Single-family rental marketplace Roofstock lands $35M

Investors searching for rental units to buy or sell can now meet in one place

Correction: Single-family rentals account for 13%

If there’s a market bursting with change and opportunity it’s real estate. Home prices have been rising since 2012; population growth in big cities has been shrinking during the same period as people migrate to the suburbs; VC investments in real estate startups are up more than 30 percent from last year and is nearing $400 million this year; and apparently there's an “unprecedented” boom in single-family rentals.

Roofstock, a marketplace to buy single-family rental property, is capitalizing on these changes. The Oakland-based startup just announced a $35M Series C round, led by Canvas Ventures, with participation from Lightspeed Venture Partners, Bain Capital Ventures, Khosla Ventures, Nyca Partners, QED Investors, and FJ Labs.

"When you think of an apartment building, you don’t vacate them before you sell them," Gary Beasley, co-founder and CEO of Roofstock told me. "Yet before Roofstock there was not an effective way for investors to sell individual leased homes as investment properties, as the current MLS ecosystem is primarily set up to sell vacant homes."

Indeed, I know. My husband and I own a rental property that's also on Airbnb - one of the best Airbnb properties in the Bay Area with a 5-star rating across 75 reviews. If we wanted to sell this home, we'd have to stop business, vacate the property and put it on the market, wasting much valuable time. 

This is the problem Roofstock is trying to solve. To that end, Beasley teamed up with co-founder Gregor Watson to build a platform catering specifically to single-family homes that have tenants already in them, allowing buyers to step into cash flow day one.

Beasley, whose background includes taking ZipRealty public as its CFO in 2004 and Starwood Waypoint Homes as CEO in 2014, estimates that there are 16 million single-family rental homes, representing about $3 trillion in single-family rental asset value, out of a $25 trillion housing market in the US. About one million single-family units are sold each year to investors, out of a market of five to six million homes sold annually to all buyers, he said. Beasley estimates that two-thirds of the single-family units sold each year are rental properties.

Therein lies the opportunity, Beasley suggested, as the vast majority of single-family units are vacant, even though many sellers would probably prefer to sell their homes with tenants still renting.  

Firstly, it's less of a hassle for sellers, who lose rental income for several months as they try to sell their home, not to mention incur the expenses to spruce up and beautify their property; Secondly, it gives a buyer an opportunity to buy an existing rental property as an investment. Beasley said that the homes with buyers are sold at fair-market value, and not at a discount to what they'd sell if they were vacant. 

In the first quarter of 2017, Roofstock sold more properties than what they sold all of 2016, in which 325 homes sold for a collective $40 million, meaning the average home is roughly $123,000. Homes list anywhere between $75,000 and $250,000, he said. 

For these transactions on the platform, Roofstock receives a fee of 2.5 percent from the seller and .5 percent from the buyer. The buyer covers the certification cost to conduct inspections, 3D mapping, and tenant vetting. The seller fee is about half of what a typical seller agent would charge.  

Rise in single-family rentals

Single-family rentals account for 13 percent of all occupied homes in the US and a third of all occupied homes being rented in 2014, in a report by RCLCO, a real estate advisory firm. 

According to the same report, the reason behind the boom in rentals for these properties is two-fold: increased supply of such homes, plus a decline in housing demand after the Great Recession. The 19-month downturn, which lasted during 2007 and 2009, saw roughly four million homes foreclosed on each year, igniting interest from institutional investors, who poured billions into buying these properties. Ultimately, however, they only account for about one percent ownership of the single-family properties.

The rest are owned by individuals. Beasley said the market is extremely long tail, most of the owners of the single-family homes and most of the buyers on the site own two to four properties. 

In the future, Beasley said that Roofstock will also be a marketplace for Airbnb property. This is a great opportunity and as someone who owns a popular Airbnb property, we'll be sure to list it there when we decide to sell.