Roofstock Case Study

[Jason G.]

My girlfriend and I have been saving money for a down payment on our first rental property and had initially been looking at single family properties and multifamily properties in upstate New York. In May 2017 I came across Roofstock and that shifted our discussion to the idea of purchasing an out of state single family property. I haven't seen anyone write a really thorough review of their experience using Roofstock, so I decided to document the journey. I know a lot of people are scared to pull the trigger, especially when they really have no idea what to expect, and just hearing people casually say they either had a great experience or terrible experience really doesn't help much in giving others an understanding of what the experience will be like. I decided to organize the post in date order based upon steps we took and all the interactions we had with Roofstock and their partners that they connected us with, which include Tru Mortgage, Real Protect Insurance, Excalibur Homes, and Mortgage Connect. I found the entire process a good learning experience and I hope others find the same by reading through the post.

May 26, 2017 (Friday)

We applied for a mortgage through Tru Mortgage, a partner of Roofstock through their company in anticipation of purchasing a single family property at $150,000 or less in Atlanta Georgia. We chose the Atlanta area due to their low purchase costs.

June 8, 2017 (Thursday)

We were approved by Tru Mortgage and made an offer on a property in Lithonia, Georgia. The property is a 3 bedroom, 2.5 bath, 1,616 sq ft home built in 1975 on a 17,424 sq ft lot. Roofstock rates the neighborhood as a 3/5, the elementary school a 2/10, the middle school a 5/10, and the high school a 3/10. A tenant is already in the property leased through April 2019 and pays $893 a month. As part of the property inspection report the report indicated that the following capital expenditures would be required:

1. Scrape and paint wood siding - estimated cost $1,650 @ turn.

2. Repair driveway and walkway cracks - estimated cost $2,460 @ 1+ years.

3. Fill holes in yard to remove trip hazards - $90.00 @ turn.

Roofstock requires a credit card at this point and the seller has two days to accept, counter offer, or reject the offer or the offer will expire.

Property Photos

June 9, 2017 (Friday)

The seller submitted a counter offer and we then responded with a second offer which was accepted at $81,000.00 My credit card was then charged a "Marketplace Fee" of $405.00. The Marketplace Fee is .5% of the purchase price. I am also given access to a "Property Closing Timeline" feature on the site for the chosen property. There are twelve steps with an estimated closing date of July 18, 2017. These are the twelve steps:

01. Purchase and Sales Agreement

02. Earnest Money Deposit

03. Financing

04. Insurance

05. Documents and Financing

06. Appraisal Fee for Property

07. Final Insurance Quote and Terms

08. Loan Terms for Financing

09. Property Management

10. Property Management Agreement

11. Closing Documents

12. Final Disbursal of Funds

We were contacted by Marissa at Roofstock via e-mail and was told by Marissa that she would be our point of contact moving forward and requested that I call her to discuss certain details on the phone. I was told I would be sent a Purchase and Sale Agreement (PSA) that will need to be executed via Docusign and asked me who will be on the title, our mailing address, and information for our loan officer. She also stated she would be sending me a home insurance quote in the next few days and would like to know which property management company we would like to use. I told her we would like to go with Excalibur Homes, which was listed as an option on Roofstock. She said the PSA would be sent to us within twenty-four hours. I asked her if it would be sent on Monday since the next day was a Saturday and she said it would be sent on Saturday.

According to Roofstock, "A PSA will be delivered electronically promptly following payment of the Marketplace Fee and must be executed by Buyer within 24 hours of receipt."

June 12, 2017 (Monday)

I asked Marissa if everything was still on track because we had not received the PSA. She stated the seller signed it that morning and it would be sent over later in the day. We received the PSA and executed it through Docusign, but had a question related to part of the agreement which stated that we had an obligation under the DeKalb County Plumbing Ordinance. It stated that we "shall be obligated as a condition of applying for water service from DeKalb County to attach to the application a certificate of compliance signed by a home inspector, Department of Watershed Management inspector or licensed plumber certifying that all plumbing fixtures on the Property are water conserving plumbing fixtures." We wanted to know how we would go about having this completed.

June 13, 2017 (Tuesday)

We executed the Purchase and Sale Agreement. Roofstock verified that financing was selected through Tru Mortgage.

Marissa responded to my question about the plumbing ordinance telling me that as per the lease all utilities should be in the tenant's name and will be checking with the current property manager that it is in fact in the tenant's name and will continue to be in it when the property is sold. However, this did not answer my question because the ordinance appears clear that I need a certificate of compliance. I asked her if she knew if we still needed that certificate if this tenant leaves and is replaced by a new one. Marissa then contacted the DeKalb County Watershed Department who confirmed to her that nothing needed to change if the utilities were in the tenant's name, but that if the tenant left and a new tenant opened an account then the certificate of compliance would be required. They recommended that once I close on the property to have an account opened with the water/sewer service and keep it inactive. She also stated that she would be checking with their inspection company that conducted the inspection if they will be able to complete the certificate of compliance.

I received a separate e-mail from an Alexis at Roofstock who provided wiring instructions for the $1,500 Earnest Money Deposit. I then went to the bank and initiated the wire transfer, which cost $25.00 in addition to the $1,500 sent.

