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. 

[JC Wu]

@Account Closed

[Tom Ott]

Originally posted by @JC Wu:

@Account Closed

 Hello,

Thanks for the shout out. I would not say that is specific to them at all. I have heard MANY times about companies that do CASH ONLY deals. I am not a fan at all. To me, that just means they are afraid of appraisals. Now, if they have another legitimate reason, that is different. I have not heard one yet, but I also have not worked with a cash-only company before. 

Sometimes appraisals come in wrong. That happens. Zillow's estimates are almost never right, this may have been a coincidence. I have seen failed appraisals that when challenged came back better. I have also seen second opinions that justify the sales price. Appraisers are humans and can make mistakes. Sometimes they do not pull comps that were renovated at the same time. For example, if we are dealing with a Smartland Turnkey that was renovated in 2019 and a comp is a home that was last renovated in 1985, that is going to be a problem! 

Sorry, I can ramble. In short, I am not a fan of cash only. Don't sit well with me.

[Account Closed]

@JC Wu I'd definitely consider us a bit more of a curator than a turnkey provider :) But my 2c is as follows:

We would NEVER, EVER, EVER offer a property as cash only because we have reason to believe there is risk beyond inherent appraisal risk that the property will not receive an acceptable valuation. 

Notice I said "beyond inherent appraisal risk". I've seen over 100 appraisals on small 2-8 unit buildings in the past 18 months and only one has come in far enough below value that an escrow has had to be cancelled. The property was being sold at 95k, the valuation came at 60k. I aided in an attempted appeal, showing comps within a mile that had sold in the last 6 months with a $/sqft that were at or above the $/sqft that would value this property at the 95k asking. Appraisal appeals rarely work, so I recommended the buyer don't purchase the property and I kept it. I'll likely try to sell this again in the future, but with an appraisal because I truly believe this was a fluke valuation. The point here is that in markets with an abundance of working class rental property, there will always be good comps and bad comps. Some appraisers are just going to choose comps on the less favorable side of the spectrum. 

Ultimately, we price properties based on three things: 

1. Cap rate

2. Condition

3. Market value based on comparable sales of our own in the area that have appraised at their sale price. We comp with our own product because we know our previous sales' characteristics (condition, rents, etc...)

I still stand by a previous message of mine on this thread: It is the buyers responsibility to determine acceptable criteria for purchase, and terms of agreement that allow them to perform their due diligence. 

Unless you're a buyer that feels confident in the market & asset you're purchasing an OOS property in... have a third party inspection in hand an appraisal contingency if you're purchasing with financing. If you're purchasing with cash, look for comps in the area. DO NOT OPERATE SOLELY ON TRUST OR A RELATIONSHIP WITH YOUR PROPERTY PROVIDER. Build a relationship with your provider, please... but feel confident that the information you are receiving from them is accurate and if need be, verify this information. Be responsible for your own purchase decisions!

[Marco Santarelli]

Thanks for the mention@JC Wu.

Even if a “cash only” deal isn’t coming across as suspicious, you lose one of the greatest benefits of investment real estate without the power of leverage!

Wealth is created much faster with financing (OPM).

Continued success!

[Jason Pabon]

Hi @JC Wu - typically homes under 60k will need to be cash only. There's rarely any lenders that can finance these smaller loans. Other times, it's at the sellers request to mark as cash only. If it's a deal breaker, you can ask the seller if they're open to financing before submitting an offer. 

Appreciate you sharing your post/pain points from a buyers perspective. We're always looking for ways to enhance the customer experience so please feel free to share more ideas. FYI, I personally bought two rentals myself so happy to speak from an investor's perspective. 

[Engelo Rumora]

Originally posted by @JC Wu:

@Account Closed

Thanks for the mention.

For the last 3 years we have only offered our properties to cash only investors.

When you have one of the best reputations in the business, you get to choose how/who you want to sell to hehe

We don't believe in leverage and suggest investors first understand the "beat" of their portfolio before using leverage to further expand it.

