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SHOW NOTES FOR EPISODE 441: HOW TO BUY QUALITY OFF-MARKET RENTAL PROPERTIES WITHOUT LEAVING YOUR HOME
What if you could purchase a pre-screened, pre-inspected, cash-flowing property in a good market, with a good property manager and tenants already in place – all with a 30-day money back guarantee? Well, in today’s podcast, you’ll hear from the CEO of Roofstock Gary Beasley who has launched an online service that does all that and more.
What You Will Learn
- How to buy multiple properties online from your home, never have to visit the properties and just collect the rental income
- U.S. housing is the number one asset class in America at around $25 trillion, of which $2-3 trillion is in the rental property market
- How you can buy an off-market, pre-vetted cash-flowing property online
- The difference between Roofstock, Zillow, Trulia and Realtor.com
- How to identify a good rental market
- What are the questions you should ask yourself before you invest in real estate?
- How to know if you have a good rental property
About Our Guest
Gary Beasley
Gary Beasley is co-founder and CEO of Roofstock, a leading technology-enabled marketplace and investment platform for the $3 trillion Single-Family Rental sector. Previously he was co-CEO of publicly-traded Starwood Waypoint Residential Trust (now part of Invitation Homes), and is known as a pioneer in the development of the single family rental sector as an institutional asset class. Gary also served as CEO of boutique hotel company Joie de Vivre Hospitality and award-winning solar technology start-up Greenvolts. Between 2001 and 2007, Gary was CFO of ZipRealty, where he led the innovative Internet-based residential brokerage through its IPO before eventually being named its President. Gary also spent six years with KSL Resorts, worked for leading real estate industry firms LaSalle Partners (now part of Jones Lang LaSalle) and Security Capital Group. Gary earned a BA in Economics from Northwestern University and an MBA from Stanford University Graduate School of Business, where he serves as a regular guest lecturer.
More About Gary
- Gary grew up in a small town in northwest Indiana, 25,000 population, mix of steel country and agriculture
- Went to college at Northwestern
- Learned a lot of new things
- Majored in Economics
- Moved to the West Coast to go to Stanford
- Lives today in the San Francisco Bay Area
- He has developed a passion for real estate and innovation
- That’s where his career has centered
- He likes building things – early stage opportunities
- He’s looked at trends that are developing in real estate and has tried to build or join models that will be transformative
- If you can do something that has a macro tail wind, you have it greatly enhances your chance of being successful
- He’s done that with a number of sectors including hospitality, solar industry, real estate technology (Zip Realty – an online brokerage) and the single family rental space (for the last 10 years) as an investor and business builder
- A couple of friends got together
- In 2009, one friend, Doug Bryan, who owned Waypoint Homes, mentioned he was buying homes in the far east bay area at significant discounts
- Doug talked about how he was buying homes that were once valued at $400,000 for as little as $120,000, put $20-25K into them and rent them out at a nice yield
- You could just buy a bunch of cheap houses and sell them in the future or maybe even build a platform and create, effectively, a horizontal apartment building by buying a lot of comes and trying to manage them efficiently using technology
- Gary ended up investing with Doug, along with another friend Colin and eventually quit his private equity job to join Doug and Waypoint Homes to raise institutional capital
- U.S. housing is the number one asset class in the U.S. at about $25 trillion in the housing sector
- In that, $2-3 trillion was rented out long term and there was no way to invest in that asset class
- Mom and pop controlled
- No institutional investors
- No tools
- The financing market was poorly controlled
- In 2011, Gary thought, this should be an institutional asset class and, if they could aggregate assets and manage them efficiently, they could attract a lot of capital build a real company around it
- Today, there is $40-50 billion of institutional ownership in single family houses
- He and his company were at the forefront of opening this up to institutional investors
- In 2009-2011, not a lot of single family homes were being purchased because they needed a lot of work
- In early 2012, the houses started appreciating and housing market started to pick up
- The institutional money provided a bottom and helped restore confidence
- In that, $2-3 trillion was rented out long term and there was no way to invest in that asset class
Content vs. Commerce
- The major difference between Roofstock and sites like Zillow, Trulia and Realtor.com is that Roofstock provides the opportunity to transact business and purchase online, whereas the others only provide content
- It also breaks down the geographic barriers to investing. You can buy anywhere in the country
- You can have a diversified portfolio
- 93% of their investors buy outside of the areas they live in
- For international investors, the U.S. market is hot and Roofstock makes it easy to invest in the U.S.