June 15, 2017 (Thursday)

Roofstock confirmed that the Earnest Money Deposit of $1,500.00 was wired to the Title Insurance Company.

Real Protect gave us a quote for insurance. What I found interesting was that in Roofstock's document/diligence vault they had a quote from a different carrier with a lower premium. Their application attached that we were required to fill out contained a lot of questions that are geared towards those with extensive real estate portfolios or who intend to flip houses. I was told that Marissa would be able to help us through those items of the application that we may not know the answers to regarding the actual property. I asked Marissa if we would be receiving quotes from any other insurance carriers and was told that we wouldn't, that this carrier was the only one and that it was a sister company to the one that provided the quote found in the document vault on their site. She also updated us that she was still waiting for a response from the inspection company on the certificate of compliance.

I filled out the application but we did not execute it. I asked Marissa to review and add in any property information we couldn't answer and asked her to send it back to me with any changes she made to it so we can then execute it and send it back to her.

Tru Mortgage sent instructions on completing the required documents to finalize the loan application which we filled out and sent back through their website.

June 16, 2017 (Friday)

We received a response from Tru Mortgage that they received the executed loan documents and that we will be receiving the instructions on how to pay the appraisal fee. Shortly thereafter we received those instructions and paid the fee of $695. We were told we would receive an update once the appraisal was scheduled.

Marissa e-mailed us a completed insurance application. We told her the Tru Mortgage documents were executed and the appraisal fee was paid and we would be sending her back the executed insurance application later in the day. We also asked for an update on the certificate of compliance for the water company. She told us that she followed up with the inspector and is waiting for a response. We sent her the completed insurance application and asked her what the next steps will be as we move towards closing.

An introduction e-mail was sent from Marissa to Excalibur Homes, the management company we chose to manage the property.

June 17, 2017 (Saturday)

Tru Mortgage informed us that our loan has been sent for processing.

June 19, 2017 (Monday)

Excalibur Homes followed up with us and we requested the management agreement for review. After reviewing the document and asking some questions about the fees we completed the agreement and e-mailed it back to them. The management fee is 6%.

Marissa informed us that the appraisal for the property has been scheduled for Thursday, June 22nd. She confirmed that she sent the completed insurance application to the insurance carrier and followed up again with the inspector for the certificate of compliance for the water company.

June 20, 2017 (Tuesday)

Marissa informed me that their inspector could not issue the certificate of compliance.

I was confused because one of Roofstock's guarantees is that they complete "[a] property inspection conducted by an experienced national inspection firm" and provide "[a]n estimate of the cost of major repairs." The entire point of the Roofstock certification process, as per Roofstock, states that "[t]he Roofstock Property Certification allows prospective buyers to see the diligence on each property from home, office or while on the road without the need to enter each home." This is especially important since as part of the buying process we waive the inspection contingency. According to Roofstock's site: "Waived Inspection Contingency: Since diligence information is provided prior to investment, there is no need for a traditional Inspection period or contingency. Investors should carefully review all of the materials in the Diligence Vault before investing." So the fact that the inspection company failed to either issue a certificate of compliance or indicate costs related to complying with the ordinance in order to obtain the certificate of compliance, puts into question, at least in my mind, the entire idea of relying on Roofstock's inspection process, to begin with.

I asked her to follow-up with the seller to see if they ever had one performed. She also explained that a company called Mortgage Connect will contact us to schedule a mobile notary to meet with us to sign the required closing documents once we get closer to the closing date.

Tru Mortgage sent us a Loan Estimate to sign, which we did.

June 21, 2017 (Wednesday)

The Roofstock website gave a notification that the insurance application was approved.

Marissa informed me that she contacted the seller to find out if they ever obtained a certificate of compliance.

I asked Excalibur if they received our completed management agreement and if they would be able to facilitate having such an inspection done to obtain the certificate of compliance. They responded that they can manage the property once we own it, but do not handle inspections prior. They provided a list of several inspectors we could use prior to closing.

June 22, 2017 (Thursday)

Marissa heard back from the seller who had not in the past obtained a certificate of compliance.

I asked Excalibur if they would be able to set up the inspection for the certificate of compliance after we close on the property.

June 23, 2017 (Friday)

I received appraisal report. The property is appraised at $88,000. Of note was that the report indicated that "[s]everal outlets are not properly secured to wall and some outlets do not function properly. Electrician is recommended to diagnose and repair. Estimated cost to cure $500." It also noted that "[d]riveway area by garage has severe cracking from nearby tree root system. Estimated cost to cure $500 (this price estimate does not include tree removal)." The issues with the electrical outlets were not reflected in the Roofstock inspection report.

I e-mailed Marissa with a copy of the report expressing my concerns as the electrical issues were not reflected in the inspection report and their inspector already won't issue a certificate of compliance for DeKalb Water even though they inspected the plumbing and fixtures and now we have an appraisal report that conflicts with the inspection report on the electrical review.

Roofstock gave a notification that the property was approved by the lender.

Marissa responded thanking me for sending her a copy of the appraisal report and said she would like to have the inspection company review the report as the electrical issues may have occurred after the inspection on November 23, 2016. She also reached out to the current property manager to see if they can shed some light on the matter.

