In the past, investing in real estate has been relegated to the very wealthy or very determined. Sure, there have been REITs for ages, but these securities lean towards the opaque. Innovation in financial services has democratized access to a host of non-traditional asset classes and real estate has emerged as one of the most successful sectors of Fintech when it comes to property marketplaces. Roofstock is one of these investment marketplaces that targets single-family homes as rental properties enabling smaller investors the option to invest and manage homes on a single platform.
Roofstock caters to both individual investors as well as institutional money to “evaluate, purchase and own residential investment properties” from anywhere in the world. Since Roofstock commenced operations in 2015, the investment marketplace has surpassed $3 billion in transactions. Both buyers and sellers may participate and listing a property on Roofstock is free but when the property is sold you pay a fee of 3.0% of the sale price or $2,500, whichever is greater.
A key aspect of the property marketplace is the fact that investors do not have to manage the property – this can be outsourced to a professional management firm – vetted by Roofstock. Property managers typically charge a monthly fee of between 6-10 percent of gross collected rent. As an owner, you still have responsibilities but a property manager dramatically streamlines the process.
Earlier this year, Gary Beasley, CEO and co-founder of Roofstock, commented on the impact of the COVID-19 health crisis reporting that it has encouraged people to increasingly transact digitally, and while Q2 and Q3 of 2020 experienced a decline, in Q4 the market came roaring back, with Roofstock “experiencing unprecedented levels of demand across our platform.” Last month, Beasley told CNBC that about 20 to 21 percent of homes purchased today are by investors – mostly smaller investors. Beasley said that yield is about 5% with total return, including appreciation, being quite good. He also said that the housing market has some pretty good supply-demand characteristics as supply is limited.
This past week, Crowdfund Insider connected with Beasley for an update on Roofstock and his expectations for the coming year.
Single-family housing outside of urban markets has boomed during COVID. How has this impacted Roofstock’s performance?
Gary Beasley: The demand for single-family rentals has been on the rise, reaching unprecedented levels in 2021, and Roofstock has been growing rapidly along with that momentum. We recently surpassed $3 billion in GMV (Gross Merchandise Value of transaction volume) with the pace accelerating this year. In the first half of 2021, we achieved more than $1 billion of GMV, almost ten times more than the first half of 2020.
Individual investors love Roofstock because we modernize the real estate industry, making it easier than to invest in single-family rentals online anywhere in the U.S.
Are there specific markets/regions where you are seeing more interest/activity? Are states like Florida/Texas etc. increasing in investment?
Gary Beasley: We have definitely seen increasing interest in secondary and tertiary markets that offer lower-cost housing from both investors and tenants. While our platform breaks down the geographic barriers to investing by allowing investors to buy homes all over the country sight unseen in a digital manner, COVID has effectively broken down the geographic barriers for living given the ability of people to work from home.
Scores of people have moved from urban centers to lower-cost, often lower tax markets like Florida, Texas, Georgia, and Arizona which has created very strong rental demand as well as interest from SFR investors and homeowners alike. This demand has boosted home prices and rents considerably as demand consistently outstrips supply. For example, in the Augusta, GA metro area, median home prices have jumped 79% since 2019. In the Atlanta area, median home prices are up 51% over the last two years.
What kind of returns are investors experiencing? What is the range of total yield on an annual basis? Default rates?
Gary Beasley: Returns on rental homes have historically been similar to those generated by the stock market with much less volatility and almost no correlation to equities. I like to describe SFR returns as a bit like an inflation-indexed bond with an equity kicker. Rents can be adjusted annually to factor in inflation, and investors get an equity kicker in the form of home price appreciation.
Unleveraged yields on our marketplace today, also known in the real estate industry as cap rates, vary according to market and region, but generally are in the 5-6% range, and total returns, which include appreciation, have been running in the mid-teens to 20%+ range in recent years given the strong home price appreciation we have been experiencing.
Default rates have been surprisingly low throughout COVID, as people have focused on having a safe place to live and government stimulus has helped provide substantial liquidity to residents. This strong performance partially explains the intensified interest in SFR as an asset class as the sector has outperformed nearly every other asset type throughout COVID.
What is the split between individual investors and institutional money? And what type of institutions are participating on your platform?
Gary Beasley: We provide both individual investors and institutions with a digital solution for buying, selling, and owning single-family rental homes. Our retail marketplace is largely comprised of individuals buying or selling SFRs, while our portfolio marketplace caters to larger institutional investors who want to buy packages of several hundred homes or more. Our retail investors span first-time homebuyers purchasing their first investment home through seasoned individuals owning dozens of properties.
On the institutional side, we work with all of the largest SFR REITs and private funds, who collectively own about 2% of the SFR market (meaning 98% remains mom-and-pop owned). We offer a full suite of services to support institutions that may be newer to this market, including acquisition, transaction management, property management, portfolio management and disposition.
How do your portfolio offerings work?
Gary Beasley: We have built a digital platform to analyze and market large portfolios of SFRs for institutional investors. When an institution is interested in selling a portfolio of homes, our AI software analyzes the portfolio and recommends a marketing strategy, identifying the optimal way to price, bundle and market the homes. We then invite bidders to submit confidential bids through our bidding portal so they can be evaluated and compared confidentially and securely by the sellers.
What about property management as a service. Who do you partner with to offer this service? Are fees competitive?
Gary Beasley: At Roofstock, we offer property owners choice and access to the property manager that best meets their needs. We connect our users with trusted PMs that are vetted and monitored for ongoing performance so owners can have peace of mind that their rental properties are running smoothly without the owners needing to be on the ground. For our institutional investors, a few years ago we acquired top property management firm Streetlane Homes to provide institutional-grade property management and reporting for large investors.
Will you ever offer short-term management as a service?
Gary Beasley: We are definitely intrigued by the recent interest from investors in short-term rentals (STRs), which many commonly refer to as Airbnb-type rentals.
COVID has been a tremendous catalyst for STRs, as it has for SFRs, as people sought to escape their homes to safely live, work or attend school from another location. We are always listening to our customers, and have been hearing from lots of folks about wanting to see STRs listed on our marketplace that they could buy as investments, but also be able to use when they are not being rented out. This is something we are currently studying, and could in the future be an interesting additional channel for us to offer to customers.
What is on Roofstock’s roadmap for the future? Other markets? New verticals?
Gary Beasley: Our mission at Roofstock is to be the definitive digital platform for real estate investors. We are constantly innovating to achieve that mission and are growing quickly as we do so — as evidenced by our surpassing $3 billion in transaction volume within just a few short years of our launch.
We’ll continue to build and expand our offerings to support real estate investors large and small throughout the entire investment lifecycle – from buying properties, to optimizing performance during the ownership period to eventually selling them.
In addition to continuing to scale our existing business lines, look for us to selectively pursue strategic acquisitions that can add capabilities and bring strong talent into the organization. Our first was Streetlane Homes which gave us institutional property management capabilities. Our second was Stessa, which is the leading asset management software application for SFR owners.
We will continue to explore new geographies as well, for now around the US, but ultimately we believe our model can be disruptive in lots of places around the world.
We’re always listening to our customers and trying to offer new products and services that are responsive to their needs. Towards that end, after a successful beta, we’re in the process of re-launching Roofstock One which allows investors to efficiently buy shares of rental homes rather than having to buy the entire home. We think we’ve cracked the code on how to do this, and will be announcing the specifics of the program later this year as we prepare for our launch. Stay tuned!