How Do You Know if You’re Getting a Good Property?
- All of the properties listed on Roofstocks site have already been vetted
- Properties have had a recent inspection & valuation
- Property Analysis
- Pictures, floor plans, 3-D tour, 3-D model, curb view
- Property inspection & valuation, title report & insurance quote
- Interactive tools for visualizing return and cost estimates
- Current lease, tenant details and payment history
- Market Analysis
- They have researched the local markets and have neighborhood scores rated from 1 to 5 scores
- Rated by census track area – 200 or so homes
- The rating is a proxy for risk
- 5 star neighborhoods are higher end, have better schools, lower volatility, but lower yield
- With lower star ratings, rent is higher relative to purchase price, they have higher yields, but there may be higher volatility
- You can also see rental prices compared neighborhood by neighborhood
- Property Management
- Roofstock also provides referrals to pre-vetted local property managers
The Online Search Process
- Use custom filters to tailor your search by list price, desired return, location and more
- You can also sign up for alerts and be one of the first to get notified when a matching property becomes available
Biggest Mistake(s)
- When they were first putting the company together, they were overthinking the business and making it too complicated – offering too much choice
- They found that people wanted simplicity over choice
- Also, early on they didn’t invest as much in data science
Biggest Success(es)
- They launched a fractional ownership program, a security, called Roofstock 1, for accredited investors only
- Investors can invest in a share of a home that Roofstock owns and and manages and drop it into a trust
- Investors can buy as small as a 10th share
- The home is already financed, insured and has a tenant in the home and they do the property and asset management
- And if, in the future, instead of selling the home, you would just sell the shares, like a share of stock (it’s actually a security)
- It’s like a REIT of one house
- For example, instead of investing $30,000 in one home, you could by 10,000 slivers of multiple homes across markets and get diversification
- The reaction was extraordinary
- The sold out of shares
- They are now looking at a new fund later this year
Advice for Old Dawgs Looking at Real Estate Investing to Help Them in Their Retirement Years
- You have to start with a few questions
- How much would you like to invest?
- What’s your appetite for risk?
- What’s your desire for generating yield vs. total return?
- Do you have any geographic preferences?
- Go to Roofstock.com and play around with it a bit
- They have built it with some tools with the investor in mind
- They have tried to make it intuitive as possible, to make things understandable but powerful
- Create a sample portfolio – see what it looks like
- Talk to one of Roofstock’s advisors
- Check out some of the educational resources – podcasts, webinars
- See if you want to invest some of your retirement in real estate
- Roofstock also has duplexes through fourplexes
Current Business
- Real estate has been very slow to adopt technology
- Billions of dollars are now flowing into “PropTech” – real estate technology
- He sees Roofstock becoming a global marketplace for trading investment properties for global investors
- Could be multifamily or short term rentals as well
- They currently have 20 years of ideas that they can chip away at
Rap-It-Up
- Favorite real estate book: A Man in Full by Tom Wolfe
- Favorite business book: Entrepreneurial Leadership by Joel Peterson
- Most valuable web site for success (other than your own): LinkedIn
- Favorite app: Spotify
- Favorite quote: “You miss 100% of the shots you don’t take.” – Wayne Gretsky and “Skate to where the puck’s going to be not where the puck’s been” – Wayne Gretsky
- If you had to start all over, knowing what you know, and you only had $1,000, what would you do to launch your real estate investing business? He would look at REITs and look the ones that are trading at the biggest discount to net asset value – that’s readily calculable. For example, let’s say it’s a company whose net assets are $100 million and the company is trading at $70 million market cap. You’ve got a fair degree of cushion. Find the ones who have dropped the most but are now at the biggest discount to the underlying value of the assets because, eventually, over time, they tend to migrate back to net asset value. He’s tried that a few times in the past and it’s always worked. If you’re patient enough you can make some money relatively quickly when things get back to the level that they should be and you can sell it. Then, you could repeat again and again.
How to Reach Gary
- Website: Roofstock.com
- Email: Gary@roofstock.com
DISCLAIMER: Many of the above strategies take knowledge and have a higher degree of risk. You need to do your research and/or work with someone who is experienced to reduce your risk.
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