I responded to her explaining that we are out of state investors who are relying on Roofstock to facilitate the purchase of this property. That the certificate of compliance issue is already frustrating enough because we have no way of handling it on our own and it is something that should be addressed prior to closing. That we haven't heard back from the management company if that is even something they can handle for us after closing. In addition, if the plumbing fixtures are not up to code then we are looking at potentially hundreds of dollars in extra costs that weren't revealed in Roofstock's diligence vault. Now with this electrical issue, there can be potentially very large costs if there are issues with wiring in the house. I explained that we already have a down payment ready to go on a second investment property and were planning on making offers on properties through Roofstock after we closed on this one, but that we were already stressed over the certificate of compliance issue and now we are getting a little freaked out with the possible electrical issues on top of the possible plumbing ones and I'm not sure how confident we can be in relying on Roofstock.

Moments after sending the above e-mail Marissa e-mailed the management company asking them to respond to my inquiry on whether they could handle the certificate of compliance.

Aside from one of our early contacts, all my communication with Marissa has been through e-mail. She responded to the above e-mail by calling. With respect to the certificate of compliance, she assured me that the management company would handle that. I explained that (1) This should have been something adequately documented in the Roofstock diligence vault prior to any offers being made, whether the faucets, shower heads, and toilets were up to code due to the local statutes requiring the certificate of compliance. (2) Irrespective of that not being done, I need to know if the management company will actually handle it for us after the fact because I still had not heard back from them. Her response was that as per the lease the tenant was responsible for utilities and that it would have been the tenant's responsibility to have a plumber inspect the property, remedy any deficiencies, and obtain the certificate of compliance. This definitely is not the case and she is mistaken about the tenant's responsibilities in this situation. I explained to her that one of the exemptions to the statute is if the property was purchased through foreclosure, which is what the seller did, a certificate of compliance was not needed. It is clear they purchased it on foreclosure, renovated the property, and then rented it and are now flipping it to yours truly. Moving on from that I explained that now we are dealing with this potential electrical issue and if there are wiring issues that mean opening up walls and it would cost a significant amount of money to remedy. She told me that she is (1) Waiting to hear back from their inspector to certify they inspected all the outlets and they were functioning as of the date of the inspection, (2) Waiting to hear back from the current property manager on whether or not the tenant made any complaints about electrical issues, and (3) Waiting to hear back from the current property manager on if the seller or tenant would be responsible for any electrical issues. She indicated from there she may need to get her Director involved in order to have the inspector sent back to inspect the electrical situation.

I received a response from Excalibur and was told the inspection could be completed for $250.00. I replied to confirm that they would set it up with the vendor and the tenant following closing and asked how I would pay for it; if I pay the vendor directly or the management company takes it out of a maintenance fund they will set up that is funded through collected rents.

June 24, 2017 (Saturday)

Excalibur confirmed they would be able to proceed once closing is completed with obtaining the certificate of compliance and explained we would send them the money and they would pay the vendor.

June 26, 2017 (Monday)

Marissa informed me that they will be scheduling a second inspection so the inspector can review the electrical issues indicated in the appraisal. The inspector will also inspect the plumbing to see if it conforms with the DeKalb water regulation and if so issue a certificate of compliance. I asked her if she heard back from the seller or current property manager as to whether they had any additional information regarding the electrical situation. She said she was still awaiting a response.

Tru Mortgage sent a status update informing me that my loan has been conditionally approved by underwriting.

June 29, 2017 (Thursday)

I asked Marissa if she had any updates. I also asked if there were any additional steps to finalize the insurance as the Roofstock website indicates the insurance has not yet been finalized. She told me that she has confirmed that we are all set with the insurance and that the only item outstanding prior to closing will be the inspection. She also confirmed with me that I will be using Excalibur for property management. She told me she will let me know tomorrow if she has the second inspection date, otherwise, another Roofstock employee would keep me updated next week since Marissa will be out of the office.

July 5, 2017 (Wednesday)

I asked Alexis, who Marissa indicated would keep us updated this week while she was out, if there were any status updates with respect to the scheduling of the inspection. She responded that they were currently working with the property manager and tenant for this inspection and will provide me with the scheduling information once available.

July 10, 2017 (Monday)

I asked Marissa if the second inspection had been scheduled and also if the closing will be pushed back since it is next week and the inspection hasn't been completed yet.

Tru Mortgage contacted me for some additional information relating to personal assets, employment verification, and a weird issue on my primary home's insurance which listed two mortgages when there really was only one.

July 11, 2017 (Tuesday)

Marissa responded that she reached out to her inspector facilitator for an update and will let me know as soon as she hears back.

I sent Tru Mortgage additional documentation they needed and a corrected insurance dec page.

July 12, 2017 (Wednesday)

Tru Mortgage confirmed receipt of the updated information I sent them.

July 13, 2017 (Thursday)

I asked Marissa if we would have to push back the losing since it is supposed to be on July 19th and the second inspection hasn't been completed yet. She said they are working with the inspector and hope to have it completed this week, they are just pending approval from the tenant. Roofstock is hoping to have the inspection completed this week with the report sent to me before having to send out an amendment to extend the closing.

