My Roofstock Investing Experience
I recently went through the full process of acquiring a property through Roofstock (www.roofstock.com). I haven't seen many reviews out there on them, so I wanted to provide one myself.
My deal fell through at the last minute (i.e. after getting PM, insurance, loan, and going through the appraisal and inspection contingencies), but I documented the whole process on my blog which can be found here: www.investwithross.com . The blog has the most recent posts listed first, so you'll need to sort through to the end if you want to read through the experience in chronological order.
A summary of my findings can be found below:
I would recommend Roofstock from a platform and customer service perspective, but it is very very hard to find deals that are worth pursuing. The deal I was engaged in was very good from a cash flow perspective ($400/month with 11-15% cash on cash return depending on what the final numbers would have been), however the seller terminated the contract after I offered the appraised value as a counter offer.
I have a detailed list of pros and cons in the latest post on the blog, but I'll list some of them here as well:
Pros
- Great customer service. Both Alexis, Jason, and Zach were very helpful, quick to respond, and generally nice to work with.
- They are in the Bay Area, which is also where I live/work
- The process was super easy. They took care of putting together all of the paperwork and keeping track of timelines specified in the PSA. They also scheduled both the inspection and appraisal.
- They provided recommendations for home insurance, bank loans, and property management. I used their recommended bank and one of their recommended PM companies, but got a better deal with home insurance through the loaning bank. They provided options but you are completely free to shop around and choose your own for any of those categories.
- The Roofstock marketplace is like any other online shopping, so it is easy to take a look at a lot of properties quickly.
Cons
- It's really hard to find any deals that are, in my opinion, worth buying. Most of the properties listed on their site are at or above market price and in areas where appreciation will be a very small factor. I've been looking at their site for months now, and only found maybe 2-3 (including the duplex I entered into contract) that would cash flow above 8-9%.
- There is that strange feeling of conflict of interest with Roofstock being the middle man between both the buyer and the seller. As I mentioned in the blog, there is no sign of this actually occurring, it is just not a typical setup.
- You never get any direct contact with the seller. I believe this would be a key advantage for me during the negotiation stage as well as just building a positive relationship with the seller to potentially avoid situations like I experienced where the seller went dark for days beyond the expected response date, denied the counter, and terminated the contract.
- Due diligence on the property is still difficult despite getting inspection reports and pictures. Their reports are fairly detailed but still leave you wanting a bit more, and generally with only a few days to respond after receiving the inspection, there is generally not much that can be done unless there was something super obvious in the report.
- This negative was specific to my deal, which was a bit tainted due to the final outcome. The seller failed to respond within one of the contract deadlines so we had to extend the timeline. Once the seller finally got back 12 days after my counter offer, he did not counter again and instead terminated the contract. It seemed to me like he may have not been a very motivated buyer. Since I had no contact information or way to get a hold of the seller, it was completely in the hands of Roofstock and I felt a bit helpless through that whole time period.
This was the projected financials on the property (with most numbers actual quotes or numbers from the bank).
Thank you for posting your experience. This is very helpful to anyone considering purchasing through Roofstock.
I've been running numbers on their site for a couple of weeks, and nothing has "felt right" to pull the trigger. So many unknown factors and their neighborhood ratings seem highly debatable. Why wouldn't they just use the A-D system like everyone else? I had also read before that most of the homes are significantly overpriced which could derail the deal on appraisal, so it's disappointing that your deal is another confirmation of that and that the seller was not interested in negotiating.
Yeah, most of the deals are not great, but mine would have been outstanding. Looking back I probably should have listed a higher counter offer because the numbers would have made sense still and I was planning on holding the property indefinitely. Just need to be very picky with their deals. I’ll probably use them again, though, if I find a good property.
Great post about your experience with Roofstock!
Somewhere in your blog posts you mentioned that you were aware that the market value of the property was a lot less (you said 10k+) than the list price of 120k. So why did you offer to buy it for 115k then?
Additionally, I had a look at your numbers (the screenshot of your spreadsheet), you didn't calculate any budget for capital expenditures for once you own the property. Wouldn't that likely lower your monthly cashflow?
But yeah, overall a great way to learn. At least now you know how the whole process of buying a property looks like and that closing costs are a lot more than what Roofstock assumes in their pro forma calculation. A lot more than 1.5% of the purchase price, at least for sub 200k properties.
Leo Kotschenreuther I had the capital expenses shown as the R&M cost (repair and maintenance). I estimated those to be 2% of the purchase price annually.
And Leo Kotschenreuther in regard to the purchase price, wanted to see what price we would end up at...if I were to do it again I would have countered higher than the appraisal or just not bid on it at all in the first place.
