In the past, investing in real estate has been relegated to the very rich or the very determined. Of course, REITs have been around for ages, but these titles lean towards opacity. Innovation in financial services has democratized access to a multitude of non-traditional asset classes and real estate has become one of the best performing sectors of Fintech when it comes to real estate markets. Roof is one of those investment markets which targets single-family homes as rental properties, providing small investors with the ability to invest and manage homes on one platform.
Roofstock caters to both individual investors and institutional funds to “value, buy and own residential investment property” from anywhere in the world. Since Roofstock began operations in 2015, the investment market has exceeded $ 3 billion in transactions. Buyers and sellers can 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, depending on the amount. higher.
A key aspect of the real estate market is the fact that investors do not have to manage the property – this can be outsourced to a professional management company – approved by Roofstock. Property managers typically charge a monthly fee of between 6-10% of the gross rent received. As a landlord you still have responsibilities, but a property manager streamlines the process considerably.
Earlier this year, Gary Beasley, CEO and Co-Founder of Roofstock, commented on the impact of the COVID-19 health crisis indicating that it has encouraged people to do more and more digital transactions, and as the second and third quarters of 2020 saw down, in the fourth quarter the market came back with a vengeance, with Roofstock “experiencing unprecedented levels of demand on our platform”. Last month Beasley Recount CNBC that about 20-21% of homes bought today are by investors – most small investors. Beasley said the return is around 5% with the total return including appreciation being quite good. He also said that the housing market has very good supply and demand characteristics because supply is limited.
Last week, Crowdfund Insider connected with Beasley for an update on Roofstock and his expectations for the coming year.
Single-family homes outside of urban markets have exploded during COVID. How did this affect Roofstock’s performance?
Gary Beasley: Demand for single-family rentals has increased, reaching all-time highs in 2021, and Roofstock has grown rapidly along with this momentum. We recently passed the $ 3 billion GMV (gross value of merchandise transaction volume) and the pace is picking up this year. In the first half of 2021, we achieved over $ 1 billion in GMVs, almost ten times more than in the first half of 2020.
Individual investors love Roofstock because we are modernizing the real estate industry, making it easier than investing in single family rentals online all over the United States.
Are there specific markets / regions where you see more interest / activity? States like Florida / Texas etc. are they increasing their investments?
Gary Beasley: We have certainly seen a growing interest in secondary and tertiary markets which offer lower cost housing from investors and tenants. As our platform removes geographic barriers to investment by allowing investors to buy homes across the country digitally, COVID has effectively removed geographic barriers to living given the ability of people to work from home. .
Dozens of people have left urban centers for cheaper and often less taxed markets like Florida, Texas, Georgia and Arizona, which has created very strong rental demand as well as interest from locals. investors and owners of SFR. This demand has dramatically increased house prices and rents, as demand consistently exceeds supply. For example, in the metropolitan area of Augusta, Georgia, median home prices have jumped 79% since 2019. In the Atlanta area, median home prices have increased 51% in the past two years. .
What kinds of returns are investors experiencing? What is the range of total return on an annual basis? Default rate?
Gary Beasley: Rental housing returns have historically been similar to those generated by the stock market with much less volatility and almost no correlation to stocks. I like to describe SFR yields as an inflation-linked bond with an action kicker. Rents can be adjusted each year to account for inflation, and investors get a financial boost in the form of home price appreciation.
Unleveraged returns in our market today, also known in the real estate industry as cap rates, vary by market and region, but are generally in the 5-6% range. , and the total returns, which include appreciation, are in the mid-teens at over 20% over the past few years, given the steep appreciation in home prices we’ve seen.
Default rates have been surprisingly low throughout COVID as people have focused on a safe place to live and government stimulus measures have helped provide substantial cash flow to residents. This strong performance partly explains the increased interest in SFR as an asset class, as the sector outperformed almost every other type of asset throughout COVID.
What is the split between individual investors and institutional money? And what type of institutions participate in your platform?
Gary Beasley: We provide retail investors and institutions with a digital solution for buying, selling and owning rental single family homes. Our retail marketplace is largely made up of individuals buying or selling SFRs, while our portfolio marketplace is aimed at large institutional investors who wish to purchase sets of several hundred homes or more. Our retail investors include first-time home buyers buying their first investment home from seasoned individuals who own dozens of properties.
On the institutional side, we work with all the largest SFR REITs and private funds, which collectively hold around 2% of the SFR market (which means 98% remains owned by mom and pop). We offer a full range of services to support institutions that may be newer in this market, including acquisition, transaction management, property management, portfolio management and divestiture.
How do your portfolio offers work?
Gary Beasley: We have built a digital platform to analyze and market large portfolios of SFR for institutional investors. When an institution wants to sell 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 auction portal so that they can be confidentially and securely evaluated and compared by sellers.
What about property management as a service. Who do you partner with to provide this service? Are the rates competitive?
Gary Beasley: At Roofstock, we offer homeowners the choice and access to the property manager that best meets their needs. We connect our users with trusted PMs who are vetted and monitored for ongoing performance so owners can have peace of mind and know 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 the best property management company Street houses to provide institutional quality property management and reporting to large investors.
Will you ever offer short-term management as a service?
Gary Beasley: We’re definitely intrigued by recent investor interest in Short Term Rentals (STRs), which many commonly refer to as Airbnb type rentals.
COVID has been a tremendous catalyst for STRs, as well as SFRs, as people sought to escape their homes to live, work, or attend school safely from another location. We are always listening to our customers, and there are many people who want to see DOS listed in our market that they could buy as investments, but they could also use when not leased. This is something that we are currently studying and which could in the future be an interesting additional channel to offer to our customers.
What is 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 this mission and we are growing rapidly, as evidenced by our transaction volume exceeding $ 3 billion just a few years after our launch.
We will continue to develop and expand our offerings to support real estate investors, large and small, throughout the investment lifecycle – from buying properties to optimizing performance during the ownership period through. on their sale.
In addition to continuing to develop our existing business lines, expect us to selectively pursue strategic acquisitions that can add capacity and attract strong talent to the organization. Our first was Streetlane Homes, which gave us institutional property management capabilities. Our second was Stessa, which is the premier asset management software for SFR owners.
We will also continue to explore new geographies, for now in the United States, but ultimately we believe our model can be disruptive in many places around the world.
We are always listening to our customers and try to offer new products and services that meet their needs. To this end, after a successful beta, we are relaunching Roof rack one which allows investors to efficiently buy rental units rather than having to buy the whole house. We believe we have cracked the code on how to do this and will announce program details later this year as we prepare for our launch. Stay tuned!