I received a notification from Tru Mortgage that my loan had been fully approved by their underwriting department and was sent a final loan estimate to execute, which I did. I also asked Tru Mortgage some questions about planning for the future. I wanted to know if they offered only four mortgages to an individual or up to the ten limit and I also wanted to know if I took a HELOC out on my primary residence if I could use that to pay the down payments on future properties mortgaged through them. They told me that they go up to ten mortgages and could use the HELOC, but that they factor in the HELCO payments in my debt to income ratios to make sure I still qualify for a mortgage.

Mortgage Connect contacted us on my marital status for preparing the deed.

July 14, 2017 (Friday)

I asked Marissa for another update on the second inspection. I was told that Roofstock was still pending confirmation from the tenant and that they would be working to have it completed this weekend, or if not over the weekend, then on Monday.

I was sent a property management agreement from Excalibur Homes. This confused me because (1) we already sent them a signed agreement back on June 19th, and (2) the address on this agreement was incorrect. I was told his assistant sent it by mistake, but that they will follow-up next week since we are expected to close then.

July 17, 2017 (Monday)

The inspection was performed and the certificate of compliance was issued. A review of the electrical system revealed "1. The outlet behind the tv is not functioning properly. 2. The dining room outlet is not functioning properly. 3. The gfci outlet in kitchen is installed on an angle. It's hard to plug in appliances. 4. The living room outlet next to dining room is loose in the wall. 5. The living room outlet next to the foyer is loose. 6 Upstairs outlet by window is loose. 7. The Master outlet next to hall door isn't functioning properly. The Master outlet by the window isn't functioning properly. 8. After testing a representative number of outlets in each room it is recommended to have ALL outlets replaced. Most outlets are functioning properly but if you put any side pressure on the outlets they lose connection. This could be a possible fire hazard." I was told that with respect to closing Mortgage Connect and Tru Mortgage would be working together on the closing papers and I would be forwarded the documents to review along with wiring instructions for the down payment and closing costs and that Mortgage Connect would be contacting me to schedule the mobile notary for us to execute the closing papers.

We received a closing estimate from Tru Mortgage and executed it.

July 18, 2017 (Tuesday)

I e-mailed Mortgage Connect and asked them how the closing will be scheduled. According to the PSA it should be occurring tomorrow. They said it would be going forward tomorrow as scheduled and wanted to know the location where we wanted the mobile notary to meet us and at what time. We gave them our home address and asked to do it at 5:30 p.m. The time was confirmed and then a short time later we were informed that the lender was not prepared to proceed tomorrow, but would be ready for the day after, July 20th and asked if we can do the same location and time. We agreed. We were told we would need to make copies of two forms of identification and that they would bring all the closing documents.

July 19, 2017 (Wednesday)

Marissa sent me a pre-closing check-in e-mail to see if we had any questions. I told her I was confused about when to wire the down payment/closing funds as we had not yet received the wiring instructions from Mortgage Connect. She told me that it should be sent shortly before or after the closing.

I asked Mortgage Connect for the final wiring instructions and amount, which they provided.

The mobile notary called to confirm the meeting for tomorrow. She told me that we would also need an attorney from Georgia on the phone as we were signing the documents and that Mortgage Connect would set that up.

July 20, 2017 (Thursday) [CLOSING DAY]

We went to our bank and wired the down payment and closing funds as instructed. Wiring cost us $25.00.

The mobile notary was thirty minutes late due to traffic. Many of the documents for some reason did not include my name, but only my girlfriend's, so we had to add my name. There was also an issue of requiring a witness for several documents, which was not something the mobile notary or I were informed about. We had to recruit our thankfully very friendly neighbor for that. We wrapped up the closing at around 7:30 p.m. and the mobile notary headed to UPS to overnight the documents.

June 21, 2017 (Thursday)

I told Marissa about the issues with the closing documents. I also asked her about what happens next, such as when we receive the lease agreement, copies of all the executed closing documents, the seller's keys, etc. She e-mailed us the lease agreement and said, "we await to hear from Mortgage Connect that they’ve received funds from you and seller and dispersed them to the appropriate parties (security deposit will be transferred directly to Excalibur). Once they inform us this is done, I’ll be sending you official congratulations on purchasing the property. At this time, we will also be alerting Excalibur that the property has fully closed and they are free to reach out to the tenant. Additionally, as soon as the county courthouse records your title deed, Mortgage Connect will be sending that directly over to you (in the meantime, you should be receiving a copy of the fully executed closing docs soon). As for keys, the seller is an institutional seller and does not keep keys to avoid any liability concerns. They only access the property with the permission of the tenant. If you would like a copy of keys, Excalibur should be able to request a copy from the tenant."

I informed Excalibur Homes that we closed on the property and that Roofstock was able to obtain the certificate of conformity prior to closing. They told me that they are still waiting to receive the deposit and lease documents from the closing attorney and Roofstock, but expect to receive everything by Monday and at that time I will be introduced to the person that will specifically be handling the property management of the property.

Tru Mortage sent me a notification that my loan has been funded.