I believe things happen for a reason and this could be a good thing later down the road
Originally posted by @Ross Yeager:Leo Kotschenreuther I had the capital expenses shown as the R&M cost (repair and maintenance). I estimated those to be 2% of the purchase price annually.
150$ a month for both repairs and CapEx could be a little low but I can only speak from half a year of experience.
Fair! What are your monthly costs on your Texas property minus the large expenses that are outside of the ordinary?
@Ross Yeager My experience so far was that the large expenses happen more often than you think they will do. I had two issues come up that were not mentioned in the inspection report. So far it seems like I spent about 100$ on average per month for smaller repairs and maintenance. Only setting aside 50$ a month for bigger items seems quite small.
My property is currently vacant and will get some more things fixed and fresh paint as well. I haven't seen any bills for that yet but I'm sure it will cost a bit of money as well.
The point is, things break quicker than you expect, the property is vacant every so often and needs fresh paint, and you quickly spend a lot more than what you expected to spend.
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I am going to reply to your post from the other side of the table as a seller as I have sold properties on Roofstock and have many on the site today .
One I love what they have done I have been to their Oakland headquarters and met with top management .. and Jason is a great guy to work with.
AS for dealing direct with sellers this is not common in any real estate transaction when you have brokers involved .. And as a seller one of the great things about roofstock is we don't have to deal with all the tire kickers out there..
Roofstock earns their fee by managing you the buyer.. Most sellers are like me professional in the industry or semi professional.. so its just black and white its a deal or no deal..
I think what happens is that people may confuse this site with a site like Auction . com were you bid in auction style for the homes..
I am constantly getting offers at 10 to 30% or more less than ask.. I don't even counter those.. those of us with ready to go turn key properties that cash flow 5 to 8% don't need to take lower offers.. Just like any other turn key seller in the US the price is the price.. Other wise a buyer needs to jump on a plane and go search this all out for themselves and spend a lot of time on the ground work with a local agent and make your offers.. there is a fine balance here.
I closed a very nice property I had in INdy 2 weeks ago.. I had it on the site for 130k rehab was retail standards slab granite stainless appliances great area for appreciation in a HOT indy sub market.. I got offers on it to start at 80k..
I did lower to 125k but that was as low as I was going to go I could just list it on MLS and sell it for the same or more.
What these guys have built is very robust and a game changer as it relates to 3rd party turn key marketing companies in the space if you have talked to any of those over the years most are represented on BP.
the value of roofstock is they are more cost effective than most 3rd party west coast based marketers and they handle the buyer.. most marketers just hand the seller a lead.. and that can be a HUGE time suck.
So that's my thought from the other side from the sellers perspective.. but I Love what they have done and hope they really make it big..
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PS 10% COC in todays world is generally on low value assets so one has to be cognizant of the special challenges in those.
@Jay Hinrichs I came away with a positive experience with Roofstock as I stated. My biggest negative was just in general a lack of convincing deals, which as you point out is gonna be tough to find without diving in and looking around yourself. Also, wasn't as disappointed on the lack of a counter offer rather than the radio silence past the contract deadline. That has nothing to do with Roofstock of course but specific to my seller.
@Leo Kotschenreuther for big ticket items, I was taking those in account based on items projected from the inspection, which was about 7.5k over the next 2 years. So that 7.5k in combination with the $150/month was my expense calculation for the next 2 years... It is probably still an underestimate, but I feel like it is at least ballpark.
Thanks for sharing your experience, Ross. Did you consider Home Union? My husband and I are currently debating Roofstock vs. Home Union, and can't decide one over the other. Any opinions/insight would be greatly appreciated.
@Amanda Wallace, Home Union had higher priced homes with similar yields, which means their cash on cash is generally lower which is what I consider most important. I think of the two, I found more deals on Roofstock, but don't have a ton of info beyond that on Home Union. I liked Roofstock and their service is great if you can find a good deal.
Thanks, Ross. We'll definitely look more into Roofstock and chat with them as we compare properties on the two sites.
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Originally posted by @Ross Yeager:
@Amanda Wallace, Home Union had higher priced homes with similar yields, which means their cash on cash is generally lower which is what I consider most important. I think of the two, I found more deals on Roofstock, but don't have a ton of info beyond that on Home Union. I liked Roofstock and their service is great if you can find a good deal.
Home Union has higher fees associated with purchasing and managing the property and they aren't an exclusive market place. All those properties you see on their site, at least the last time I logged in, are all MLS. They negotiate on your behalf to purchase the property, just like a regular buyer's agent does. Personally I think it is more cost effective to just engage with a local investor friendly real estate agent and purchase a property rather than going through Home Union.
