Newbie Guide to Buying Turnkey vs. Doing it yourself

As is so often mentioned on the BiggerPockets podcast, a huge part of the real estate investing battle is just getting started. It can be an intimidating and crazy process. Enter Roofstock, Homeunion, and other online/Silicon Valley style turnkey providers. Despite being a finance professional, having experience in commercial real estate, and several years researching rental property investing I was still hesitant and intimidated.

It was too easy to make excuses and procrastinate. Boston and all of New England are too expensive. I’ll do it after I finish my graduate degree. Finally Roofstock made it so easy that I no longer could make any excuses, and I bought a single family rental in North Carolina in October 2017. Then a year after I purchased single family rental on my own in AL in July 2018, did a light renovation, and just rented out in December. I think it would be very helpful for other newbies to try and describe both ways from a newbie perspective.

Roofstock is an online listing of turnkey rentals. Most are currently rented. There is a huge variety of quality, condition, and desirability. You have everything from wildly overpriced tiny cottage styles homes that need tens of thousands of dollars in repairs to reasonably good deals in reasonably good markets. However that is likely the best you are going to do in my experience on the website. As the BiggerPockets podcast and other resources will tell you, the best deals are almost always offline.

The pros of my experience on Roofstock pretty much begin and end with getting my butt off the proverbial couch and getting started. I had researched for years, knew the markets I liked, and had professional experience in real estate and financial modeling. So once I was on the website I felt very comfortable, and they will kindly guide you through the home purchase and mortgage application process. You are essentially going to pay around retail prices for having a mentor type figure baby you through the process. I am not insulting this. I think without this I may never have gotten started.

The cons of my experience on Roofstock are plentiful. Firstly Roofstock does its own inspection by a generally non-certified person, they frankly stink, and you are not allowed to get your own. My inspection missed multiple issues a professional certified home inspector would likely have caught. These included an HVAC system that was very dirty, had not been maintained, and had been run for years without a filter. The pictures were low quality and grainy. The Roofstock inspection just noted the age and model, but did not note the obvious fact that, any layman could see, the unit clearly was in less than ideal shape for its age. Also financial estimates on the website are often not realistic. Insurance, repairs & maintenance, and other costs were underestimated, but to be fair I think most turnkey providers tend to paint a rosy picture. Except for the furnace repair, my actual numbers have tracked better than my own estimates, but you have to be sure to make your own estimates.

Finally there are just tons of bad deals. There are war zone neighborhoods, houses in horrible condition, tenants that are months late on rent, houses listed at even above retail market prices, and a host of other issues. I purchased a home with no tenant as I had read numerous posts online about people who ended up with tough tenants from unscrupulous landlords. This is a buyer beware marketplace. I think Roofstock is nice and means well, but ultimately you have to live with the deal and property. If it’s a bad deal you’re on the hook not them. Consider that carefully before buying.

In July 2018 I purchased another single family rental in Alabama off the MLS. I was able to find a great real estate agent that I would happily use again. He was able to walk me through the process just about as well as the Roofstock customer service team did. He was responsive and professional. I found him by simply going to Zillow and in the online inquiry box I put, “Please do not contact via phone call. I am traveling for work and can only respond to texts and emails.” He was the only one who emailed. Every other agent either called, was unprofessional, or was eventually unresponsive. My subtle takeaway from David Greene’s book on long distance real estate investing was to do this while keeping your day job you need people who will email and text.

I had previously lived in AL for 6 months for work, and I knew exactly where I wanted to buy. There are pockets with good incomes, low crime, and growing population. Getting a professional certified home inspection was night and day from Roofstock. This guy took aerial photos with a drone and found repair items Roofstock never would. Inspections are worth every penny. As someone who is not a naturally great negotiator they are also a terrific negotiating tool. I was able to haggle down multiple times by just pointing to the inspection. “I know it’s a great house but the inspection shows there is some shoddy electrical work that needs to be rewired.” It’s just like the car salesman who is supposedly on your side but his manager is really the bad guy, I was able to point to the inspection every time I asked for a better deal. It’s amazingly helpful, and I’d never do another deal without one.

I found a NARPM registered property manager, and found this to be a huge improvement over my Roofstock property manager. This property manager was clearly much more professional, organized, and responsive. They actually were able to handle the renovation for a 10% cut. I painted the whole house and kitchen cabinets, did some minor repairs, did a deep clean inside and out, and replaced the dingy carpet with new luxury vinyl planking for under $10,000. After a toilet overflow resulted in $600 of carpet cleaning alone in my NC house, I quickly realized replacing carpet with tougher waterproof flooring is well worth the expense.

Overall I’m thankful to Roofstock for a B+ deal and getting me into motion, but I wouldn’t use them for any other purpose than a first deal. Going forward I really enjoyed buying with an agent, and eagerly look forward to doing it again.