Expected Monthly Cashflow

Gross Income: $893.00

Expenses

- Mortgage (Principal, Interest, Insurance, and Taxes): $540.30

- Management Fee (6%): $53.58

- Vacancies (5%): $44.65

- Repaires & Maintenance (5%): $44.65

- CapEX (8%): $71.44

Net Income: $138.38

Thoughts on Roofstock

Fees: I've had friends ask me how Roofstock makes their money since it seems like they are doing a lot of work on their end to facilitate the sale and purchase of the property. The buyer pays a .5% marketplace fee when their offer is accepted and the seller pays a 2.5% broker commission and a 2.5% all-in-seller fee. So on a $100,000 sale, Roofstock should take in $5,500 total between the buyer and seller.

Property Ratings: Roof stock uses a five-star system to rate neighborhoods instead of the typical letter class system (A, B, C, and D). I prefer the typical letter system that is commonly used to discuss properties on investment forums and sites.

Roofstock Certification Process: Roofstock, through their certification process, provides a tremendous wealth of information on their listed properties. The properties aren't necessarily "turn-key," but it appears that many of the properties were once foreclosures that were purchased by companies that renovate the properties, place a tenant in them, and then chose to sell the property through Roofstock, so most of the properties we've looked at seem to be in very good shape.

Waived Inspection Contingency: "Since diligence information is provided prior to investment, there is no need for a traditional Inspection period or contingency. Investors should carefully review all of the materials in the Diligence Vault before investing." This issue with this is that depending on when the property went through the Roofstock Certification Process and was inspected, the inspection could have occurred months prior to your offer being accepted and issues may have occurred since then that you will not necessarily become aware of unless it is noted by the appraiser.

Offers and Negotiations: The price negotiations on the site are beyond simple because you cannot discuss with the seller why you are giving the offer you are giving. If the seller accepts offers you can submit your offer and the seller has two days to accept, reject, or counter offer. If they reject or counter offer there is no explanation as to how they have arrived at the new value. This continues until either both parties arrive at a number they agree on or the process fails. On one property I put an offer in that was rejected by the seller, I received an e-mail from Roofstock telling me the seller rejected the offer because it was less than half the asking price and that they think the asking price is fair based upon estimates from Zillow, Trulia, and Realtor, and that Roofstock accounts for any repairs needed when the seller and Roofstock determine the list price. I was also told that most of their properties sell for 97% of list price. If you receive a message from Roofstock like this after having an offer rejected, just ignore it, don't let it sway your personal determination on the property. Good properties on the site go very quickly and if you notice a property sitting on the site for months and month, then there is likely a reason for that. Also, their inspection report is not fool proof. The inspector may not notice things and use your best judgment when looking through these reports and material found on the property from other websites, as there can be indications that there can be issues with the property that are likely more significant than the estimates being represented in the inspection report, and that Roofstock is not factoring into the list price for the property.

The Actual Process: Roofstock holds your hand through the entire process from start to finish. The employees at Roofstock we've interacted with have always been polite, helpful, and took the time to answer any questions we've had throughout the process and work with us to address concerns. They also connect you with 3rd party partners they have for obtaining financing, insurance, and property management and will coordinate with those partners through the process.

Convenience: Roofstock literally allows you to go through the entire process of purchasing an out of state investment property without ever needing to leave your home.

Website Interface: I found their site to be very straight forward and easy to use. I compare it to a site like HomeUnion, the main competitor of Roofstock, which I find a bit confusing.

Interested Party: No matter what though, always remember that Roofstock is an interested party. That means that through your interactions with them prior to any deal being accepted, it is in their interest for the property to sell for as much as possible. Remember that between the seller and buyer they are walking away with 5.5% of the sale price. Do your own homework on properties, look at sites like Trulia, Zillow, Realtor, the local county's property lookup page, check school rates, crime rates, check out the area using Google Maps, and do your own math to see what you think the property is worth and don't let anyone from Roofstock tell you that they think you've given the seller too low of an offer.

Would I Use Roofstock Again? Yes. I felt that even though I had issues with the certificate of compliance, the inspection/appraisal report, and closing, I would use Roofstock again and would recommend it to others. Obviously, that recommendation may change as we move forward and have more experiences with Roofstock, and become more experienced investors, but as of right now I have been pleased with the experience, communication, and ultimate result of using Roofstock for our first out of state rental purchase.

[Jason G.]

Originally posted by @Taylor Chiu:

Wow Jason Gines ,thanks for the write up! Out of curiosity, what % down are you paying to secure these properties?

 20% 

[Amit P.]

Great posts and follow up. Thanks for the info.

[Chris Kelch]

I was checking out Roofstock today and thought I would share with this thread - 

can you spot the April Fools Joke in the screenshot below? 

[Shujaat I.]

Jason, Super helpful analysis. 

For those who have used this site, I notice they show a “cap rate” for each property any idea how to determine what assumptions they are using for the expenses side of the cap rate equation? Is it possible to get a breakdown of the various expenses for a particular property? 

[Jason G.]

Originally posted by @Shujaat I.:

Jason, Super helpful analysis. 

For those who have used this site, I notice they show a “cap rate” for each property any idea how to determine what assumptions they are using for the expenses side of the cap rate equation? Is it possible to get a breakdown of the various expenses for a particular property? 

 There is a "View Financial Details" option under the section of the property listing that allows you to enter your offer.

[Lara Chinarro]

Thanks for this helpful thread!

