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The Meb Faber Show

Ready to grow your wealth through smarter investing decisions? With The Meb Faber Show, bestselling author, entrepreneur, and investment fund manager, Meb Faber, brings you insights on today’s markets and the art of investing. Featuring some of the top investment professionals in the world as his guests, Meb will help you interpret global equity, bond, and commodity markets just like the pros. Whether it’s smart beta, trend following, value investing, or any other timely market topic, each week you’ll hear real market wisdom from the smartest minds in investing today. Better investing starts here. For more information on Meb, please visit MebFaber.com. For more on Cambria Investment Management, visit CambriaInvestments.com. And to learn about Cambria’s suite of ETFs and other investment offerings, please visit CambriaFunds.com.
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Jul 26, 2017

In Episode 63, we welcome Gary Beasley and Gregor Watson, co-founders of Roofstock. If you’re one of our listeners who has written in requesting an episode on rental real estate, be sure not to miss this one.

We start with some quick background on the guys, how they came to found Roofstock, and the way in which their company is aiming to make rental real estate investing far easier. In essence, they want to simplify things by separating the “investing” side of rental real estate from the “operational” side of owning a rental home.

After the background, Meb starts with a broad, contextual question: So how would a new rental real estate investor start?

In the old way, you would identify a market in which you’re interested, look at tons of homes, make some offers, perform due diligence on the ones where the offers have some traction, renegotiation the price and finally buy, then find a property manager to handle operations for you.

But the guys then tell us how Roofstock is making this traditional process far simpler. Basically, the home and rents, tenant, and local property manager have already been vetted and approved. You see the various yields ahead of time. This enables investors to buy without all the traditional brain-damage. The guys tell us “Our goal is to make it incredibly easy to get exposure to the asset class (rental real estate).”

What follows is a wonderful discussion about some of the traditional challenges with rental real estate, and how Gary and Gregor are helping investors overcome those challenges. The discussion touches on how to compare rental homes across different markets… Evaluating rental homes via gross yield, net yield, IRR, and on an after-tax return basis… How Gary and Gregor arrive at rental home valuations… Financing versus all-cash buying…

There are also great tidbits of rental real estate investing wisdom dropped in. For instance, did you know that the total cost to a home-seller to vacate, spiff up, and sell is about 10-12% of the sale price? Did you know that the average cost of a property manager is about 7-8% of collected rents plus a separate leasing fee? Guess what percentage of rental real estate owners live within about an hour of the homes they own? You’ll find out…

Later in the episode, Meb asks about the range of yields on the various rental homes featured on Roofstock; specifically, why wouldn’t he invest in a handful of homes yielding, say, 25% versus those yielding just 5%? Is there a parallel here to high-grade bonds and junk bonds?

The guys tell us, yes, lower yielders tend to be the safer investments, whereas the higher-yielding homes are a bit riskier. But both potentially have a place in a rental portfolio, depending on the needs/goals of that investor.

There’s much more in this episode: the difference between buying single-family homes directly versus investing in a REIT… How to think about starting and building a rental real estate portfolio… How much time an investor would need to commit to being a landlord when not using a property manager… What happens if there’s another 2007… And Gary and Gregor’s single best piece of advice to listeners interested in starting with rental real estate investing.

What is it? Find out in Episode 63.

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