Roofstock review. NEWBIES BEWARE!!

[JC Wu]

Looks like most of the reviews or case studies on Roofstock are about the closing process. I suppose since the vast majority of investors who’ve purchased properties from Roofstock use the properties as buy-and-hold rentals and Roofstock is a start-up that hasn’t been around for long, not a whole lot of investors have sold those properties. I got burnt on my way out when I tried to sell one acquired through Roofstock, which I’ve only kept for ~1.5 years. I wasted a lot of time and lost over 30K from this property. The only thing I gained is increased cancer risks from all that stress.

The short version of what happened:

A local flipper I befriended pointed out a serious undisclosed permitting issue he discovered from public record, which compelled me to sell the property at a discounted price to a local wholesaler instead of keeping it as a rental or selling on the MLS. The Roofstock inspection report made no mention of this issue. I have strong reasons to believe the seller chose not to disclose intentionally.

Due to the way the Roofstock purchase and sale agreement was drafted and certain provisions in Roofstock's Terms&Conditions that investors have to agree to but few actually read before using their website, the seller and Roofstock are well protected from liabilities, much better than a seller and brokers would in a typical MLS transaction scenario. As a result, I have very limited ways or no way of recourse.

Combined with some other things that have happened and my interactions with Roofstock, I feel that buying properties from Roofstock is like buying properties without a buyer’s agent, their “one stop for all” business model is inherently flawed, and the water is too deep for newbie buyers. The increased efficiency is achieved at the cost of buyers' best interests. 

Furthermore, despite Roofstock’s effort to find top providers to work with their investors, it looks like Roofstock struggles to bring all of them up to standards and keep them in check. The quality of service from different providers (title companies, PMs, inspectors) swing so widely that the good ones exceed my expectations, and the bad ones make me wonder how they stay in business or why hasn’t got taken out by the FTC. I’ve dealt with just as many bad ones as the good ones. In some cases, buyers have the options to pick the ones they prefer; in other cases just a hit or miss.

Last but not least, Roofstock advisors' excellent work ethics can’t compensate for their lack of knowledge of the local markets. On the other hand, lots of the sellers are institutional investors or local RE professionals, which inevitably shifts even more risks to newbie buyers.

This is a 1-star review for newbie buyers; 3-star review for seasoned buyers who know what to watch out for when evaluating deals; 5-star review for sellers, especially those who want to evade scrutinization from shrewd local brokers and failure-to-disclose-property-defects lawsuits.

Well, since I rate Roofstock 5 stars for sellers, why don't I just list it for sale on Roofstock? The simple answer is that the actual market rent ($900-965/mo) to list price ratio (ARV 120 -140K) would not be enticing to SFR buyers. The market rent Roofstock gave ($1025/mo) when I made the purchase was inflated btw.

I can post a long version to elaborate on the above-mentioned points if more than 10 people on BP are interested to know more. 

[Account Closed]

I am dealing with a rot repair right now that their warranty is only for 14 days! The inspector missed improper deck flashing and studs missing (not like they weren't installed, they are half gone from rot) in an exposed basement wall and now they're paying a few grand to fix it. I was shocked to find out that there was a 14 day window, why bother even giving a warranty in the first place if it is for that short of a window. 

That's a very short warranty window. The inspection company I work with in high volume offers a 90 day warranty. Seems like it's pretty important to find a quality inspection company, huh?

[JC Wu]

To anyone who's purchased properties through Roofstock (Doesn't matter when you see this post, you're not late to the discussion. I'm very curious about how Roofstock's rules&policies evolve over time - I want to hear about it from investors, not Roofstock employees):

1. WERE YOU ALLOWED TO HIRE YOUR OWN 3RD PARTY INSPECTOR FOR THE PROPERTIES THAT ALREADY CAME WITH AN INSPECTION REPORT IN THE DILIGENCE VAULT PROVIDED BY ROOFSTOCK'S PARTNER INSPECTION COMPANY?

2. If so or if not, when did you buy the properties?

Thanks in advance. 

[Jonathan Paul Shortt]

Hi JC, just closed on a property from roofstock last week. My property did have an inspection report attached to it but I did also order my own inspection for peace of mind. I don't see how Roofstock could forbid you from ordering your own inspection.

[Tushar P.]

@Jason G. Do you not believe in this statement from Roofstock: “Rigorous certification means you can focus on your investment strategy rather than due diligence.” 

@Jay Hinrichs thanks for pointing out that TKs are selling their properties via Roofstock. What do you think - is it a better platform for the sellers or the buyers? By the way, have you bought or sold properties via Roofstock?