I spoke with someone from Roofstock a few days ago and decided that we could not invest with them. They told me they would not allow an inspection "because there are already tenants in the home and we cannot bother them". Of course, that was a huge red flag and dismissed them immediately.

But it seems that you have had no issues having the properties inspected. Great to know!

[Jason G.]

Originally posted by @Lara Chinarro:

Thanks for this helpful thread!

I spoke with someone from Roofstock a few days ago and decided that we could not invest with them. They told me they would not allow an inspection "because there are already tenants in the home and we cannot bother them". Of course, that was a huge red flag and dismissed them immediately.

But it seems that you have had no issues having the properties inspected. Great to know!

 There should either be an inspection already performed by roofstock or an inspection contingency in place.  If they already did an inspection which would be available in the diligence vault then I can understand if they said no to an additional one.  Otherwise I would recommend asking to speak to someone else there because that doesn't appear to be in line with what I understand their business practices to be and my own experience purchasing 3 properties through them.

[Lara Chinarro]

Originally posted by @Jason G.:

 There should either be an inspection already performed by roofstock or an inspection contingency in place.  If they already did an inspection which would be available in the diligence vault then I can understand if they said no to an additional one.  Otherwise I would recommend asking to speak to someone else there because that doesn't appear to be in line with what I understand their business practices to be and my own experience purchasing 3 properties through them.

I think that makes sense, but was I was told is "no, because we don't want to bother the tenant". That did not seem like a good reason for me!

[Jason G.]

Originally posted by @Lara Chinarro:

Originally posted by @Jason G.:

 There should either be an inspection already performed by roofstock or an inspection contingency in place.  If they already did an inspection which would be available in the diligence vault then I can understand if they said no to an additional one.  Otherwise I would recommend asking to speak to someone else there because that doesn't appear to be in line with what I understand their business practices to be and my own experience purchasing 3 properties through them.

I think that makes sense, but was I was told is "no, because we don't want to bother the tenant". That did not seem like a good reason for me!

 I agree.  That is not an acceptable basis to disallow an inspection.

[Alvin Lee]

Originally posted by @Lara Chinarro:

Originally posted by @Jason G.:

 There should either be an inspection already performed by roofstock or an inspection contingency in place.  If they already did an inspection which would be available in the diligence vault then I can understand if they said no to an additional one.  Otherwise I would recommend asking to speak to someone else there because that doesn't appear to be in line with what I understand their business practices to be and my own experience purchasing 3 properties through them.

I think that makes sense, but was I was told is "no, because we don't want to bother the tenant". That did not seem like a good reason for me!

 Hello,

I am currently in the process of purchasing a Florida property via Roofstock where an inspection contingency was set in place because it was never done by a roofstock certified inspector. My roofstock point of contact made it clear that with the inspection contingency, should any major issue pop up during the inspection, you are free to walk away from the purchase. You will be refunded for the money you already put in (Marketplace fee, earnest money down, etc.) I will say that getting them to schedule the inspection in a timely manner has been like pulling teeth. I am having my point of contact draft up an addendum to extend the 20 day grace period for the inspection to be done because they weren't able to schedule an inspection soon enough. My inspection contingency grace period ends in 2 days and if they are not able to complete the amendment to the contingency within that time, I will have to walk away from the property. I will keep you posted on the process, but so far, I feel my point of contact could be a bit more responsive and be a bit better at updating on the status of the purchase.

Regards,

Alvin

[Craig H.]

Thank you for the detailed post Jason! I’m happy that you’ve found success using Roofstock and I’d like to jump in as well.  However, I’m really not seeing how anybody is making money with these properties.  A vast majority of them don’t even meet the 1% rule.  The ones that do seem to either be in a bad location (1 or 2 star neighborhood) or have some other astronimical expense associated with it that Roofstock is not figuring into their proforma appropriately.  They calculate based on averages, and that’s just not accurate enough for me.  Many times the 50% rule will have a decent return, but when I actually put more accurate numbers into the rental calculator here on BP, the return is terrible or negative.  Maybe I’m being a little too conservative on some of the figures, but I don’t think I’m that far off.

[Zach Evanish]

@Craig H. The goal at Roofstock is total transparency and to give buyers an idea of the type of returns they might expect from a particular property. The expenses are based on our experience owning and managing thousands of single family homes across the United States. As you are aware for most properties the largest expense (in terms of % of income) is property taxes and these can vary greatly from market to market and sometimes within the same market. With that being said our expense are projected and I think it's great that you are running them through your own model. We can agree to disagree on how people are making any money. My wife and I have purchased five properties through Roofstock and our returns have extremely solid and significantly above what was posted on the site. I will message you directly as I don't want to take over the chain.

[Zach Evanish]

@Alvin Lee Sorry to hear about the delay with the inspection. I have reached out to our customer success team and we will get this corrected ASAP. Please note that while we do our very best to expedite the inspections sometimes it can be difficult to find a time that works with the tenants schedule. We believe it's important to be respectful of the tenants schedule. Keeps for a happy tenant for current owner and potential buyer and it's the right thing to do! 

[Leo Kotschenreuther]

Thanks for your great report about your experience with Roofstock. Now that almost one year has passed since you bought your first property, what's your experience with the repairs and CapEx estimates that Roofstock provided to you? Do you think they were accurate?

