In 1994, a company originally called Cadabra was founded with the humble idea to sell books online. The idea was simple yet profound. Leverage the existing payments infrastructure created by Visa, Mastercard, and American Express, the existing online infrastructure that was made possible by companies like Cisco, and the existing delivery infrastructure created by FedEx and UPS to create an e-commerce company. Then Cadabra would stock warehouses with books that were commonly available in Barnes & Noble and other bookstores as well as books that were hard to find. The latter type were part of the “long tail of the curve” – only a few buyers would want those books but Cadabra would be the primary destination online to find them. A few short decades later that company grew to become an online goliath, Amazon.com.
In the early days of Amazon.com’s existence, savvy investors who realized how the company made it easy to buy books and subsequently almost any retail product imaginable online made a fortune as the company grew from strength to strength. But these days that ship has sailed after the stock has risen tens of thousands of percentage points since its IPO in 1997. So where should investors look to next? Recent regulatory changes have created a new opportunity for savvy investors to buy a different tangible good online: property. And as Warren Buffett once famously said if he could buy all the gold in the world or all the real estate in the United States, he would choose the latter for the steady ongoing stream of cash flows.
Getting access to the real estate sector is not new. For years it has been possible to buy publicly traded REITs that enjoy economies of scale and low fees. And accredited investors who have over one million dollars to their name excluding their primary residence or have earned over $200,000 in the previous two consecutive years have been able to access institutional grade real estate opportunities as private clients of top tier investment banks. But up until the JOBS Act of 2012, it wasn’t possible for the ordinary investor to get in on the real estate game as easily as it was to buy books on Amazon.
And then a wave of real estate crowdfunding startups rose up to create enormous value. Companies like Rich Uncles, Roofstock, Patch of Land, RealtyShares, and LendingHome. Some of the investment opportunities are accessible to only accredited investors while others, like Rich Uncles and Roofstock, are available to anyone with the resources to invest.
A rule of thumb among ordinary investors is to be wary of private REITs. Unlike public REITs that are highly efficient, private REITs can pass on hefty fee schedules to investors who may find it difficult to earn handsome yields after all the costs have been computed.
Roofstock stands out as an interesting company in this realm because you can buy an entire property online, not just a share of property as is typical with most real estate companies that have sprouted up to capitalize on real estate crowdfunding deregulation.
While other companies let you pool your money with other investors to own shares of a company that in turn purchases property outright, whether office space, commercial, multi-family units, or residential, Roofstock claims to do the due diligence for you. It figures out where you should buy, navigates the standard real estate investing headaches like school district quality, neighborhood grade, and so on. It distills all the research into a letter grade that informs the investor of the overall opportunity.
The idea is not so much to buy property with a view to living in it, though you could, as much as it is to buy property with a view to finding a tenant that will live in it and pay you rent. Often the properties are already fully rented so investors earn a yield right away. And Roofstock connects investors to property management companies too so investors have an instant resource to help figure out the nitty gritty items that come along with owning a home, like what to do when the refrigerator breaks.
Amazingly, you don’t even have to negotiate the list price, but you should always do comparative checks on sites like Trulia to make sure the price you are paying closely aligns with the fair market value for a property listed on Roofstock.
As with any investment, nothing is guaranteed. Just because Roofstock does the heavy lifting doesn’t mean that the future is bright for your investment. Fed rate hikes and a gloomy economy can dampen forecast expectations and lead to a sub-par returns. But if you have always wanted in on the real estate sector and wished someone else would do the hard work upfront so you could point, click, and buy, this is about as close as you can get to owning equity in property quickly, easily and with fewer hassles than has historically been possible.
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