New Platforms Helping Turn Tenants Into Long-Distance Landlords – But Is It a Good Idea?
Recently an article featured on MarketWatch.com detailed an emerging real estate trend: that of renters priced out of desirable areas looking to bring in extra income by becoming landlords themselves. In many of these areas, the tenants turned to online sites to purchase and rent properties in cities they'd often never visited and sight-unseen (except in online photos). For some, this strategy may represent a way to achieve cash flow and make the goal of moving into a desirable area more attainable. For others, becoming a long-distance landlord isn't a quick fix to increasing income and utilizing the wrong platform could spell financial disaster. BAM looks at the tactic some tenants are using to turn a profit to see if it's worth the effort.
Results May Vary
The article on MarketWatch named several common fintech platforms that have cropped up as this tech has emerged. Sites like Roofstock, which launched in 2015, to others like: HomeUnion, OwnAmerica, and Morris Invest all have the same similar idea. Yet as with any product, not all sites are created equal and users must find the site that will best perform in order to have better odds of finding a good deal, often from a long distance away. According to the MarketWatch article, Roofstock offers a more developed and thorough experience with property details including information like property taxes, photos, inspection reports, and more. Yet newbie investors obviously want to avoid “horror story”-style complaints. Take Morris Invest, for example; according to the MarketWatch article, Morris Invest had gained brand recognition due to the site being a fix-and-flip brainchild and real estate company founded by former Fox & Friends host Clayton Morris. Yet per the MarketWatch information, complaints had landed on BiggerPockets.com about sub-par work by the company. As with any similar platform, the general idea is "results may vary."
Warnings for Want-to-be-Landlords
Although many experts in the industry advise against it, tenants moving into the investment side of real estate may rely solely on research done by the platforms they are using. At that point, it boils down to trusting the “boots on the ground,” as the MarketWatch piece noted. For a tenant on the west coast buying property states away in the south, s/he may not ever even physically visit or enter the purchased property. If at all possible, experts recommend laying eyes on the property in person and verifying details. Another caution is in ensuring that the platform is handling elements like the property management company properly. One tenant-investor the article profiled said he was considering looking at another property manager to make sure that his property was handled well. While these platforms can promise to deliver ease-of-management, that may not correlate to actually hiring the best management company for the property. Tenant-investors should also assume (just like a standard investor) that there will be unexpected expenses; and that no matter what fintech platform they use, there will be situations that pop up which must be fixed, repaired, or renovated beyond the foresight of any platform. They're a tremendous tool, maybe - but not a crystal ball.
For the tenant considering becoming a long-distance landlord in order to bring in rental cash flow, using a fintech platform like Roofstock or others may seem like a great concept. Yet while sites may warn these investors, per the MarketWatch article, according to another source, many inexperienced investors have more optimism than realism when heading into potentially perilous real estate deals. Although some fintech sites may offer better background information and reporting than others, these small single investors will carry a large burden of risk should there be unexpected repairs, vacancies, or other issues that are common to the rental industry. As with any investment, information as well as experience are key; while these fintech platforms may be a boon to some tenants-turned long-distance landlords, for others they may be more of a financial risk.