The real estate industry has been somewhat slow to embrace technology when it comes to transactions, but for the past five years, Roofstock has been there for those who have been ahead of the game.
Oakland, CA-based Roofstock specializes in bringing real estate buyers and sellers together. Investors can use the company’s online platform and purchase occupied properties without doing any of the standard legwork. Roofstock handles the inspections, does the valuation reports and reviews the titles. Investors can use Roofstock to purchase homes in more than 70 markets around the United States. Plus, the recently introduced Roofstock One offers the ability to buy fractions of homes in certain markets if they are looking for diversification with a smaller investment.
“I tell people [Roofstock] is a lot like Amazon for houses,” company co-founder and CEO Gary Beasley said. “You can go on our website and instead of seeing books or shoes, you see houses that you can buy on our site in an e–commerce environment.”
Roofstock’s approach to real estate transactions is what sets the company apart. Typically, an investor will see a home on the MLS and perhaps make an offer. When the property is under contract and goes through inspection, however, negotiation may ensue based on what is found. Roofstock tackles the diligence ahead of time. This allows investors to go from bid to contract to closing without much trouble.
“It’s a much more transparent way to buy because you know exactly what you’re bidding on,” Beasley said. “It’s also very convenient for renters because they’re only disturbed once. Because you come in, do the inspections and say, ‘thank you very much.’ You don’t have people coming by touring the home, which is one of the challenges with rentals. Since we do all of that once, you could be in New Jersey buying homes in Memphis, Atlanta, or Phoenix without leaving your couch.”
Beasley and Gregor Watson co-founded Roofstock because they noticed it was not efficient to sell a home with a tenant in it. Beasley said Watson tried to sell leased homes in Dallas but could not find a broker to take the listings.
“One [broker] didn’t have 500 signs and the other said, ‘You need to kick the people out first so I can sell it’,” Beasley said. “So it was originally Gregor’s insight that said, ‘Hey, if there was a marketplace that could sell homes that had tenants in them already—wouldn’t that be better for the seller and the buyer?’”
Rich Ford, who was the leading investment banker in the emerging single-family rental sector, joined Watson and Beasley as a Roofstock co-founder. They shared a common vision — that with Roofstock’s platform, the seller wouldn’t lose several months of income (due to the home being vacant) or have to hire an agent and pay a large commission. Instead, they could pay Roofstock a low fee and wouldn’t have to worry about fixing up the property to sell it because it was already occupied, and therefore livable.
The last piece of the puzzle for the founders was to figure out how to make people confident enough to buy homes off of their website, not just list them. They realized the answer was addressing buyers’ pain points—mainly the headaches that came with the traditional acquisition process. That’s where they got the idea to do all of the upfront work. This included inspecting homes ahead of time, ensuring the home had a rentable layout, taking and sharing pictures and 3-D animated tours of the property so people would feel comfortable buying the homes from anywhere in the world without actually seeing it in person.
The process also taught Roofstock’s founders the importance of building trust. The company has a 30-day money back guarantee on homes that investors buy through its program to add a layer of comfort. If an investor isn’t happy with their purchase, Roofstock will resell it for free.
“If we have to sell it for less, we’ll make up the difference,” Beasley said. “It’s this idea of getting a marketplace going—you have to stand behind your product and we’ve done that since our very early days.”
Beasley pointed to three critical areas that will help Roofstock continue to grow:
- Deliver outstanding customer service to buyers and sellers;
- Continue to improve underwriting so investors who visit the company site can see well-presented listings with data that they can use to make investing decisions; and
- Attract a diverse inventory from multiple sellers and different types of homes in numerous areas.
“The beauty of real estate is there’s generally a buyer for every type of property,” Beasley said. “You have to match those buyers and sellers and the Internet’s fantastic at doing that because we know what the buy box is of everyone who’s searching on our system. These insights allow us to know what kind of supply we should go out and try to secure.”
Real Estate Is in Beasley’s Blood
Real It only takes a quick look at Beasley’s background to realize it is no surprise he ended up co-founding a real estate company. His father had his own real estate brokerage firm and his first job out of college was with corporate real estate services firm LaSalle Partners (now Jones Lang LaSalle) as a financial analyst.
“I learned a lot and found I really enjoyed real estate,” Beasley said.
Beasley eventually went to business school and expected he’d come out and do something else. He worked for the chairman of Security Capital Group, Bill Sanders, who had also been a prior founder of LaSalle Partners, but was starting another company in Santa Fe. He paid Beasley about half as much as he was offered from other companies, but he accepted because he got to work directly with his boss.
“I essentially carried his briefcase, but got to sit really close to the sun and learn how he founded that business, how he raised capital and managed his business,” Beasley said. “To me, that was a continuation of my MBA. A big piece of advice I give to people coming out of undergrad or business school is do those first couple of jobs for the experience and don’t worry about an extra amount of salary that you’re foregoing.”
Wisely, Beasley took his own advice. That initial, lower-paying job out of business school helped put him in a position where he could advance faster than if he had taken a more traditional career path after graduation. The knowledge he amassed gave him the confidence to take calculated risks with his job choices going forward. Before Beasley got into the single-family rental space, he was running acquisitions for a resort company for six years. He then became CFO of a new Internet-based brokerage called ZipRealty.