[Jason G.]

Originally posted by @Tushar P.:

@Jason G. Do you not believe in this statement from Roofstock: “Rigorous certification means you can focus on your investment strategy rather than due diligence.” 

@Jay Hinrichs thanks for pointing out that TKs are selling their properties via Roofstock. What do you think - is it a better platform for the sellers or the buyers? By the way, have you bought or sold properties via Roofstock?

I do not know if that is a statement made by Roofstock, but regardless of who made it, it isnt something I agree with.  Investors are responsible for their own due diligence 

[JC Wu]

TO INVESTORS WHO'VE PURCHASED PROPERTIES FROM ROOFSTOCK IN 2014 - 2018: PLEASE SEE MY LAST POST WITH THE SMILEY LIONESS. DOESN'T MATTER WHEN YOU SEE THIS POST. 

 @Bryan Devitt Who's "they" and "their"?

@Jonathan Paul Shortt I’m 99% sure I wasn’t allowed to hire my own 3rd party inspector. I can’t disclose the legal terms here to avoid breach of contract. I can think of five possibilities to explain our different experiences. The truth may fall outside these speculations and hasn’t crossed my mind at all:

1. Roofstock used to prohibit buyers from ordering independent 3rd party inspections. But their policies changed recently and now they allow it.

2. Roofstock policies are state-specific. 

It’s been pointed out to me in private messaging that Roofstock behaves as a broker or a dual agent. The behavior of brokers prohibiting buyers from ordering independent inspections would result in a violation of agency laws in some states but not others.

3. By incorporating in another state, Roofstock can somehow go around certain rules that carefully regulate brokerage activities carried out by local brokers in some states. 

This reminds me of how the state of Florida prohibits RE agents from inserting Indemnity and Limitation of Liability clauses in the standard PSA but Roofstock can do so in the Terms&Conditions. I have no clue how this works and how enforceable they are. 

4. I received differential treatment. (unlikely)

5. Roofstock-drafted PSAs are negotiable - I didn't make any negotiation attempt. 

I imagine it will take multiple Roofstock buyers’ stories from different years (especially the earlier years) and different states to form an accurate picture. The reason why I kinda fixate on this topic is that many post-closing issues that arise between Roofstock and its buyers center around "surprises." 

@Zach Evanish (Roofstock’s PR guy on BP) is no longer with Roofstock. Too bad he doesn’t seem willing to provide answers and even if he wants to, he probably can’t.

I’m inserting random images to make this post stand out. 

[Eric Furst]

I purchased a property on roofstock about 9 months ago, and figured I'd share the gist of what I dealt with on this thread. I had a number of small issues arise, but to their credit, roofstock (after some emails and finally tweeting) did make things right. 

I was signed up with a point person, and it quickly became clear that there were some talking points they were not going to deviate from. The 97% of the asking price being one of them. There seem to be a lot of exceptions to that one here on biggerpockets, and I eventually got my house for 14% lower than the asking price. 

Really, I guess you have to go in with your eyes open, which makes this a very valuable thread. Roofstock is not a turnkey provider, and shouldn't be viewed as one. When your agent pushes back against your requests, don't take it. You can get another inspection if you want, as much as they like to tell you that you can't. It just slows the process, which they really don't like. They have the lease on file, and you should be able to see it with any sensitive information blacked out, they just don't like to give it to you. If you want something from them, push them for it, and keep the email records to show them later. 

Basically I dealt with a number of people who gave me contradictory information, and yes, the inability to communicate did cause problems. But again, Roofstock stepped up when it was necessary and rectified most of the self imposed issues. It also helps to send out a strategic tweet when the communication slows to a drip.

As for the information provided on the website; as many have said before DO YOUR OWN RESEARCH. You cannot rely on their appraisal, don't feel beholden to their "certified PM's", and don't trust their rent estimates. They are all basically arbitrary. If you are not comfortable about something, don't do the deal, even if "your" roofstock representative will get annoyed by your inability to commit. I lost a deal because I was not willing to sign a PSA without any seller disclosures, none of the sellers manage the property themselves and therefore cannot sign "NO" to any disclosures. But alas, some do. You just have to find the one that checks all your boxes.

[Lazaro Dinh]

There was no reason to panic and lose 30k, unless  I missed something, no one was asking you to fix any permitting issues. I used Roofstock top buy and sell and both times I had a good experience. On the sale side a lotttttt of due diligence on their part. I was annoyed by the amount of paperwork they asked from it was kind of repetitive and burdensome. But then again you are in San Francisco California where nothing Real estate makes sense anymore, so if the Real estate was there 30k is easy to lose.

