For our Fintech Spotlight segment this month, we are featuring our sponsor Roofstock. A company that makes investing in single-family rental properties radically simple.
I've invited the Director of Retail at Roofstock, Zach Evanish to tell us a little bit more about this online real estate marketplace and how it's helping new and seasoned investors build wealth. We're also going to discuss long-distance real estate investing and why it's not as scary as it sounds.
The interview below has been edited for easier reading.
Andy Hill: What makes single-family homes a good real estate investment?
Zach Evanish: Single-family homes are kind of the general entry point for a lot of real estate investors. The average sales price on Roofstock is about $120,000 so investors can put as little as 20% down and can get started with real estate investing. This means they get all the advantages of passive income and having a tenant pay your mortgage with as little as $25,000.
What are some of the conversations you're having with prospective customers?
My team and I are speaking with both first time and seasoned investors all day. The conversations I enjoy the most are with first-time investors. People who are thinking about diversification and starting to think about retirement planning, passive income, cash flow, things like that.
That's where really Roofstock can help in real estate, there's really nothing like it when it comes to the passive income and the cashflow aspect.
Related Post: Why I’m Buying My First Rental Property in Cash
Why are single-family homes better than multifamily rentals for first-time investors?
There's a big industry in real estate education. I think some of it is great, but some of it seems like it's set up to make real estate investing seem much harder than it is.
I think 20 or so years ago, I know my parents thought about real estate investing and didn't do it because they were concerned about tenants, toilets and trash. My Dad would say “How are we going to buy an investment property?”
To now today where companies like Roofstock and more sophisticated property managers and really solid general contractors who will handle all that for you. It allows people to get all the benefits of real estate investing but do it while they have a full-time job.
Test the Waters
I think single-family is a way to get started with real estate investing to see if it is something that you like. A lot of people will start with single-family and then get into small multifamily.
Multiple Exit Strategies
You can own a rental property for say 10 or 20 years and then when you want to sell it, you can maybe sell it to another investor. Or you could sell it to someone who wants to buy that property as an owner-occupied residence. Those multiple exit strategies are one of the advantages of single-family over multifamily.
Do you own rental real estate right now?
I do. My wife and I have 11 single-family rentals, a duplex and then we have some ownership stake in some multifamily.
We're in Atlanta, Georgia, coastal Florida and then Cleveland and Cincinnati.
We started with single-family rentals.
How do you manage your properties living across the country?
I've only seen two of them actually.
I leveraged third-party property managers to handle the day to day maintenance for me. They do take between 6-10% of the rent but I see that as kind of the cost of being a real estate investor and the value they add to me is way above that.
They allow me to do what I think I'm best at, which is finding other investment properties to purchase. Also, I have a full-time job and I just had my first child. She just turned 11 weeks last Saturday. So I'd way rather spend time with her than worrying about tenants and things like that.
How did you connect then with the property managers to help you manage all those properties?
I purchased all those properties through Roofstock.
When you purchase a property through our site, we provide three different property management options. We'll provide the current property manager and then two certified property managers.
We have a Director of Property Management and before we open a market, he'll go into that market and interview 10 or 20 property managers. He'll then talk to them about:
- How many homes they manage
- Look at their reviews
- How do they handle tenant calls and collections
- Provide two that we feel are really good options for investors
Most of our investors on average are buying properties between 800 to 900 miles away from their primary residence.
How are these properties ending up on the Roofstock platform?
The listings that would come onto our site come through a variety of sources.
We form relationships with big funds that own thousands of single-family homes. Maybe they're getting out of Jacksonville and putting their funds to Atlanta. Maybe they're selling homes.
Also we partner with a lot of mom and pop and individual sellers. Some accidental landlords, some real estate investors who have just bought homes and are now ready to sell.
If you have a property you're looking to sell, you go on Roofstock, you submit that address. We will then run a valuation for you to give you an idea of the price of that property. If that looks in line, you'll sign a listing agreement with Roofstock. We only charge 2.5% compared to the general 5 or 6% people generally pay in the open market.
We ask sellers to price their homes a little more aggressively and pass that savings on to the end buyer.
Once that property is listed with Roofstock, that's where the certification process comes. Roofstock is really a curated marketplace, so we will have the home inspected, making sure there's no major foundation issues, termites, nothing that would make the property uninhabitable or major issues.
Then we put the inspection report on the site for investors to review. We review the tenant payment history to make sure that tenant is current on their rent. We run a title report to make sure there's no major encumbrances or liens on title and then we provide a certified property manager. Generally right now about 30% of the properties that are submitted to our site actually make it onto our platform.
People are buying properties thousands of miles away and these aren't all professional real estate investors, so we want to do a lot of that diligence upfront. Obviously you still need to review all that yourself, but we want to kind of reduce the size of the ocean so you can go on our site and say, “Okay, these are vetted investment properties” and invest with confidence through our site.
Is there anybody that maybe this wouldn't fit for?
People need to make sure that they do have the amount of funds saved up. Not only for that initial down payment but also have reserves for repair and maintenance, capital expenses, things like that.
If you have $20,000 saved up, we don't want you to spend that $20,000 on your down payment because that's the time where a roof will cave in or something will happen and then you're going to credit cards and things like that. We want to help people get closer to financial independence and not have to go into things like that for debt. We want to make sure you are really in a good financial position, have other kind of student debt and things like that paid off before you start investing in real estate.
Then I think one of the big leaps people are making is buying properties outside of their local market. We have a team of advisors that I manage. We're very transparent on our reviews and have investors speak with other people because we do understand that it's an expense to widget since you're doing it online. We want to make sure people really do their diligence.
What kind of expenses can people expect to be paying?
We've included all expenses in the underwriting. Accurate underwriting is one of the big pillars of Roofstock. One of our goals is so you can come on the site and see really accurate underwriting. Not kind of best picture rosey underwriting, we want to show you that if you own this property for 10 years you probably will have to replace a water heater, an air conditioner, roof and things like that over the history. We make sure to include that in the expenses.
Do you think it's worth it to have a real estate agent walk you through the process?
I think if someone maybe had a real estate agent they used before or would just like that second opinion, they can definitely use a real estate agent through our marketplace. We have a special section for real estate agents.
Most buyers are coming on without an agent and investing themselves because like you said, we've already done all that diligence and have a lot of transparency on all the information. We also offer a rent guarantee if the property is vacant or goes vacant during escrow. We also offer a 30-day money-back guarantee.
How much does Roofstock cost?
It's free to register on our site and it's transactional. If you buy a property on our site as a buyer, we charge 0.5%.
If you buy $120,000 home, we would charge 0.5% or a $600 fee that is placed on your credit card when the offer is accepted. If for some reason you didn't move forward with that property and exercised the contingency, those funds are obviously given back to you. Our goal isn't to collect marketplace fees, we want to help investors purchase properties.
We also have Roofstock Academy. For investors, this is a 6-month course and it's an education for investors. We had a lot of people who are really interested in real estate investing but came onto our site and saw things like cap rate and 1% rule and said, “You know, I want to dig in a little bit more here”.
We built an education program called Roofstock Academy. I think it's $1,500 right now, but that's actually credited back if you buy a property. Right around 30% of the graduates that make it through that program are buying a property.
What's been the trajectory of the company since you joined in?
I joined as the third employee. I used to work with our CEO at a previous company, a real estate investment fund. We don't share our numbers in terms of growth as a private company, but I can tell you we are almost at $2 billion in transactions through our marketplace.