[Jason G.]

Originally posted by @Leo Kotschenreuther:

Thanks for your great report about your experience with Roofstock. Now that almost one year has passed since you bought your first property, what's your experience with the repairs and CapEx estimates that Roofstock provided to you? Do you think they were accurate?

Remember that Roofstock uses an inspection company to prepare an inspection report, just like a buyer/investor would obtain an inspection if purchasing outside of Roofstock. With respect to the first property, aside from the initial recommended items needed to be done and surprise electrical issue noted by the appraiser, I've had no other repairs since purchase. Roofstock's inspection reports, at least in the Atlanta Market, does provide a list of immediate repairs needed and repairs recommended at turnover, and also the expected life of certain CapEx items, but large budget items can need repairs or replacement before those estimates or long after. Nothing significant was necessary for any of the four properties I've purchased and any items listed for immediate repair I had done right away after closing. I don't have the numbers in front of me to compare on the difference of the inspection report estimate vs how much they came out to as I'm not at my home office, but off the top of my head I don't have any recollection of any of the work done being noticeably more than anticipated. My one issue with Roofstock's inspection was that there is no inspection of septic systems for those properties that have them. On the Villa Rica, GA property I decided to have my property management company send someone to inspect and pump it just so I had a baseline and in the end that resulted in unexpected costs. It was under 2k, but still was not expected. The Canton property, which was purchased outside of Roofstock, had a small leak and also the garbage disposal unit needed to be serviced. Items will come up, I think that is just something that has to be expected, whether you purchase it from Roofstock, another provider, or the old fashioned way. So for those big budget items though, like a roof or HVAC system, I just won't know if the inspection's estimate is accurate until they need to be replaced.

[Joel Fine]

Fantastic thread, @Jason G.. The initial review was extremely thorough and detailed, and you've been very diligent in responding to questions ever since. I've been thinking about using Roofstock to acquire some properties, and this thread helps a great deal. Thank you!

[Jason G.]

It has been a little while since I've provided an update so I thought now would be a good time. I currently own four SFH in the Atlanta Metro area and am in the process of trying to acquire a SFH in the Cleveland Metro area via Roofstock. All the numbers worked pretty much as expected based on my initial computations.

- Lithonia, GA: This was the first SFH I purchased through Roofstock. Aside from initial work needed to be done which has been discussed in prior posts I've had no maintenance items at this property. In July 2018 the tenants did not pay the rent which resulted in the filing for eviction. This prompted the tenants to pay the July rent. However it resulted in legal fees. As of right now the August 2018 rent has not been paid, but sometimes it takes a few days before it registers on the owner's interface on the property management site.

- Villa Rica, GA: This was the second SFH I purchased through Roofstock. Aside from initial work done and additional work stemming from having the septic tank inspected there have been no maintenance items at this property. The tenants have been paying every month.

- Canton, GA: This SFH was purchased outside of Roofstock using an agent from the property management company. Aside from initial work done there was an issue with the garbage disposal unit which was addressed back in June. The tenants had renewed their lease back in December 2017 but have recently given notice to leave early at the end of September. The tenants have been paying every month.

- Dacula, GA: This was the third SFH purchased through Roofstock. No work has been done to the property after purchase. The tenants have been paying every month.

-Euclid, OH: I'm trying to purchase a property through Roofstock but have been having some issues.  We came to an agreement on purchase price back on July 17th.  After that the Roofstock Transaction Coordinator told me that the seller was requesting that I pay for an item at closing that was the seller's responsibility as per the PSA posted in Roofstock's diligence vault.  However, after I raised skepticism over the request Roofstock offered to credit me the market place fee at closing which comes out to be a little more than the requested item.  This did bother me though because after a sale price is agreed upon there is no discussion on Roofstock's website that the PSA terms are now negotiable.  Technically I suppose everything is negotiable but the point of Roofstock is to simplify the entire process so if that was a seller requirement then the posted PSA should reflect that.  I was sent the PSA back on July 24th and the seller did not fill out the Ohio Disclosure form.  This was a red flag to me.  Remember that Roofstock is the agent of the seller, not the buyer, but even so, as a customer with Roofstock I believe they should have reviewed the disclosure sent by the seller which didn't answer the questions presented and sent it back.  I told the Roofstock Transaction Coordinator that the deal could not move forward if the seller would not fill out the disclosures.  I received updated disclosures today, August 2nd, which revealed a prior issue at the property that the seller had addressed.  Several questions were still not answered.  So I informed Roofstock that they needed to be addressed.  However, the entire thing comes off very shady and unprofessional.  At this point I'm skeptical this deal will even move forward.

[Jason G.]

The Euclid, OH property ultimately fell through. That prior issue discussed in the last post was water intrusion into the basement. The property then went on to fail two city point of sale inspections for that very same issue. The second inspection occurred approximately a week ago. The seller intended to appeal the decision of the city rather than remedy the violation and at that time I walked away from the deal. Aside from time, I was out of pocket the appraisal fee. Roofstock is in the process of refunding their Market Place Fee and the EMD should be returned to me shortly. In addition, Roofstock agreed to waive the next Market Place fee on a future purchase. I did feel that the Transaction Coordinator handling the purchase through Roofstock was not promptly responsive or proactive during the course of the purchase, but ultimately the property failing the city inspection had nothing to do with her. Onward to the next property.

