes to investment minimum, YieldStreet has a minimum investment requirement of $10,000 and high management fees. To justify the fees, it offers a wider asset class, including Real Estate, Marine, Art, Legal, Commercial, Aviation, and Consumer.
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Is Roofstock safe?
All investments carry risk, including real estate, but Roofstock does offer a few safety nets like a 30-day money-back guarantee and vacancy protection.
What is the minimum investment on Rootstock?
Roofstock does not have a minimum investment. The seller will decide the listing price, and you will work with a lender to secure financing if you do not want to pay cash for the purchase. It is up to the lender to determine how much you should invest, but you must make at least a 20% down payment.
Is Roofstock only open for accredited investors?
Accredited and nonaccredited investors can use Roofstock to invest. It is not a requirement to be an accredited investor to buy or sell properties on Roofstock, but if you want to use the services of Rootstock One, you need to be an accredited investor and start with a minimum amount of $5,000.
The bottom line
Real estate investors looking to limit their transaction fees should consider the Roofstock marketplace. It uses the latest technology, AI, and analytics to simplify the buying process. You can easily find quality properties to invest in. It is a well-designed platform with an attractive fee structure and unique vacancy protection services that ensure consistent rental income.
However, it is not a platform for everyone, and you must do your due diligence before you proceed with the purchase. It has a high down payment requirement, so it might not be suitable for you if you do not have a steady cash flow.
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Writer
Vandita Jadeja is a financial writer and editorial assistant at Joywallet. She loves to read and write about money and brings 7 years of experience from the financial industry. She loves coffee, mountains and sunsets.
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