Roofstock One Review – Passive Real Estate Investment

Increasing numbers of real estate investment platforms provide investors the opportunity to invest in real estate without purchasing whole properties. Whether through real estate investment trusts or crowdfunding, these platforms allow investors to potentially reap the economic benefits of real estate investing without the risks and hassles of individually holding title. 

As an established name in the single-family rental (SFR) investing world, Roofstock relaunched its Roofstock One program in 2021, which provides a unique investing opportunity.

Roofstock was already positioned as the leading online marketplace for SFR investing (see our Roofstock review for more). 

So how does Roofstock One stack up compared to other ways to invest in real estate?

Key Features of Roofstock One

Historically, if you wanted to invest in rental properties, you had to either buy them yourself or partner with another investor and take  on the heavy lifting of finding deals, arranging financing with lenders, and managing properties. 

Real estate investment funds and crowdfunding changed all that and made it easier to invest without having to buy whole properties. Instead, investors can purchase shares of a corporation that buys, sells, or manages real estate and earn dividends tied to the performance of that real estate. This reduces the barriers for individual investors to gain access to real estate markets. 

But Roofstock One seeks to take these developments even further through an innovative Tracking Stock feature, which we’ll get to in a minute. But first, let’s cover the basics. 

When you invest with Roofstock One, you have two options: you can buy shares of Tracking Stocks or invest in Common Stock. Both passive investment options are currently limited to accredited investors who meet the net worth, income, or licensing restrictions set by the U.S. Securities and Exchange Commission and require a minimum investment of $5,000. 

This investment level is higher than some investment platforms serving non-accredited investors, but low compared to making a down payment as a solo real estate investor. Even better, it doesn’t require any of the traditional responsibilities of property management.

Option 1: Buy Tracking Stocks (Portfolios of Rentals) 

What makes Roofstock One unique is its offering of Tracking Stocks. Tracking Stocks reflect fractional economic interests of curated, fully managed SFR properties. Investors receive targeted exposure to the economic performance of a specific portfolio of properties through this innovative feature and can assemble portfolios across markets and properties that match their specific investment goals. 

In short, each Tracking Stock is associated with a bundle of homes that are purchased, tenanted, and fractionalized across multiple investments. 

Roofstock One Tracking Stocks provide exposure to multiple properties, enabling investors to reduce the asymmetric risk of single property ownership. While investors do not own the underlying real estate, they are eligible to receive pro rata distributions based on the economic performance of the properties, a portion of which may be tied to available depreciation. They may also benefit from potential long-term growth related to home price appreciation.

Before buying, you can view the exact addresses and details for each property included in the portfolios. Details include purchase price, closing costs, renovation costs, Roofstock One’s fee, the monthly rent, the expected operating expenses (including property management fees), and the neighborhood rating.

Roofstock One breaks down the expected returns, including cap rate, cash-on-cash yield, and the target annualized five-year return. In a particularly nifty feature, you can adjust the assumptions and return calculations to get a broader view of potential performance under alternative scenarios. Investors should remember these tools are informational only and do not represent a guarantee of outcomes.

Some portfolios include rental properties only in a single metro area, while others own properties spread across multiple cities. While I was exploring Roofstock One, they had four Tracking Stock portfolios of eight or nine properties each available as investment options.

Option 2: Buy Common Stock

You can also invest in Common Stock, representing the residual equity interest in Roofstock One, Inc., for maximum diversification. Common Stock operates as a more traditional private real estate investment trust (REIT), and is a pooled fund whose value shifts as Roofstock One buys or sells properties.

This option works similarly to other real estate crowdfunding REITs, such as Fundrise or Streitwise. But unlike some other private REITs, Roofstock One exclusively buys SFR properties.

Unlike Tracking Stocks, which can sell out when a particular portfolio is no longer available, the Common Stock offering is continuous. You can buy in at any time.

Modest Debt Ratios

Roofstock One leverages the properties to reduce their cash exposure and increase cash-on-cash returns.

However, they aim to keep each property’s debt ratio in the 50% to 60% range, compared to property costs. Those modest debt ratios help to reduce risk by preventing properties from becoming upside down on their mortgages in the event of a market correction. It also reduces the debt drag on monthly cash flow.

Quarterly Dividends

Whether you invest in Roofstock One Common Stock or Tracking Stocks, you’re eligible to receive quarterly distribution payments.

During those distributions, you receive net rental income collected, after expenses.

1099 Tax Reporting

Investors receive a simple 1099 for their dividend income or capital gains from Roofstock One investments. That makes taxes far simpler than with a Schedule E (for owning properties directly) or K-1 (for real estate partnership income). 

Accredited Investors Only

Only accredited investors can participate in Roofstock One. 