Great info for future considerations. Thanks for this.
Happy to add my experience with them:
I was looking to diversify geographically, and though maybe a small ($100K) property might be a good way to test drive Roofstock. (And apparently I also felt like being an idiot, and throwing some money away). As others have noted, you’re unlikely to find a screamingly great deal on Roofstock, but I found a property I felt might be decent in the Pittsburgh. And with Roofstock’s “rent guarantee” program (essentially Roofstock promises payment 90% of rent starting 30 days after close if PM company can’t place a tenant, as well as covering initial leasing fee.). That coverage swayed me, and made the offer and had it accepted.
Through the purchase process, have to say the Roofstock team was exceptional. The website is great, very easy to use; and the people I interacted with were very professional, quick communication, everything you’d want.
...and then it went off the rails.
After closing, it was a struggle to get communication. When I did get communication, it was like they were using the wrong boilerplate. I was assigned to a "Zack" who I will not be surprised if I one day learn is actually a bot. As you have to use one of their "approved" property management companies to get the "guaranteed rent" program, I wanted to get those introductions complete. Should be simple enough, right? Instead, the email dialogue went like this: Roofstock Zack "Roofstock will notify your property manager that your property has closed and transfer all documents such as tenant contact information, lease, ledger, and final HUD." Me: "can you connect me with a property management company" (property is actually vacant!). Roofstock Zack: "We are making sure your PM, Marketplace, will receive the security deposit, the tenant info so they can collect rent payments, and the keys if available". This went on for waaaaay too long. Took more effort than it should have to convince that the property is vacant and we needed to start marketing.
One side point here, Roofstock does have a 30 day satisfaction guarantee. Potentially this “slow rolling” during that 30 day period is designed to stall the amount of time you have to realize there are serious problems that need addressing?
When we finally got locked in with a property manager, some issues started to pop up. Apparently, some of the kitchen cabinets don’t have doors; the water heater was actually red-tagged (need proper venting) and the PM feels the steep driveway is a big deterrent. If I squint, in one of the photos in the home inspection report, just a corner of a cabinet without a door peeks out - but all the kitchen photos do not show this issue! The red-tagged water heater is not mentioned at all (I’m out $1500 to fix that one!).
90 days in, I’m still tenant-less and my efforts to collect on the “guaranteed rent” program are fruitless. Responses include “I appreciate you!” “My manager is out of town!” “These things are slow, we need a few more weeks to set it up!” In their marketing material, they refer to the “guaranteed rent” program as “Immediate cash flow”. I’m reminded of the line in A Princess Bride: “There is that word again...I do not think it means, what you think it means.” One of us, at least, doesn’t get the word “immediate”.
Have tried addressing these with RoofStock, but the response are usually dodges - when asking about how to get the guaranteed rent program going, I get responses like “what is your property manager doing to get a tenant in?” “We will reach out to your property management company to see what can be done about getting a tenant”. “My manager is out of town, but I’ll reach out”. As apparently only Zack-bot’s manager can resolve issues, I’ve asked for that person’s contact info...dead silence.
Frankly, as I am 90 days in with no progress on collecting on their “guaranteed rent” program, I had have to advise it appears to be a marketing scam they have no intention of following through on - as always, caveat emptor.
They’ve also shown no inclination to address the key issues (red-tagged water heater; missing kitchen cabinet doors) that were missed in the vetting and inspection process. if you’re making a remote investment, you are 100% reliant on the quality and integrity of the partners you’re choosing...again, caveat emptor.
If you’ve been doing this for any period of time at all, I’m sure you’d agree that any transaction can go sideways at any point. The key to getting through those moments is at least being able to pick up the phone, or sit down in person, and work out a fair deal. Perspective is everything, but I think my concerns are pretty reasonable and Roofstock should be working to set them right. Unfortunately, my experience with Roofstock is the opposite - a lot of dodging the questions, not willing to back up their marketing claims and transactions. They say you learn more about someone in stressful situation than in a successful situation - and I am learning a lot about how Roofstock handles disappointments. Can’t recommend them at this point.
Can also confirm Zach Evanish is a human being
Originally posted by @John Elliott:
Can also confirm Zach Evanish is a human being
"Clap clap" :)
@Tim Johnson As I noted in another thread, I’m sorry to hear about your experience as this is not typical for Roofstock buyers. It sounds like our head of customer success has reached out to you with a solution. We recognize there were some delays in response and have put in measures to prevent that in the future. We appreciate your feedback and hope we’ve resolved this to your satisfaction. I’m available any time if you want to discuss further.
@Ross Yeager Thanks for sharing a very balanced perspective on Roofstock.
