Roofstock Experience for a Newbie

[Jimmy Epolito]

Hello All. I hope everyone had a wonderful Holiday Season. I just wanted to post about my very recent experience with Roofstock. I stumbled upon Roofstock late one night via a Google search to find investment properties. I made the decision a few months back that my retirement strategy and desire to become financially free would be more likely via real estate than stocks. I have always studied real estate and stay up on the local market but did not know very much about investment properties let alone how to invest out of state. On BP I was really learning a lot by reading all the posts here and seemed that the BRRRR strategy is the quickest way to reach my goals but as a brand new investor with 4 kids, with the oldest being 5.5yrs old, I wanted a safer entry into the REI world. Now that you know a little more about me I will tell you how everything went from start to finish.

First of all, why did I choose Roofstock to facilitate my first purchase?  I set up a call with an account manager and spent 30 mins asking many questions.  The AM answered all my questions quickly and without hesitation and walked me through the entire website from top to bottom.  We even analyzed a property together and I nearly purchased it then and there.  He was a little quick to suggest I buy it but was not pushy at all.  I let him know that I needed more time to research and we planned for a call in few days to let me explore the site.  

Next, I searched for homes that were $100k and below and what I really like about Roofstock is that the off market homes exclusive to Roofstock have a full inspection report and lots of due diligence.  They have calculators on each property to show the Cap Rate, Expected Cash Flow, Property Taxes, Market Rent Analysis, Comps, Mortgage Calculators, Title Report, Neighborhood Stats, and much more.  Many homes have existing tenants and you have access to the ledger to view the payment history.  All these tools made me comfortable and help me to understand what was important.  Despite the fact that the site has so many tools to assist with due diligence I still did my own research.

On call number 2 we discussed some properties that I weeded out of the pack. My Acct Manager seemed very knowledgeable in the markets I was interested in. He even knew agents and PM's in those markets.  He once again was quick to suggest a couple of the properties on my list but a Google Earth search showed one had a massive Steel factory directly behind the house and the next one looked like it was in the hood despite having a 2.5 star neighborhood rating.  I again told him that would search more.  I asked if he had lenders he could suggest and he referred me to 2 different lenders.  The second lender was the one closed with as their terms were better than any of the lenders I found on my own.  

I found that the AM at Roofstock was very knowledgeable and took an interest to learn my wants and needs.  I appreciated the fact that he was excited and looking to land me my first deal while not being too pushy.  I needed that little push to get me to pull the trigger.  

I must have looked at more than 100 properties over the next few weeks.  I would read every page of the inspections reports, look at neighborhood stats, take a virtual walk through the neighborhood via Google Earth, and I eventually stumbled on a house that just felt right.  It was a 4/3 Brick on 1/3 of an acre.  The house had a giant two tiered deck on the back totalling 900sq and the property has a 12x24 storage building. It was listed at $69500 and had a tenant in place at $725mo.  The inspection report showed minimal repairs needed and the neighborhood looked clean and well kept. Comps were showing $87-$105!  Seemed like a no-brainer but I still called the AM and he went through the inspection report page by page and looked at the comps and checking the title docs.  I felt like I had a partner in this transaction although it was all on me in the end.  I made an offer of $59500 and it quickly got rejected.  The general rule of thumb is that most sellers on RS will accept a 3% discount at the most but not always so I tried again. I offered $64500 and it sat in pending with no response for a day and a half and I noticed something.  It looked like the existing lease was coming to an end and it also looked like the current rent amount was $200 below market.  I called the AM and found out that when a lease comes to an end the sellers will often adjust their price and this one was an ideal property to ask more.  I decided that since this was a buy and hold for me that a few thousand dollars would not make a huge difference in the long run, especially as I felt the price was lower than market as well as the current rent amount.  I hit the But it Now button!  What a rush! I was not a Real Estate Investor and the excitement was awesome and the uncertainty was plentiful as well even though it felt right.  It was pretty cool and a little scary at the same time that I was able to add a house to my online shopping cart without ever stepping foot on the property! 

So this pretty good deal just kept getting better and better after I committed to buy it.  First of all the existing tenant did not renew so now I could ask full market rent! Also, roofstock now assigned a transaction liaison to assist with the rest of the transaction.  The liaison prepped me for what to expect from here forward and immediately emailed me contact information for insurance companies and property management companies.  One of the preffered PM companies would guarantee rent but was based out of the market while the other company was in the same city and was also an investor in that market.  I chose the latter despite the lack of guaranteed rent.  We agreed to place it out there at $925 a month and had a tenant in the house the day after closing! 

