Making an offer on Roofstock?

Question

Hi everyone, I'm new here, based in NYC and relocating to SF soon. I read "The Book on Rental Property Investing," created a property calculator in Google sheet, and am looking at different markets to invest in and running numbers on listings. I'm mostly looking at small multifamily turnkey properties around 200-500k, but haven't decided on the market, and thus, haven't talked to a real estate agent yet.

While running numbers, I encountered a property on Roofstock with a pretty high CoC return even when I included a hypothetical 12% property management fee in my calculation. I talked to a Roofstock rep who walked through the process, and she said most buyers don't have a real estate agent when they make an offer on Roofstock. I'm researching but also not familiar with the neighborhood, which looks class B or C and far from a major city -- it's a concern for me.

Where do I go from here on this property? Should I get a real estate agent in the area and discuss this? Should I talk to a property management company first? Anything else I should look into? I don't know if I feel sure enough to make an offer yet even though the book recommends to start making offers. I also plan to decide on a market and start talking to agents regardless -- any recommendation for the market is welcome too. Thank you in advance!

Drew Sygit · Answer

@Saaya Yasuda how's an agent really going to assist you?

Better to hire a PMC as their interests will be more aligned with yours, since they will have to deal with whatever you buy on a daily basis.

In our experience, the #1 mistake owners make when selecting a Property Management Company (PMC) is ASSUMING instead of CONFIRMING.

It's often a case of not doing enough research, as they don't know what they don't know!

Owners mistakenly ASSUME all PMCs offer the exact SAME SERVICES and PERFORM those services EXACTLY THE SAME WAY, so price is the only differentiator.

So, the first question they usually ask a PMC is about fees - instead of asking about services and HOW those services are executed.

EXAMPLE: PMC states they will handle tenant screening – what does that specifically mean? What documents do they require, what credit scores do they allow, how do they verify previous rental history, etc.? You’d be shocked by how little actual screening many PMC’s do!

This also leads owners to ASSUME simpler is better when it comes to management contracts.

The reality is the opposite - if it's not in writing then the PMC doesn't have to provide the service or can charge extra for it!

We have a 14-page management contract that we've added our real experiences to over the years, with the intent of protecting both us AND the landlord. Beyond the Monthly Management, Placement & Maintenance fees, all other fees in our contract are IF EVENT -> THEN fees.

We don’t know any PMCs to recommend in the area mentioned, but since selecting the wrong PMC is usually more harmful than selecting a bad tenant, you might want to read our series about “How to Screen a PMC Better than a Tenant”:

https://www.biggerpockets.com/member-blogs/3094/91877-how-to-screen-a-pmc-better-than-a-tenant-part-1-services-and-processes

We recommend you get management contracts from several PMCs and compare the services they cover and, more importantly, what they each DO NOT cover.

EDUCATE YOURSELF - yes, it will take time, but will lead to a selection that better meets your expectations & avoids potentially costly surprises!

P.S. If you just hire the cheapest or first PMC you speak with and it turns into a bad experience, please don’t assume ALL PMC’s are bad and start trashing PMC’s in general. Take ownership of your mistake and learn to do the proper due diligence recommended above😊

Patrick Drury · Answer

@Saaya YasudaIf you have a market in mind you should build your team first then look at moving on a deal. Find an agent in that market that can give you the lay of the land and specializes in working with investors and also invests themself in real estate. The agent should be able to provide you with some referrals for property management, lender, and contractors.

Ruchit Patel · Answer

Did you purchase it yet!?

If not, I can add some suggestions:

In general, you should do everything you said. Eventually, it's your money on the line and you need to have a good night's sleep. Roofstock has done a good job of putting all those high CoC properties to people, however, what they can't/don't do it to provide personal touch and education to beginner investors.

If you need cash flow to retire tomorrow, you would need to go with the C neighborhood but then you run into high probabilities of tenants going ghost or bad properties. If you can wait, why not go to A neighborhood where initial cash flow is less, but appreciation and peace of mind are more?

You can also have your own inspector go check out the house independently of Roofstock. Maybe you can choose an area where your friend or relative is living.

Or you can go with some other turnkey providers who are more transparent, educating, and trustworthy.