[Tony Kim]

Originally posted by @Lazaro Dinh:

There was no reason to panic and lose 30k, unless  I missed something, no one was asking you to fix any permitting issues. I used Roofstock top buy and sell and both times I had a good experience. On the sale side a lotttttt of due diligence on their part. I was annoyed by the amount of paperwork they asked from it was kind of repetitive and burdensome. But then again you are in San Francisco California where nothing Real estate makes sense anymore, so if the Real estate was there 30k is easy to lose.

Yeah, it's obvious you missed plenty. First of all, I didn't hear any panic in her posts....just reporting the facts as she saw them. And if you'd have bothered to even read half of the first page, you'd realize that the property was not in SF (Does Roofstock even have anything in SF? Doubt it). The property was actually in the same state as where you're located. I find it quite disingenuous and borderline insulting for someone to say that there was no reason to lose 30K and just attribute that all to her "panicking". If you want to contribute to this thread, perhaps you should spend some time and actually read everything she wrote first.

[JC Wu]

@Lazaro Dinh

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@Tony Kim

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@Zach Evanish 

[David Song]

@JC Wu

I do not real,y see that a big problem with that house without permit. A lot of houses are done without permit.

Why not just invest in Bay Area? OOS TK is more risky.

[Joel Florian]

@JC Wu  

Thank you for this thread and your detailed explanation.   I just discovered roofstock and was considering purchasing a property from them.  Ironically,  many of the seemingly negative comments about roofstock don't put me off. (any more than seeing a car wreck stops me from driving -- car wrecks do remind me to keep my eyes on the road while driving.)

I have learned some valuable things about Roofstock:

1.  They are a brokerage, not a turnkey company.  As such, their focus is to sell as quickly as possible for as much as possible and tell the buyer as little as possible.   The fact that the houses are rented or have the potential to be rentals just adds to the appeal for their niche of investors (not owner occupants).

2.  They are in multiple states under different rules and using different PM's so investor experience could vary from area to area.

3.  Roofstock seems to be trying to serve but they don't always live up to the glowing promises their copywriters type up.  Apparently Roofstock has modified some policies -- probably in response to complaints.

4.  Roofstock has a few customers that are happy enough to vouch for them. (There is a possibility may be paid reviews.)

5.  Roofstock is not offering an FDC-guaranteed savings account with 10% interest.  When I invest through Roofstock, I will become a landlord with the associated risks and responsibilities.   I will be ultimately responsible for code compliance,local ordnances, repairs and maintenance, vetting tenants (or selecting a PM).  If I use a PM, the PM will take a percentage of my rents and may not market or maintain the property to my standards.

6.  Roofstock might be a great place to sell income properties

7.  Roofstock might also be an option for small 1031 tax exchanges if they can close quickly enough.

[JC Wu]

@David Song The permitting issue wasn’t the only trigger. I mentioned other factors in some of my previous posts on this thread. Looking back, it was perfect timing and a wise decision to sell this FL property. Soon after I sold it, a wave of panic selling in that area started and its value has been plummeting. My end buyer had it listed for sale about 9 months ago after some quick light rehab - the price has been cut multiple times, the listing agent has changed three times and it’s still lingering on the market.

One piece of advice dispensed in many success stories is “aim for cash flow rather than appreciation if you have to pick one since appreciation is largely based on speculation.” Bay area properties don’t seem to cash flow, many even yield negative cash flow. If I want to strike a balance, I may consider investing in emerging markets like Austin, Seattle, Denver, LA, etc.

I remember listening to a Grant Cardone podcast here on BP. He said the most recession-proof rent is in the 800-1200/mo range. If I apply the 1% rule, the price of the properties falls in the 80K-120K range. The risks of getting tenants from hell and property damages are relatively high, but I try to find the cheap houses in decent communities to reduce that risk.

Plus, if I want to respect the “don’t put all eggs in one basket” principle, why not buy ten 100K properties across different locations instead of buying one 1M Bay Area property?

It’s very likely I have been applying conventional wisdom too rigidly. Please feel free to correct me. 