My timing was ideal. Once we closed I found out from the owner that they did in fact intend on raising the price but I hit the buy it now earlier in the day.  Also, since the existing inspection was more than 4 months old, my buy it now offer was automatically contingent upon a brand new inspection. The previous inspection was 4 months and 1 day to be exact! If anything showed up I could then re negotiate withe the seller. The seller agreed to fix all items I requested from the inspection and the seller actually took care of a few things I did not ask for! Also, Roofstock properties must appraise at or above the agreed upon price or else the deal is open to negotiation again.  

Once you make a deal Roofstock sets up a dashboard for you to keep track of all the steps needed to be completed to successfully close.  My estimated closing date was exactly 30 days from the day I committed to purchase the property.  

The lender was very efficient and financing was a breeze.  The insurance quote was exceptional and they even beat out USAA.  It is apparent that Roofstock has developed relationships with select vendors to assist in this process. 

I have to say that this was a very simple purchase and very straightforward.  My only advice for Roofstock is that they develop a Mobile App.

Here is my advice to others based on what I learned along the way

- DO NOT,,,DO NOT rely solely on the due diligence performed by Roofstock. While RS is impressive I developed an understanding along the way as to what truly makes a great deal.  For example, I came across properties in the same price point with existing leases at $1100-1200mo.  Sounds like great cash flow right? Wrong!  Property taxes in certain markets are out of this world.  A few of those properties actually showed a negative cash flow while others were marginal ($100-150) after plugging in my own numbers.  

- If financing, go ahead and get pre-approved.  You can also upload your pre-approval letter to let sellers know that you are qualified while they consider your offer.  Since I paid asking price this was irrelevant but could help in other cases.

- Look at as many properties as possible and read all the inspection reports and title reports.  Then narrow down your criteria in your search options.

- Do not rely on the neighborhood rating on RS. Look around the properties using Google Earth, Google Maps, or Zillow. 

- Do not operate with fear or you will never get your feet wet. I had to commit first to myself that once I found the right property I was going to buy it.  Roofstock is legit and has a good source of available homes.  New inventory was appearing daily.  

- Make sure to run the numbers to make sure it fits your investment model. The calculators on RS can be customized so you can accurately account for vacancy, taxes, pm fees, HOA fees, insurance, cap ex, and mortgage expenses.

- Use the account manager as much as possible.  My AM never rushed a call and seemed to have a lot of knowledge and wanted to help me find the right deal.

- Also, this is not a free service.  If your offer is accepted or you choose to Buy It Now you will be charged a .5% Marketplace fee or $500 whichever is greater.  You will also need to send an escrow deposit once the PSA is signed.  

- Learn all you can about RS if you choose to use this platform. Not all houses are off market. Some are on the MLS but they are identified as Roofstock Select Properties in which you will be represented by a REA and your offer will come with an inspection contingency. The Roofstock Exclusive properties are only available on RS and RS will walk you through the process. You will also notice on each listing you can learn about all the data formulas and calculations by hovering over the "i" . For example, if you want to learn how RS calculated the Cap Rate, Gross Yield, or Cash Flow figures you can just by locating the "i" with a circle around it next to each figure.

-Keep in mind that even though the inspection report is there you are still buying these houses as is unless noted in the ad.  Make sure to analyze data thoroughly.  

If you ask me if I would recommend RS I would have to say yes based on the fact that everything was smooth from start to finish. 

Will I use RS to buy property #2? Probably not simply because I want to BRRRR my next one and need to find a highly distressed home which I can force appreciation through rehab. If I had a more conventional plan from here forward I would certainly buy my next home on RS.

I apologize if my thoughts were not written in perfect order but hopefully this article helps give a good perspective on how things work when buying via RS.

Here are the figures for my first deal:

Asking price $69500

Purchase price $69500

Secured via conventional financing with a payment of $543 PITI. Property management fee is $92.50mo and I am reserving 5% for vacancy and 5% for cap ex. Rent amount is $925. Monthly expenses all in are $728. Net cash flow is $197mo and $2364yr. It appraised at $80k before the seller made any repairs. My loan amount is $59075 which is 73% LTV.

Overall this is not a home run but should provide a healthy long term investment and it served it's purpose!  It caused me to get serious and now I am hungry to scale! 

Make 2020 a great year!!

Best Regards,

James