Doorvest’s Unique Model Is Ideal For First-Time Real Estate Investors
This online solution for rental property investing buys, fixes and leases a home for clients before selling it back to them.
Non-traditional ways to buy real estate are surging.
Consumers can choose to buy before they sell with Knock’s Home Swap. Customers of Groundfloor can crowd-invest in real estate development loans. Landed focuses on alternative financing for education and healthcare professionals, and Divvy, flush with a recent $110 million Series C investment, offers the market a formal rent-to-own option. And there are others, such as Doorvest.
Doorvest is a Houston-based online solution for investing in single-family rental property.
Customers complete an initial survey that tells Doorvest what kind of investment they’re looking for. Is your goal to have more cash-flow every month, or is it a long-term, appreciation-based hold? Aspiring investors are asked about available cash, their career, and what kind of experience they might have in real estate investing. The scale ranges from “Beginner” to “Real Estate Whiz.”
The user experience is light and clear, doing an excellent job of taking away any anxiety a newbie might have about the process.
Doorvest returns the questionnaire with a recommended strategy and schedules an appointment with an adviser, after which qualified investors will move forward with a $500 deposit.
Here’s where it’s different: Doorvest finds the home and buys it for you. It also finds you a tenant and guarantees a year’s worth of rent. After closing and lease commencement, Doorvest transfers homeownership to the investor for 8 percent, often using a quitclaim deed.
One catch: Investors must agree to pay Doorvest a 15 percent property management fee for that first year, Houston’s current market average.
The company will also fix up any homes if it’s required to secure the right tenant. Doorvest inspects the market to ensure its rental rates are on par with other homes in its category.
The company also offers an online collaboration dashboard for reviewing properties and communicating with your Doorvest adviser. You can compare homes, view an online tour, and compare before and after repair photos.
Doorvest is an ideal model for a new investor seeking step-by-step guidance on their first rental property. They get certainty in a tenant and confidence in repair and management.
Investors need to pay any agent they hire out of pocket if they want outside assistance on the ownership transfer. However, Doorvest couldn’t survive if these handovers don’t go as smoothly as possible; plus, that 8 percent is part of its profit model.
How does Doorvest’s model compare to a traditional process? It all depends. Single-family rentals aren’t easy to find in a market this tight, and dealing with tenants is the single most challenging thing for a new landlord.
From tenant screening to repair reporting processes, owning an investment property can exhaust even the most aspiring property mogul in well under a year. Property management is almost always worth the cost.
Doorvest helps people understand different investing strategies. Some believe monthly cash flow is the goal, though that’s not as common as YouTube and HGTV like to tell people.
Landlords often “feed” a property for a while, meaning they are putting money into a property every month or operating at a loss. It’s part of the learning curve. There is something to be said about learning the hard way about minimizing property expenses to make a rental profitable. And after all, making money in real estate isn’t about timing; it’s about time.
Some investors thrive in higher-margin scenarios in which depressed properties generate more monthly profit. This route has added risks, of course, such as uncertain occupancy and more maintenance.
Doorvest’s hand-holding and structured transaction model offers a lot of value for the first-timers out there. It’s an attractive pitch to those who have the money but lack the knowledge.
Attentive agents could offer the same if they had the time and expertise it takes to nurse first-time investors through the process, but most don’t.
And most wouldn’t want to.
Have a technology product you would like to discuss? Email Craig Rowe
Craig C. Rowe started in commercial real estate at the dawn of the dot-com boom, helping an array of commercial real estate companies fortify their online presence and analyze internal software decisions. He now helps agents with technology decisions and marketing through reviewing software and tech for Inman.