“It didn’t make sense to a lot of people,” Beasley said. “Why would I leave this cool job where I’m flying around buying resorts to go to some startup that’s probably going to run out of money? But in my mind, I did the calculations and thought if this works, which fortunately it did, it could be a transformational event personally and professionally to take a company like this, figure it out and maybe take it public someday. We were able to take it public and it was a great life experience.”
Beasley has spent his career in various roles, incrementally building skills and experience which has culminated with having been CEO of four different companies. As Beasley gained experience, he always was looking for innovative models within real estate to take part in—putting him in the perfect position to help create and run Roofstock.
“I’ve been at this intersection of operationally intensive real estate and technology for the majority of my career,” he said. “Roofstock is the culmination of a number of things that I’ve done. It brings together my passion for real estate, technology, growth businesses, and innovative business models. Having been an investor and an operator, I think like an investor, but I can operate like an entrepreneur or manager as situations dictate.”
What’s Trending Today in REI?
When one has worked in an industry as long as Beasley has in real estate, it becomes easier to see what is changing and lies ahead. Fortunately for Roofstock, major investments in property technology, or proptech, have become more common than they were in the past. In 2019, $20 billion was invested in proptech, which would have been unheard of just five years ago when Roofstock was getting started.
There’s currently more innovation around real estate financing—that’s one reason investments in proptech have increased so dramatically. There are now rent-to-own and fractional equity models available as well as trade-in models that allow homeowners to trade in their house and companies will help them buy their next one. Additionally, there are models with both short– and long-term rental income components available.
You have a lot of innovation around how people can purchase homes and finance them,” Beasley said. “[Financial Technology] is very good at coming up with innovative ways for transactions to happen as well as innovative ownership structures—things like rent–to–own models that are helping people get their credit up and put them on a program to buy. There’s a lot of cool stuff happening that is ultimately giving consumers more choice, and I think ultimately giving people different ways to get exposure to real estate.”
Another reason proptech is seeing more funding? People in the real estate industry are seeing other industries benefit from moving from analog to digital with positive results.
“This happened to travel and all these other verticals, so why isn’t real estate moving online? It seems to make more sense.”
There is also more pricing transparency today in the real estate industry, according to Beasley. That’s partly because any data related to a transaction is more readily available. Pre-Internet, there was an asymmetry of information—it was difficult to understand what was going on in the markets and buyers had an advantage because sellers didn’t have the benefit of comparison information and data.
The information is not perfect, but it’s much more improved, which has led to tighter and more efficient pricing. The improvements have attracted more venture capital investments to the real estate industry—that and the fact that real estate is the world’s largest asset class.
“I think it’s a combination of the market size, the fact that it hasn’t been penetrated really, fees have been generally pretty high and there’s a lot of inefficiencies in the processes for real estate closings and transactions broadly,” Beasley said. “When you look at all of those things together—big market, lots of inefficiencies and fees—it’s a perfect storm for venture capital investment into a sector.”
A Word to the Wise
If you needed advice about real estate, you might have to talk to a few different people depending on what aspect you wanted to discuss—investing, running a company, or industry insights. Or you could talk to someone like Beasley who has garnered expertise in all of these subsets of the industry, and more.
For example, when it comes to investing, Beasley always advises people to know their investment horizon because it’s going to inform the types of properties they may want to invest in. For example, if you want to own something for a year or two, you’d look at something different than you would if you wanted to hold on to something for 20 years.
Investors should also have a grasp on their risk tolerance and understand that they have to generally accept more risk to get a higher return. Purchasing a high yielding rental property for example could lead to more volatility of cashflow—there could be some vacancy periods and wide valuation swings, but also disproportionate returns.
“Like with any other investment, I would say investing in rental homes or any other investment, there’s a correlation between risk and return,” Beasley said. “You need to know what your tolerance is for that.”
Speaking of rental properties, Beasley advises not to put all of your proverbial investment eggs in one basket. Owning a primary residence and having a rental property or two in the same area isn’t advised because then everything is correlated.
“A lot of people on Roofstock can achieve diversification,” he said. “Maybe they sell one or two of those properties near where they live. I think to the extent you can achieve some diversification in your real estate portfolio, using a platform like Roofstock, or however you do it is generally positive.”
Finally, Beasley remains bullish on the sector of single-family rental homes—especially in the COVID-19 pandemic. There are likely to be more structural renters as the pandemic subsides, but there’s a shortage of inventory in terms of houses. That means there’s a good chance that there will be more demand for single–family homes, but it is unlikely construction of new homes will keep pace.
“You’re seeing people moving from some of the largest cities in America to these suburban and ex-urban areas, searching for more space, no shared amenities or hallways and less expensive living,” Beasley said. “All of these things bode well for the sector of single–family rental homes to perform well.”
Meanwhile big, institutional investors are going to have to reconsider putting money into office buildings if more people are going to be working from home. The same reconsideration will go toward investing in real estate like hotels, restaurants, and retail stores.
“You check through all of these traditional asset classes in real estate and there are significant risks to them either during or post-COVID because there could be some structural changes in the way people behave,” Beasley said. “Everybody needs a place to live. And even with apartments, we are seeing a number of people moving out of multifamily into single–family because they want a little more privacy and to just be with their family and avoid the contact.
“All of those trends point to a demand for rental homes—both from an ownership standpoint and from a renter’s view because you’re going to have more people who are renting and want a home in their area. It’s a perfect storm lining up, and over the next number of years these rental homes will continue to attract more interest.”
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