Investing in rental properties is a popular stock market alternative. Finding the perfect rental property is time-consuming and challenging if you’re an inexperienced landlord. Roofstock seeks to simplify the buying process for single-family homes that can earn instant income.
It’s possible to invest in turnkey rental properties that are move-in ready and have a property manager. Roofstock also lets you buy self-managed properties if you wish.
This strategy can be a legit way to own real estate and earn passive income now, even if you live several states away. Let’s see if this is your best option for investing in single-family homes.
Review of Roofstock
So what makes Roofstock different than, say, crowdfunded real estate investing? Roofstock lets you invest in single-family rental properties. Both accredited and non-accredited investors can purchase an entire rental property.
Crowdfunding sites primarily invest in multi-family apartments and commercial real estate. However, a management company still owns crowdfunded properties.
You’re lending money to the management company. This means you can’t play an active role in the investment process. Although crowdfunding may be the only affordable way, you can get exposure to certain real estate asset classes.
Roofstock lets all investors hand-pick the properties they want to invest in. Real estate crowdfunding for non-accredited investors only lets you invest in real estate investment trusts (REITs). You can’t decide which properties these REITs invest in.
You can’t decide which properties these REITs invest in.
This Roofstock review shows how investing in real estate rentals can be easier than you think.
What is Roofstock?
The conventional way to buy rental property is by using a real estate agent in your local market. Finding quality properties within your budget is time-consuming. You may need to inspect each property.
For current rental properties, you may need to manually request to see the current lease to see if the potential income is worth the investment.
Aspiring landlords might also avoid local properties for these reasons:
- Properties are too expensive
- Few high-quality properties
- Most properties need extensive repairs
- Bad neighborhoods
- Weak job market
These frustrations make it easy to feel that your only feasible passive income strategy is investing in stocks. However, you only own paper assets and risk market volatility.
Roofstock only offers turnkey rental properties. Still, self-managing is allowed. Most homes already have tenants or are move-in ready.
You won’t need to spend much time or money renovating the property before you can earn rental income.
How Does Roofstock Work?
Searching for rental properties on Roofstock is similar to browsing your local realtor’s website or Zillow. The main difference is that Roofstock only displays turnkey rental properties.
Many are single-family homes, but you may occasionally find a duplex.
It’s free to join Roofstock and comb through their inventory of best real estate investments. When ready to buy a property, you can work with a local Roofstock-affiliated agent. You may pay with cash or get a mortgage if the seller accepts your offer.
As soon as you close on the property, you can begin earning rental income. You will also enjoy any tax benefits and potential property appreciation from day one.
After the property closes, you own the property and are responsible for the day-to-day responsibilities.
Properties may require some upfront repairs, yet they can earn rental income right away. You may decide to hire a local property manager, and Roofstock lets you self-manage.
You can filter property listings as follows:
- Potential rate of return (i.e., cap rate, gross yield, etc.)
- House size
- Number of bedrooms and bathrooms
- Construction date
- Minimal immediate repairs
- Neighborhood score
- School ratings
See if the house is vacant or currently occupied. If there are tenants, view the lease end date and tenant payment history.
Roofstock currently sells properties in 25 U.S. states. Most listings are exclusive to Roofstock. Others are on the public market.
These exclusive listings enable Roofstock to charge below-average closing fees.
Although the inventory constantly changes, large cities with several available rentals include:
- Akron, OH
- Columbia, SC
- Memphis, TN
- Kansas City, MO
- St. Louis, MO
- San Antonio, TX
Roofstock offers multi-property portfolios for a particular city, but you may need at least $1 million to invest. Another option only for accredited investors is owning fractional shares of single properties.
Roofstock’s newest portfolio option is Roofstock One. Accredited investors can buy fractional shares in individual properties with a $5,000 minimum investment.
This can be your best option if you want to invest in multiple properties without being the sole owner.
Roofstock One properties can qualify for a 1031 Exchange to reduce your taxes.
You earn net rental income, tax benefits, and property appreciation in proportion to your ownership stake. For instance, if you own 30 percent of the property, you collect 30 percent of the net rental income.
This portfolio can be an effortless alternative to a real estate investing club.
To help prove that Roofstock is legit, they keep a ten percent stake in each Roofstock One property for the first year. This lends confidence that it’s legit.
Roofstock doesn’t offer fractional investing to non-accredited investors. You can only buy entire homes on Roofstock when your liquid net worth is below $1 million or an annual income less than $200,000.
Most listings are exclusive to Roofstock. So, they won’t appear on the Multiple Listing Service (MLS) database realtors use. Roofstock fees are typically lower than using a realtor.
The search process is also easier as MLS listings tend to focus on primary residences and not rental properties.
It’s free to browse Roofstock properties, glance at the inspection reports, and make offers. If you buy a Roofstock listing, you will pay a marketplace fee.
This fee is either 0.5 percent of the contract price or $500, whichever is higher.
The 0.5 percent marketplace fee is notably lower than the three percent commission most realtors collect from the buyer. Lower fees make it easy to invest in real estate with an average income.