Too many investors get sucked into low class properties with leverage that end up costing them a tonne of money.

So the promised land of less work and financial freedom turns into a nightmare as now they must work harder in their 9-5 to cover the losses/mortgage on their loosing real estate portfolio.

IMO it takes 2-3 years to truly understand what you can expect from a net return on investment year after year.

Most turnkey providers don't give a crap who/how they sell as they just want sales and have no client criteria.

Sure, we could be like many others and offer deals via financing, manipulate appraisals and supposedly sell properties for fair market value.

I've been in the game long enough to see/know almost all of how it works.

So for folks thinking that buying with leverage is safer, I suggest thinking again.

We just don't believe in such an approach and in return only retain 10% business out of all inquiries due to our no leverage policy.

Still, I don't think we will ever change because it's just a painless process for all involved.

Thanks again and much success

[JC Wu]

@Tom Ott@Engelo Rumora@Marco Santarelli@Account Closed Thank you guys so much for taking the previous time out of your busy schedule to enlighten me and other newbie investors who seek valuable info from this thread. It's super interesting to learn how different your investment philosophies and client criteria can be as reputable operators that serve out-of-state investors. 

@Jason Pabon According to X's story, the property was listed at 90K, which is obviously over 60K. The seller was open to financing before knowing the appraised value was 30K lower than the Roofstock valuation & list price. 

I appreciate you offer to share your perspectives as a Roofstock buyer, but you have conflict of interest since you work for Roofstock. It's like the huge fraction of Roofstock's five star Google reviews are written by your business partners/vendors/certified property managers, then you tout on the homepage your website "Our customers love us. Customers give us 4.9 out of 5 stars on Google Reviews."

Roofstock does seem to be a great place to work. I hope you enjoy your new job, though I'm afraid being the new PR guy on BP won't be easy given your company's conduct. Take care and good luck. 

[Chris Clothier]

@JC Wu,

You have to remember one thing in this forum post, Roofstock is a marketplace where other sellers list their properties.  

In the case you are talking about, it is not roofstock that is relisting at the original sales price with a cash only criteria, but the seller. Right or wrong, the buyer should be calling out the seller not roofstock. The same scenario could play out on a local MLS or any other listing site.

As for Turnkey companies (Roofstock is not a Turnkey company), I think a vast majority that have a requirement of cash only transactions do it for a reason that is not in the favor of the buyer.  It could be they are underfunded and need quick turns, it could be that they do not want the thrid party scrutiny, it could be that they are purposely over-pricing their homes compared to the value they are offering.  Lots of bad reasons.

Full disclosure - I give advice all the time to avoid companies that require you to close with cash.  Companies are free to set their own rules for doing business with them.  I don't know of any good reason to make it a requirement other than it is easier to get deals closed quickly.  I would add that I would be more concerned if the company did not allow third party inspections or third party appraisals.  If a company wants to conduct their sales as all cash transactions, but is happy for a buyer to hire an independent inspection and appraisal, then I would say that alleviates alot of concerns.  It is the combination of all cash plus lack of transparency and due diligence allowed to the investor that would worry me.

Hope that helps.

[Tushar P.]

@Engelo Rumora 
How is cash only deal better than leveraged deal - is it because you sell very cheap houses with very high cap rates, which makes the opportunity cost associated with the cash downpayment to be irrelevant, and also makes the cash-on-cash roi for the cash only deal to be higher than a leveraged deal?

[Engelo Rumora]

Originally posted by @Tushar P.:

@Engelo Rumora 
How is cash only deal better than leveraged deal - is it because you sell very cheap houses with very high cap rates, which makes the opportunity cost associated with the cash downpayment to be irrelevant, and also makes the cash-on-cash roi for the cash only deal to be higher than a leveraged deal?

Buying with cash is much better in my opinion.

Especially for our market.

Most investors only use leverage because they "can".

There is usually no strategy behind using the leverage.

