Oakland-based startup Roofstock has raised $20 million in Series B funding to support its platform, which allows users to invest in the $2 trillion single-family rental home sector in a manner similar to traditional asset classes like stocks.
Roofstock, which publicly launched in March, has started a marketplace for single-family homes that are already rented out to tenants. The company provides independent inspection and certification of the property, tenants and property managers, as well as a 3-D walkthrough that allows prospective investors to get a look at what they’re buying without disturbing the people living there.
It makes money from charging sellers and buyers a percentage of the sales price, around 2.5 percent and 0.5 percent respectively.
Roofstock’s CEO and co-founder Gary Beasley, who previously served as CEO of Starwood Waypoint Residential Trust, a publicly-traded REIT, said that he saw an opportunity to create a win-win-win situation with the platform. Previously, Beasley said sellers had to wait for leases with tenants to end before marketing the property, leading to months of lost rents and value.
“Sellers are willing to sell for less because they know that without the additional hassle that they’re going to net more and buyers can get properties for cheaper that already have cash-flow,” Beasley said. “Tenants win too because they’re able to stay in their homes during the entire process.”
Join the conversation: Follow @SFBusinessTimes on Twitter, “Like” us on Facebook and sign up for our free email newsletters.
Beasley said that interest from investors sped up the company’s timetable for fundraising. This funding round is being led by Lightspeed Venture Partners, with additional participation from investors like Khosla Ventures and Bain Capital Ventures.
“We were not initially going to raise this round so quickly because we really didn’t need the money yet,” Beasley said. “It’s means expanding geography a bit faster, hiring more on our sales and marketing team and expanding to attract more international capital.”
To date, the company has raised $33.25 million in equity funding, since being founded last year.
Will Kohler of Lightspeed Venture Partners said that the company was driven to invest in Roofstock because of confidence in the company’s management team and their innovative product.
“We invest in a lot of fintech and real estate is one that has started to see some marketplace approaches, lending approaches and now enabling tech to support that,” Kohler said. “From a macro sense, with single family REIT space, you’re seeing an investor-base where you could see economy of scale. Plus, positive signals in stock prices and market caps and additionally a lot of macro forces like vacancies being really low.
Currently, the company is active in 10 markets across the country – including San Francisco and the East Bay – with more expansion plans in the works.
One major growth opportunity for Roofstock is the development of investment funds on the platform, which allow investors to buy into a diversified portfolio of properties. While Roofstock itself doesn’t act as a principal, it allows others to use their marketplace, logistical backend and asset management tools.
“The analog is to call it an E-Trade account for real estate,” Beasley said. “We want you to be able build up your portfolio across different investments styles and funds with different strategies. For example, putting $25,000 in a high-yield fund, $25,000 in a growth fund and $50,00 to a balanced fund.”
To attract more institutional investors, the company has also recently started a 1031 exchange program. Under the terms of the program, a seller of a large multi-million dollar multi-family apartment building can then buy into a portfolio of Roofstock properties, thereby deferring capital gains tax.
Investor interest has also been piqued through integrated pre-approvals for financing through lender TRU Mortgage and a soon-to-be-released asset management system that collects financial reports, property documents and communication in one convenient location.
“The idea is to make it very simple,” Beasley said. “We’re trying to be the go-to marketplace for residential real estate investing.”
Three keys to success
Find a partner that balances you
“Pick a co-founder with complementary skills who will challenge you,” Beasley said.
Keep plugging along
“Don’t be discouraged when you hear ‘no’ from a lot of people. The more innovative your idea, the harder it will be for people to get their head around it.”
Be prepared, but be bold
“Research heavily before you dive in to develop conviction in your idea, but once you do, be bold and don’t look back.”
Founders:Gary Beasley, Gregor Watson, Rich Ford and Devin Wade
What it does: Provides a marketplace for buying and selling single-family rental homes
Total funding:$33.25 million
Reposted from San Francisco Business Time