[Jason Pennacchio]

Thank you for the update, I could imagine how you feel, it is frustrating not only having to deal with the seller and property issues but also the Roofstock discrepancies. I do feel like this happens often in many dealings through agents and brokers so I still would not rule Roofstock as the root of all problems, more like typical industry issues.

In the meantime how have your properties performed? I saw you gave updates on the repair and payment history but not mentioned whether the numbers performed better, worse, or as expected? 

What property managers do you use in Atlanta and have they been quickly responsive? I have a property in Stone Mountain purchased this year, working on filling a vacancy now but it has taken some time.

[Jason G.]

Originally posted by @Jason Pennacchio:

Thank you for the update, I could imagine how you feel, it is frustrating not only having to deal with the seller and property issues but also the Roofstock discrepancies. I do feel like this happens often in many dealings through agents and brokers so I still would not rule Roofstock as the root of all problems, more like typical industry issues.

In the meantime how have your properties performed? I saw you gave updates on the repair and payment history but not mentioned whether the numbers performed better, worse, or as expected? 

What property managers do you use in Atlanta and have they been quickly responsive? I have a property in Stone Mountain purchased this year, working on filling a vacancy now but it has taken some time.

All the Roofstock properties have been performing as anticipated.  We are using Excalibur Homes as a property manager.  I think they are doing a pretty good job.  The one non-Roofstock property had an unexpected expense which I'll discuss in another post in a few weeks when I'll have concrete details and numbers to share.  In the mean time we entered into contract on a duplex in Conyers, GA through Roofstock.  So we'll see how that goes.  One thing of note though with the Ohio property was that we used Agora/Ethos Lending and felt that they were NOT an investor friendly lender, even though they are partnered with Roofstock.  They were giving us a difficult time with certain documents, did not want to accept a master insurance policy through Real Protect, which is the only company Roofstock is partnered with, did unnecessary additional credit checks, and had stricter overlays than other lenders we've used.  We wouldn't use them again for an investment property.

[Vlad Vassiliouk]

Thanks for keeping this updated Jason. You motivated me to try out Roofstock. After some time looking I finally found a home that would cash flow >6% after buying it outright based on the numbers RoofStock provided. I decided to submit an offer which got accepted. During the process they were very helpful and responsive, i got a call almost everyday updating me on the progress, however it turned out that their CapEx numbers were off by almost 50% due to the really high insurance costs (property was in a flood zone) which drove my cash flow well below 5% making this deal not worth it anymore. I backed out of the deal, asked for the Roofstock listing fee to be refunded since they provided false information to entice me to place an offer. All of a sudden they stopped responding and calling. It's been 2 months and still no refund, had to file a dispute with my bank.

I think their service could be good, but there's humans entering the numbers, so mistakes could be made. Anyone thinking of using their service should still do their own DD and not just trust their numbers. I probably wouldn't do business with them again seeing how they just stopped responding after I backed out and still haven't issued my refund 2 months later.

[Jason G.]

Originally posted by @Vlad Vassiliouk:

Thanks for keeping this updated Jason. You motivated me to try out Roofstock. After some time looking I finally found a home that would cash flow >6% after buying it outright based on the numbers RoofStock provided. I decided to submit an offer which got accepted. During the process they were very helpful and responsive, i got a call almost everyday updating me on the progress, however it turned out that their CapEx numbers were off by almost 50% due to the really high insurance costs (property was in a flood zone) which drove my cash flow well below 5% making this deal not worth it anymore. I backed out of the deal, asked for the Roofstock listing fee to be refunded since they provided false information to entice me to place an offer. All of a sudden they stopped responding and calling. It's been 2 months and still no refund, had to file a dispute with my bank.

I think their service could be good, but there's humans entering the numbers, so mistakes could be made. Anyone thinking of using their service should still do their own DD and not just trust their numbers. I probably wouldn't do business with them again seeing how they just stopped responding after I backed out and still haven't issued my refund 2 months later.

 There is an entry on the main property page that indicates if flood insurance is required.  Did they have that marked incorrectly?  I think that is the only place where they would show that information.  That is a big mistake on their part if they had it marked incorrectly.

[Mike Bucci]

Jason, this is an incredibly helpful post.  Thank you very much for taking the time to share!

[Heshel Mangel]

Awesome review @Jason G. , thank you!

Did Roofstock cover the plumbing certification because they failed to disclose that in the original inspection report? How can you protect yourself from similar things happening on future properties?

[Jason G.]

Originally posted by @Heshel Mangel:

Awesome review @Jason G. , thank you!

Did Roofstock cover the plumbing certification because they failed to disclose that in the original inspection report? How can you protect yourself from similar things happening on future properties?

 They covered it.  I cannot speak to their rationale, but that was my argument, that due to the county requiring such an inspection and certification that one should have been performed as part of Roofstock's inspection.  I'm only aware of one county in the Atlanta Market that requires it and it is only for properties built before a certain year.  In the future if I would buy in that county through Roofstock I would either only purchase a newer property or insist Roofstock agree to do the inspection before signing the PSA.