There are plenty of startups that say they’re making it easier to buy a home. There are fewer startups that are promising to make it easier to buy a home as an income-producing property. Among these is Roofstock, a four-year-old, Oakland, Calif.-based online marketplace where buyers and sellers buy and sell rental homes in more than 70 U.S. markets — homes with tenants residing in them oftentimes. The idea: Both institutional and retail investors can buy and sell homes without forcing renters to leave their homes; buyers can also presumably generate income from day one.
It’s a huge market to chase after. Though there’s an assortment of (huge) estimates out there, Roofstock pegs the single-family rental market at a whopping $3 trillion. Investors just gave the company a fresh $50 million to go after it more aggressively, too. Earlier backer SVB Capital led the round, but it was joined by Citi Ventures, Fort Ross Ventures, Mark VC and 7 Global Capital, as well some other earlier investors, like Khosla Ventures, Bain Capital Ventures, Lightspeed Venture Partners and Canvas Ventures.
The company, which says it has facilitated more than $2 billion worth of transactions since launching, isn’t willing to talk about its post-money valuation (it has now raised $133 million altogether). But its co-founder and CEO, Gary Beasley, answered some of our other questions this morning.
TC: How, or where, does the company drum up inventory?
GB: Roofstock’s properties come from a variety of sources, including individual property owners directly, brokers and agents who represent owners of investment properties, property management companies, listing services and institutions. Last year the number of home sellers on Roofstock’s marketplace increased by 10 times.
TC: And they can list tenant-occupied properties on your marketplace?
GB: Yes [and that] has been difficult to do through traditional channels.
TC: Is there anything preventing new landlords from increasing the rent of tenants as soon as a property changes hands?
GB: Landlords need to honor existing leases and follow local laws and regulations when contemplating rent increases.
TC: Who determines pricing — Roofstock or the sellers?
GB: Sellers ultimately determine the pricing and sale strategy [but we] provide sellers with several data-driven tools to help them set a listing price, including comparable sales values, probabilities of sale at various prices and estimates of days-to-sell. We also provide sellers with the ability to field offers on homes or list at a non-negotiable price. Nearly all sellers on Roofstock select the option to field all offers.
TC: Do you use any other information ‘hubs’ to assess the value of properties?
GB: We combine our data with various third-party sources, like Corelogic, House Canary and Zillow to give investors a portrait of a property that includes valuation, neighborhood rating, comparisons with similar homes, as well as other tools and information.
TC: How does Roofstock get paid?
GB: We make money through each transaction. We charge 2.5% to sellers, and .5% to buyers.
TC: How long on average does it take to sell a house?
GB: The majority of properties that sell on Roofstock go under contract within 15 days or less, which is significantly faster than the industry standard.
TC: How many properties has Roofstock sold thus far?
GB: We’ve facilitated more than $2 billion of transactions on our marketplace since we launched, and as of the fourth quarter of last year, our run rate was about 500 home transactions per month. It’s been extremely popular with the next generation of investors: 75% of our users are first-time real estate investors, and more than half are under 35.
TC: You operate in more than 70 U.S. markets. Where are you seeing the most transactions?
GB: The top markets on Roofstock are Atlanta, Memphis, Indianapolis, Jacksonville and the greater Chicago area.
TC: How might a downturn in the economy impact the company’s business?
GB: Broadly speaking, single-family rentals have historically been a strong investment option during economic downturns. During the 2007 to 2011 housing downturn, rental rates [showed] positive rent growth despite broader economic conditions.