@Joel Florian Your assessment of Roofstock is pretty accurate. I’m glad you’ve come to realize Roofstock doesn’t always live up to the glowing promises their copywriters type up before you make a commitment with them. Many of the assertions and empty promises they make are, in my opinion, fraudulent misrepresentations. I chose to work with Roofstock exactly because they made more promises than their major competitors. I got lured in by those promises and trusted they’d live up to them. I think that false advertising practice is manipulative, unethical, dishonest and unfair to their competitors. I agree with @Account Closed that a good provider sets the right expectations, and Roofstock seems to intentionally do the opposite. I started this thread to mainly warn new investors. I don’t see why RE experts like you should be deterred by the negative reviews if you’re good at doing due diligence and spotting deals.

[Account Closed]

@JC Wu I don't know if I'd say roofstock does the opposite. It's not really up to them to decide where you like to set your risk profile. I do think it's prudent to be conservative, but their business is not one of relationships and advisory. They provide a defined service, and I would imagine they are consistent in providing the service level they promise. 

What companies like roofstock (and my own to some degree) do is make investing in real estate feel simplified and accessible.. and it can be! This is a good thing. Increasing awareness of investing in an asset class that perpetuates wealth at a higher rate than so many others is truly a contribution to the community. A side effect of the simplicity of their process is that buyers may feel a bit euphoric about rental property investing, and in this euphoria lighten their focus on the inherent risks of buying and holding real estate. They didn't influence you or any other investor to feel this way.. and what are they going to do? Push customers away via excessive biases towards conservatism?

I set expectations because my company is still boutique and has one on one relationships with clients. I'll be upfront- the nature of our interaction with our clients will also become more scale-friendly as we grow. It's already happening a little bit. It's a tricky balance, but the nature of a business that is growing.

I think you would have made mistakes of similar magnitude if you went and purchased through a different acquisition vehicle. I still make mistakes... and I've bought over 100 properties. It's part of the process. I call it "tuition". The lesson here is focus on what you as an investor can do to bear the burden of due diligence. Delegate work & tedium, but do not delegate your judgement to any service provider! 

[David Song]

@JC Wu

In terms of Bay Area has no cash flow, that is simply wrong.

The correct term is amateurs can not find cash flowing properties in Bay Area.

Bought a SFR in Hayward early this year, for 425k, 50k Reno. Rent 4150/ month.

Under contract for SFR in SSF for 1.03m. Projected rent $7000/ mo. Closing end of November.

Preparing an offer on Hayward 3 units. Projected return around 9 percent.

You are a good writer. Unfortunately, there are too many things to learn in REI.

[Amit M.]

@JC Wu “why not buy ten 100K properties across different locations instead of buying one 1M Bay Area property?”

property 

management 

nightmare 

————

3words

[JC Wu]

Originally posted by @David Song:

@JC Wu

In terms of Bay Area has no cash flow, that is simply wrong.

The correct term is amateurs can not find cash flowing properties in Bay Area.

Bought a SFR in Hayward early this year, for 425k, 50k Reno. Rent 4150/ month.

Under contract for SFR in SSF for 1.03m. Projected rent $7000/ mo. Closing end of November.

Preparing an offer on Hayward 3 units. Projected return around 9 percent.

You are a good writer. Unfortunately, there are too many things to learn in REI.

Are the cash flowing properties you find in the Bay Area off-market deals? How do you find the deals? Do they come by often?

Yes, I bet there are too many things to learn in REI and there's always something new to learn even for pros.

[David Song]

Originally posted by @JC Wu:

Originally posted by @David Song:

@JC Wu

In terms of Bay Area has no cash flow, that is simply wrong.

The correct term is amateurs can not find cash flowing properties in Bay Area.

Bought a SFR in Hayward early this year, for 425k, 50k Reno. Rent 4150/ month.

Under contract for SFR in SSF for 1.03m. Projected rent $7000/ mo. Closing end of November.

Preparing an offer on Hayward 3 units. Projected return around 9 percent.

You are a good writer. Unfortunately, there are too many things to learn in REI.

Are the cash flowing properties you find in the Bay Area off-market deals? How do you find the deals? Do they come by often?

Yes, I bet there are too many things to learn in REI and there's always something new to learn even for pros.

They are open market MLS deals.

The first hayward property was on the market for a long time, nobody wants it. Initially listed at 599k, dropped to 500k, bought at 425k.

The SSF property is a hubzu auction.

If you follow what majority of people are saying, you will be a loser for sure. Since everyone already know before you know about  it. You have to have your niche that nobody else knows.

I am against OOS TK. I strongly believe that is a much worse strategy than local investing. Furthermore, if you can not find deals locally, why do you believe you can find deals remotely? Just a higher return on paper does not mean that is a better investment.

