Buying occupied single family housing has become a favorable investment strategy for many entrepreneurs. The average annual gross return in Q1 2016 was over nine percent with some markets returning over 20 percent gross annually.
Some people want to invest in real estate but find themselves locked out of the market. Investors may not have the liquidity to buy a house outright, or may not be interested in having a leveraged investment. The single family market is also extremely fragmented. If you live in Hong Kong and want to buy single family units in California, you need to build an infrastructure, like deal flow contacts, property managers, and an oversight team, which can be very costly.
One solution for investors is Roofstock, a Khosla Ventures and Bain Capital-backed marketplace of occupied single family homes that generate cash flow from the first day of investing. Investors from all over the world are able to build a diverse portfolio of fractional investments in rented single family properties, or purchase properties outright through a loan issued via the site’s integrated application process.
“Trying to cram everyone into one type of investing style doesn’t make sense,” said Roofstock chairman and co-founder Gregor Watson. “We’re targeting people who want the control of owning the asset outright, whether for generational planning or tax purposes, and those who wants to diversify their portfolio acquire one or two houses.”
Watson started buying, rehabbing, and renting out single family homes after the fallout of the ’08 real estate bubble, amassing $4 billion in investments. Once all the hard work was done and properties rented out, Watson found it difficult to cash out of deals.
“I called brokers about selling a property, and they asked ‘when are you going to move the person out?’” he said. “I started laughing, since the best buyer for this home isn’t local. It’s someone out of state looking for an investment.”
Putting rented single family houses into the right hands isn’t Roofstock’s only function. By digitizing the process of purchasing a property, the marketplace cuts out expensive portions of investment process, like broker fees, and streamlines the financing and title processes.
Roofstock also approaches purchasing properties differently, inverting the due diligence and property security steps. By finding a property, doing due diligence, then offering it to the public at market value, investment terms are clear from day one. There is also less of a worry that a property falls out of escrow, something investors try to avoid when investing in a property.
Investing in single family homes isn’t all sunshine and moonbeams. For those who’ve never invested in single family, things can get pretty sketchy if you can’t find a renter. Prospective residential investors may want diversification that comes with multifamily as opposed to the concentrated risk, or the all or nothingness, of single family.
There are a number of crowdfunding platforms currently available for real estate investors, but Roofstock is the only one focusing specifically on the single family residential market.
Roofstock’s current investor base consists mostly of family offices and institutional investors, who already understand the risks that come with single family investments. Some retail investors have invested on the site, but the site hasn’t targeted these users yet. The company has kept return on investment and total investment dollars on the platform private, but Watson said Roofstock recently signed a deal with an Asian group that wants to invest $250 million on the platform.
“We turned the way real estate investing is done on its head. We’re getting real scale, and now it’s just a time to focus on execution,” he concluded.