Our price points are so low that most investors just prefer to buy with cash.

The price of one of our properties is pretty much a downpayment for any other property in other markets that aren't in the Midwest.

Cash deals always offer a much higher return than leverage.

Leverage is a risky game for beginners.

Learn what you are doing first before borrowing money.

Just my opinion for a path that has proved to work for me and our investors.

Thanks and happy holidays.

[Sohail Ahmed]

DO NOT USE THIS COMPANY. They tell you a lot of BS in their company materials. The biggest joke is that the CEO was able to close on his mortgaged home in 2 months and cash would get you there in less than a month. 

I paid cash and it took nearly 3 months. Maybe he's the CEO and they SPEED THINGS UP FOR HIM. 

Also - I bought a home and the costs were way higher than the income for a year before I finally gave up and sold at a huge loss. Trust me - you do not want to be overseeing a management company while out of state. This involves tremendous stress and likely little to no profit. 

HVAC maintenance: $375 twice per year
drain repair: $323
drain cleaning: $250
concrete step repair: $480
HVAC maintenance $156
HVAC unit goes out: $400 to tell me it can't be repaired and they'll need to spend $4,500 on a new one (revised down to $2,500 after I said I won't pay and they said it can now in fact be repaired)
Window AC: $700

None of this stuff was listed on their repairs report. 

This experience cost me nearly $10G and one year of my money sitting in a crap house instead of a massive bull market. Do NOT buy out of state. Buy a REIT. Don't get involved with these types of purchases. The only one making money are the management companies and Roofstock.

[Eric Furst]

I posted earlier on this thread about my experience with roofstock, which was a mixed bag so far. In keeping up on the posts, I think the problem some people have with them is their expectations. To be clear, they are largely the fault of roofstock's own marketing.

If you go in expecting a seller to be honest, and not a salesman. Or if you go in expecting RE investing to be strait gains, and especially in that first year. You are likely to be very disappointed. Yes, the long term goal is wealth building, but that takes time. 

If you have money sitting in the market growing consistently year after year these past ten years, a $10k hit may push you to sell. But people who have seen their portfolio value drop before, understand that you only lose money when you sell. Of course there will be down years, both in the market and in any rental property. And in all likelihood, the first years when you are learning on the job will be the worst. But to sell out then, is to lock yourself into those losses, and to lose out on the experience and, hopefully, future gains.

Now, Roofstock should not be absolved in all this. They market themselves exclusively towards newbie OOS investors, and tout the expected gains never once mentioning the downside. They are not balanced, but I have never really assumed that a salesman is fair. So that may have saved me some of the pain. Yes I lost some money this first year, but I am starting to see the turnaround. And recent sales comps in the area make me think I might be able to get much more for my house that I purchased it for. That would more than make up for any losses I may have incurred so far

[Wilson Pe]

Check out this review on Roofstock -

https://www.youtube.com/watch?v=HjpvS2JzjS4&feature=youtu.be

[Cosmo Lee]

@JC Wu Thank you so much for this post and your story, I read it all.  I found the site after reading about an article on Millennials' real estate investing habits.   The site is pretty sleek and savvy and I started looking at the properties.  I saw one property that caught my eye.  The numbers looked pretty strong. Because of BiggerPockets, I've learned to be very diligent and use multiple sources for research on real estate. However, much like you and some of the other users have posted, the price was lower on Zillow by a significant amount and the property hasn't been sold for a while. Because of this, I went straight here to see reviews for Roofstock and sure enough I found your post along with some others.

[Matt Dos]

I worked with Roofstock first time and the experience was just horrible. The staff is not supportive at all. I was trying to buy a property, but seller was giving hard time. They kept extending the closing dates for weird reasons and Roofstock did not take any action against them, just because the seller had big account with Roofstock. Roofstock staff did not bother to communicate that the seller will not be able to close. When I follow up one day before, they would tell me that the seller is not ready to close yet. I did not see any professionalism from Roofstock employees, including their senior management. Dont waste time with Roofstock.

