Industry sources say click-and-buy strategies are an indication of the future of real estate investing, especially when it comes to single-family rentals (SFRs). That’s because transactions completed through online platforms can reduce the cost, time and risk involved in the process.
“There is no doubt that more and more of residential housing transactions are moving online and that trend will continue, especially as it becomes easier to fully digitize the experience,” says Jake Fingert, general partner at Camber Creek, a venture capital firm focused on real estate tech.
However, the more valuable the asset and the more complicated the due diligence involved “the higher the barrier to moving the full process online and the less likely major institutional investors are to invest purely online,” he adds.
In-person inspection of a property is not “necessarily so important” when purchasing a single-family house for rent, according to Douglas Bendt, president of Bendt Enterprises, a consulting firm based in Boulder, Colo. Instead, “it’s good to have some notion of helping to pick the neighborhood, or first picking the city or metropolitan area,” he says.
If investors can learn about the property and hire professionals in a local sub-market to assist in the transaction online, “there’s no reason to physically travel to” it, according to Jeff Holzmann, CEO of IIRR Management Services, a crowdfunded real estate investment firm.
According to Fingert, “Only time will tell whether data enhances or completely replaces a more holistic real estate valuation approach. Most folks in the real estate industry would say that you need to get a feel for a property in person to really understand it. But folks have said similar things about a lot of industries where it turned out that, actually, pure data was not just as good, but better, like baseball and the success of ‘moneyball’ strategies for example. So, we’ll see. Right now, I think additional data supplementing investment decisions and local knowledge is without a doubt a good thing for the industry.”
The recent growth momentum of Roofstock, an online marketplace for investing in the SFR sector, shows an increased demand from investors seeking exposure to single-family rentals through online transactions. The company surpassed $2 billion in transaction volume since 2016. Meanwhile, the number of home sellers on Roofstock’s marketplace increased by 10 times since 2018. Similar online platforms for SFR investment include OwnAmerica, which was acquired by property management firm Renters Warehouse at the end of 2018, and Entera. In addition, HomeUnion, which started out as an online lender for SFR investors, has launched a crowdfunding platform to invest in the sector itself. The platform allows individual investors to buy a stake in HomeUnions Fix-and-Flip Fund.
Still, one of the drawbacks to platforms like Roofstock and OwnAmerica is a limited supply of inventory, according to Bendt.
“There are only a certain number of properties available to purchase,” Bendt notes. “It’s not like if you’re looking to buy a house for your own occupancy, [when] for example, you can drive around the neighborhood, look for ‘for sale’ signs, see a house you like, you can call the listing agent and go see it. When looking for investment properties [online], even if you were to find a house with that same method, you’re not able to go get that house certified by Roofstock. So, one disadvantage I would say is the pool of available properties is somewhat limited.”
Dave Bragg, managing director of strategic research at Green Street Advisors, a Newport Beach, Calif.-based provider of real estate research and advisory services, says investors looking to access the SFR sector should strongly consider the publicly-traded SFR REITs as an option, since the properties are handled by experienced management teams with high-caliber platforms.
Holzmann concedes that hands-on experience in the sector is something that potential SFR investors should think about.
“As I’ve learned by managing the entire SFR portfolio of RealtyShares, I know firsthand how risky the space can be,” says Holzmann. “There are often complex laws in different states protecting the tenant. Foreclosures and evictions of non-paying tenants can get bogged down in the court for years, costing a fortune. There’s no substitute for education and there are no free lunches. There’s also no such thing as a guaranteed investment, so investors need to be realistic about their expectations.”