There is no shortcut or easy way out in REI. TK promoter on this website tries to tell people that OOS TK is easy and better than CA investing. That is ********, repeated a million times here on BiggerPockets.

[Graham Heldreth]

Thank you JC for sharing your experience!  

[JC Wu]

Originally posted by @David Song:

Originally posted by @JC Wu:

Originally posted by @David Song:

@JC Wu

In terms of Bay Area has no cash flow, that is simply wrong.

The correct term is amateurs can not find cash flowing properties in Bay Area.

Bought a SFR in Hayward early this year, for 425k, 50k Reno. Rent 4150/ month.

Under contract for SFR in SSF for 1.03m. Projected rent $7000/ mo. Closing end of November.

Preparing an offer on Hayward 3 units. Projected return around 9 percent.

You are a good writer. Unfortunately, there are too many things to learn in REI.

Are the cash flowing properties you find in the Bay Area off-market deals? How do you find the deals? Do they come by often?

Yes, I bet there are too many things to learn in REI and there's always something new to learn even for pros.

They are open market MLS deals.

The first hayward property was on the market for a long time, nobody wants it. Initially listed at 599k, dropped to 500k, bought at 425k.

The SSF property is a hubzu auction.

If you follow what majority of people are saying, you will be a loser for sure. Since everyone already know before you know about  it. You have to have your niche that nobody else knows.

I am against OOS TK. I strongly believe that is a much worse strategy than local investing. Furthermore, if you can not find deals locally, why do you believe you can find deals remotely? Just a higher return on paper does not mean that is a better investment.

There is no shortcut or easy way out in REI. TK promoter on this website tries to tell people that OOS TK is easy and better than CA investing. That is ********, repeated a million times here on BiggerPockets.

Why did nobody want that Hayward property? I'm under the impression that the demand for Bay Area properties is much higher than supply; the sale price is often higher than list price and bidding wars are common. 

I listened to a Podcast here on BP a while ago. It was an investor who found her niche of buying unwanted properties that come with liens attached or big defects (like foundation and structural issues) that put off most buyers. 

Do the auctioned properties on hubzu come with inspection contingency for the winner? 

[Lane Kawaoka]

@JC Wu

San Francisco, Hawaii, Los Angeles, Seattle, Boston are examples of primary markets unless you are going to a Class D area then you will not find cashflow. Its a discussion that divides most people... you can't really get appreciation and cashflow (starting out).

[David Song]

The hayward property is pretty big but with significant structural issues, sloping foundation, garage about to fall, etc. Requires a complete renovation.

The hubzu auction does not have any inspection contingency. Furthermore, they do not allow buyer to turn on water service. Therefore, you have to know what you are doing to bid on those.

[JC Wu]

@David Song I knew there's a catch. The niche you've found is suitable for experts like yourself but too risky for new investors starting out. 

It takes multidisciplinary RE knowledge + big balls to put an accurate estimate on the cost of renovating properties that come with major structural and foundation issues and pull the trigger. One single overlooked item means going over the budget and turns a potentially good investment into a money pit. 

Any suggestions for rookie investors on how to get into those niches without being fully exposed to the high risks?

@Lane Kawaoka Are there even any class D areas in those super expensive primary markets? The class D areas in the San Francisco Bay Area seem to be dwindling rapidly. The properties in the once known "murder capital" of the country, East Palo Alto, are worth millions now. Properties in those bad pockets in Oakland aren't cheap at all. 

@Amit M. You're also an investor from San Francisco? Have you been investing locally with success? What's your niche? 

[Account Closed]

@JC Wu of course there is a catch. If it were easy everyone would do it. Unless you’re willing to put in work, you won’t succeed here.  And it doesn’t need to be broken foundations or complete gut jobs. 

Most people here venture to OOS because there is literally no barrier to entry there. Anyone can drop $50K on a house there.

There are several locations here where you can add value and make a lot of money, both with cash flow and appreciation. Think Oakland, Vallejo, Richmond, Stockton, Sacramento. And I’m talking mainly Multifamily, not SFRs. 

You’re much better off taking @David Song to lunch and pick his brain for an hour rather than poking holes in our local strategies. Just my .02 

[Chris Clothier]

This is the single best piece of advice any investor can receive.  The the cost of a cup of coffee, a beer, a lunch...whatever, you can spend time with an active investor and listen.  Listening is the key!  I've given this advice over and over.  It takes time and patience, success and sometimes failure, to gain 'experience' at anything you choose to do.  There are no short cuts, but there are plenty of  'experienced' investors who on some level are willing to share to those that want to listen.  

Nice share Saj.