Retail investors flocked to the single-family rental market during the pandemic. Now, even people who can’t afford a down payment are getting an invitation.
Roofstock, an online marketplace for single-family rental properties, will start a fractionalization service this year after testing it in 2019, aiming to capture a slice of the surge in retail demand, Roofstock founder and CEO Gary Beasley said. Investors will be able to wager as little as $5,000.
“The idea is we can bring a lot of the same capabilities, analytics and tools that has typically been the purview of just large institutions and make it available to individual retail investors,” Beasley said in an interview.
Oakland-based Roofstock, founded in 2016, isn’t alone. This summer, the investment platform Fundrise expanded into the single-family rental market after getting a $300 million credit facility from Goldman Sachs to construct build-to-rent homes. Fundrise offers access to retail investors for just $10.
Roofstock and Fundrise will be compete for retail dollars with the Jeff Bezos-backed startup Arrived Homes, which raised $37 million this year and says retail investors can buy shares of rental properties starting at $10.
Individual investors returned to Roofstock platform as the pandemic waned faster than institutions, according to Beasley. Transaction volume is up ten-fold since the spring of 2020, when the coronavirus shut down the U.S. economy, and recently surpassed $3 billion.
Roofstock facilitates all stages of single-family rental investments. Instead of having to scout homes and transact and establish property management relationships locally, investors can complete all the steps on line. Roofstock conducts due diligence on individual properties and provides investors tenant and rent data.
In August, Roofstock acquired the property management tech platform Great Jones to streamline asset management for retail investors who are buying, selling and managing investment properties remotely. So far, Roofstock has relied on third-party local relationships for management services.
Roofstock’s purview spans 70 single-family rental markets, primarily secondary and tertiary cities in so-called smile states, spanning much of the South, Southeast and Midwest. Most of the homes fall into the $150,000 to $400,000 price range.
Investors are attracted by relatively high yields of lower-valued homes, Beasley said. As the sticker price of a home rises, yields tend to decline because rents don’t typically scale with price.
Beasley said Roofstock’s efforts are part of a broader effort to democratize commercial real estate investment that has spawned a plethora of crowdfunding, fractionalization and tokenization services.
“It’s traditionally been very hard to access to real estate as a novice investor,” Beasley said. “It’s intimidating. The entry ticket is quite high. It’s complex. And so we’ve tried to demystify it the best we can.”
Correction: Clarifies fourth paragraph to show that Fundrise offers starter portfolio for $10.