To qualify, you must have a net worth of over $1 million, not including equity in your home; have an income of $200,000 or more for each of the last two years ($300,000 for married couples) and an expectation that you will meet or exceed the threshold in the current year; be an individual holder in good standing of certain FINRA licenses; or invest on behalf of an entity with at least $5 million in assets or an entity in which all the equity holders are accredited investors.

Long-Term Investments

Like most real estate, Roofstock One is inarguably a long-term investment. So long term, in fact, that I couldn’t find any information on their marketing website about how to redeem (sell) shares. 

Before an investor can purchase Roofstock One, they are warned that the investment is not suitable for those with an investment horizon of less than five years. This is because the Roofstock One investment is an unregistered security offered exclusively to accredited investors through a private placement offering, and it is not currently traded on any public exchange. 

Roofstock One states in its offering that they may, in the future, create a secondary market for buying and selling shares. This would improve liquidity and offer investors an opportunity to easily sell or transfer their interests. However, investors in unregistered securities must understand that establishing such a secondary market is complex and they should not purchase an investment assuming that such a market will be successfully established or maintained. 

This uncertainty is typical for unregistered securities and is one reason why the U.S. Securities and Exchange Commission (SEC) restricts such investments to accredited investors. If no secondary market is established by the end of 2026, Roofstock One will sell the investment properties and distribute net proceeds to investors.  

After creating an account with them, I reviewed their offering circular. They outline a Redemption Plan for Common Stock that follows SEC guidance, which they limit to 1.25% of total shares per quarter. Redemptions are fully at their discretion and not guaranteed. They limit the quarterly redemption requests to the lesser of 5,000 shares or $50,000, and you can only have one redemption request outstanding at a time. 

Redemptions not fulfilled in one quarter will roll over for consideration the next quarter. This limited Redemption Plan is intended to protect the stability of the investment, but does limit the liquidity of the investment.

As for selling Tracking Stocks, you can sell them to other accredited investors or, provided that the Tracking Stock has been offered for more than 90 days, you can convert them to Common Stock and seek to redeem the shares.

Advantages of Roofstock One

Roofstock One offers some advantages over buying rental properties on your own and using other real estate investing platforms.

• Passive Investing. Buying investment properties takes both skill and labor. You have to know how to find and evaluate deals, and you have to put in the work of doing so. Financing properties comes with its own hassles and work, as do renovations and repairs. Once owned, you have to go about the work and headaches of being a landlord, from screening renters to collecting rents to evicting bad tenants. Roofstock One handles all of that for you, from buying and financing properties to managing and maintaining them. You can avoid the responsibilities of property inspections, title reports, or property management companies.
• Potential for Diversification. Another challenge in traditional real estate investing is diversifying when properties may cost hundreds of thousands of dollars. Roofstock One makes it possible to spread a few thousand dollars over many rental properties.
• Simplified Tax Reporting. Receiving a 1099 makes tax reporting as simple as dividend income.
• No Shareholder Liability. Landlords sometimes face regulatory and legal challenges. By investing through Roofstock One, you can shield yourself and your personal assets.
• Transparent Fees. Before investing in Tracking Stocks, you can view a clear breakdown of Roofstock One’s acquisition fee for each property in the portfolio.

Disadvantages of Roofstock One

No investment comes without drawbacks and risks. Roofstock One is no exception. 

• Limited Liquidity. For every investment you consider, you should know your exit strategy. And my greatest concern about Roofstock One — and similar unregistered securities — is how limited that exit may be. They may create a secondary market for selling shares in the next five years. Until then, they have a limited Redemption Plan. If no secondary market develops, Roofstock One will sell the investment assets and distribute the net proceeds to investors holding Common and Tracking Stock.  
• Accredited Investors Only. Roofstock One’s investment opportunities are currently available only to accredited investors .
• No Way to Invest with Retirement Accounts. You can’t invest in Roofstock One through your IRA or other retirement accounts, but that is a feature that may be offered in the future.
• Limited Control. When you own a property yourself, you have total control over how you manage and maintain it. When you invest in a REIT, you surrender that control.

How Roofstock One Stacks Up

So how does Roofstock One compare to its most prominent competitors? 

While no companies handle crowdfunded rentals exactly like Roofstock One, here are a few companies competing for the same investment dollars as Roofstock One. 

Final Word

If you’re an accredited investor and love the idea of diversifying into SFR properties, but don’t want all the headaches of being a landlord, Roofstock One offers a path forward.

I particularly like rental properties as a hedge against inflation, at a time when inflation is raging at its fastest pace in decades. Rents rise to keep pace with it, but you lock in a property price and debt payment in today’s dollars.

While Roofstock One relaunched in 2021, the Roofstock Marketplace has a longer track record. It maintains a strong reputation for transparent fees and guarantees and is an accessible way for beginning or seasoned investors to remotely buy listed properties without a real estate agent.

For non-accredited investors, consider Arrived Homes as an alternative way to passively invest in rentals.