[Meinklang Sudatrol]

This post is a hundred percent correct! Roofstock is very dishonest and disreputable. I suppose if you are an experienced investor it will work for you but if you are a newbie, avoid these people at all costs! They refuse to honor their 30 day money back guarantee and the properties listed for sale are often grossly misrepresented in terms of value and condition. Don't believe a word you read on the Roofstock website! The inspection reports are useless. They are wildly inaccurate. They leave out major things. And the Roofstock valuation is pretty much whatever the seller lists it at. If the property is worth 25k and the seller lists it for 65k, Roofstock will value it at 65k when there is no basis in reality for that. Stay away from this dishonest business you can get hurt very badly and when you do, you will not be able to avail yourself of the 30 day money back guarantee. It is on the website in bad faith to entice you to buy with confidence when you cannot purchase any of the misrepresented properties that Roofstock lists with any sort of confidence. Do not do business with these people you will be sorry

[OLIVER WARDERS]

Isn't the $30K loss because you wanted to sell the property at discount? Did you ever attempt to sell at full rate? Also did you tell the buyer or prospective buyers of the issue, and if so how did they handle it? Did they ever also disclose the issue? What happened if you disclosed the issue? Did you sell the property on the site or other mls?

[Simon Castillo]

My experience with Roofstock as a customer is that it is a good marketplace for turnkey properties, the customer service is generally good but I would caution newbie investors who think it's as easy as just buy and hold for passive income. Many properties have deferred maintenance and rents and market values may be off. 

Also the financial numbers presented need to be verified. Many properties are not in good appreciation areas and cash on cash returns may not be great either. There is a price to pay for passive, turnkey rentals that comes from the financial returns.

[Tony Kim]

I sold some properties on their website. Properties they list obviously get exposure to a very large market-place of like-minded investors and I was able to sell my properties to cash buyers using Roofstock. After a few years of holding, I was able to sell at a modest profits, so I have to be relatively thankful to Roofstock. But with that said, I have some serious reservations about ever using them going forward. 

First off, you won't find any great deals on their website. There aren't any distressed sellers and everyone is like you... i.e., they all want to sell at maximum value. If that's the case, why not just use one of the Turnkey providers here that will provide you with a nicely rehabbed property?

Also, everything moves at a snail's pace. It was also very frustrating because I often had to provide the same information several times and they still couldn't get it right. As an example, after the inspection for one of my properties, the buyer came back with a request of items to be repaired. I responded by saying that I would get estimates and provide credit for every single item....because we were already so late in the escrow process (again, due to VERY slow response times from Roofstock).  After getting estimates for everything and providing an itemized breakdown of the credit amounts, for some reason, the deal continued to stall for weeks as the representative assigned to me kept on saying they were waiting to hear back from the buyer.  Well, as it turned out, the reason the buyer didn't respond was because they never sent my offer of 100% credit back to the buyer! I must have told my Roofstock agent at least 5 times that I would credit EVERYTHING the buyer wanted....it was still never communicated to the buyer. Instead they kept telling them that I would only offer partial credit. I also had to go back and tell her the exact date and time in which I sent her the email with the itemized credit. She admitted to letting that email fall through the cracks after she found it (LoL, she missed several of my emails!). Luckily, things moved quickly after that. Can't imagine how frustrated the buyer must have been as well. Terrible communication!

The above is just one example. Everything else moves VERY slowly. I had to upload my lease agreements and tenant registers a few times before they got it right. I also had to frequently call my roofstock agent because she was unresponsive to my emails.

Typically, cash transactions close within 3 weeks....often less. My transaction took two months after entering escrow. Due to how busy they are, I also have serious reservations about how efficiently they will fix things under their Roofstock guarantee. They have a snazzy website that's very easy to use, and makes purchasing properties very tempting and seem very simple. But new buyers should beware...don't be fooled by the nice looking UI. Everything is a mess underneath.