If you decide to sell on Roofstock, you will pay 2.5 percent in fees versus 3 percent for a local agent.
You may also pay fees related to your mortgage, taxes, repairs, and hiring a property manager. Roofstock doesn’t collect these third-party fees.
Is Roofstock Legit?
Roofstock is an authentic option for investing in rental properties. Buying long-distance properties can feel intimidating.
Most landlords only buy local properties, even if other real estate markets have better offerings.
Each Roofstock listing has plenty of pictures, inspection reports, and income estimates. This helps you decide if a listing has investment potential.
Instead of relying on a local real estate agent, Roofstock strives to perform the initial due diligence for you. You should still conduct thorough research to avoid lousy properties.
Listings undergo a home inspection and a property valuation from local Roofstock partners. You can view the electronic documents and speak with a live agent to answer your questions.
A Roofstock agent can also recommend potential properties that fit your investment goals.
Use a local real estate agent if you want a second opinion. This flexibility also adds credibility to Roofstock.
The average closing process takes 14 days for all-cash purchases and 30 days when you have a mortgage.
Other ways Roofstock adds a layer of authenticity include:
- Free to join
- Can tour properties (with seller’s permission)
- Guaranteed rent within 45 days
- 30-day money-back guarantee
- Can pay with cash or choose your mortgage lender
- Not required to use a Roofstock-preferred property manager
The Roofstock purchase guarantees are an interesting concept and can bring peace of mind.
It’s possible to request a refund (minus closing fees) when you’re not happy with the buying process. You must request a refund in the first 30 days.
Roofstock will buy back your property if it doesn’t sell within 90 days. The property must still pass the certification process to qualify for a refund.
If your vacant rental home doesn’t get a qualified tenant in the first 45 days, Roofstock can compensate for lost rent. Terms and conditions do apply.
Two conditions include using a preferred property manager and performing any repairs promptly.
Is Roofstock a Good Investment?
Like being an Airbnb host, investing in single-family homes is an excellent way to earn investment income. One caveat is that you must perform your due diligence to find the best investments.
If you’re new to real estate investing, you may feel more confident buying a local property to gain experience. You can then use your landlord knowledge to screen Roofstock listings.
These soft skills increase the likelihood of successfully using Roofstock to diversify your portfolio. You may not be able to physically inspect the property, neighborhood, or screen tenants.
Buying a property on Roofstock doesn’t guarantee you will earn a profit. For instance, you will need to compare the potential rental income to your projected expenses.
If you find a suitable investment, Roofstock will help you during the closing process.
Because you’re buying an actual house, all Roofstock properties are highly illiquid. If you decide to sell, it may take several months to find a buyer.
Accredited investors have the advantage of buying fractional shares with Roofstock One. The smaller investment minimums make it easier to diversify.
It can also be easier to sell your shares to another investor.
Who Should Invest in Turnkey Rental Properties?
Turnkey properties are an excellent option for investors without the time, skills, or desire to self-manage a rental property. Your property manager can collect rent, screen new tenants, and coordinate maintenance.
For some people, turnkey properties are the only time-effective way to own rental property.
Turnkey properties are not the best option if you want a low-effort investment like index funds. You will still need to play an active role as a landlord, even if someone else unclogs a toilet at 3 a.m. or mows the lawn.
Also, you still need thousands of dollars to make the minimum down payment and qualify for a mortgage. If your investment portfolio is small, a rental property may mean your portfolio is no longer diversified.
Pros and Cons to Roofstock
- Low buyer fees. Roofstock is free to join. Your buyer fees are either $500 or 0.5 percent of the contract price, which is less than most realtor commissions.
- Invest in turnkey rental properties. Many real estate investing platforms focus on multi-family and commercial properties. Roofstock offers single-family homes across the United States. You can self-manage or hire a property manager.
- Open to non-accredited investors. Both accredited and non-accredited investors can buy properties on Roofstock.
- Tax-advantaged rental properties. It’s possible to buy properties with a self-directed IRA or 1031 Exchange. Either option can reduce your rental property taxes.
- Fractional investing is only for accredited investors. Only accredited investors can participate in the Roofstock One fractional investing program.
- Illiquid investments. Physical real estate is naturally illiquid and can require a multi-year investment commitment to earn a profit. Your upfront investment costs can also be higher than crowdfunded real estate or investing in stocks.
- May need to invest out-of-state. Roofstock doesn’t sell properties in every state. Your nearest investment properties may be hundreds of miles away, depending on where you live.
Roofstock Review: Bottom Line
New and experienced real estate investors can find quality single-family rental properties with Roofstock. This strategy is a legit way to invest in turnkey properties outside of your local market.
If you want to diversify your investments, Roofstock can save you time and money.
Join Roofstock for free and start looking for properties that match your investment strategy.
Do you invest in single-family rental properties? What interests you most about Roofstock? What other stock market alternatives do you use to build wealth?
The post Roofstock Review: Invest in Single-Family Rental Properties appeared first on Frugal Rules.
Source: Frugal Rules