Is It a Win for Real Estate Investors
Have you ever wanted to own a cash flowing rental with rent guaranteed for the first year? The property is bought for you, renovated for you, and even has a tenant placed for you. Even the property management is included for a fee, of course.
All you have to do is log in to your portal and check on your investment. No longer do you have to learn anything about how to find deals, analyze them, negotiate, or anything else.
Different people have different goals and amounts of time to spend on real estate, so this may be possible even if you have no time to learn all those real estate skills. Doorvest, a very early startup, is looking to change the game, and I can get behind their tagline: “We believe that human potential is unlocked as individuals reach financial independence.”
Is this a good option for BiggerPockets investors?
What is Doorvest?
Doorvest was started by two friends in the startup scene in San Francisco. In 2014, the now CEO Andrew Luong was looking for more financial security and started investing in real estate. Over the next five years, he bought a respectable 12 single family rentals.
Friends who saw his success wanted in, and after giving them resources to educate themselves, Luong realized that your average 9 5 working person was intimidated by the time and effort that it took to execute on their own real estate investment. If there are too many barriers, people are less likely to invest in something as complicated as rental properties. Doorvest aims to simplify the process, making it as turnkey as possible.
The business model
There isn’t a lot of easily accessible info about the Doorvest model out there. I had so many questions, and it was a little worrisome that I couldn’t find all of this information right on their site.
Users start by going through an assessment process where Doorvest learns your financial goals and then helps you create a real estate investment plan. They will also guide you through some mortgage options as part of this first step.
Once you give Doorvest the green light to move forward, the company purchases a property and renovates it to get it ready for a tenant. Doorvest believes in the quality of the renovation such that they will cover any costs incurred in the first year (with some limitations, according to the lengthy terms and conditions document on their site).
Next, the company screens and places a tenant in the property, with another one year guarantee for the first year of income. So far, no need to find deals, no need to do rehab budgets, no need to babysit contractors, and no screening or placing tenants. The easy option is looking pretty good right now!
It’s now time to close on your newly renovated and occupied property. With an average price of $150,000, the investor comes to closing with the down payment of roughly $30,000. The day to day management of the property is also taken care of (with a management fee) from this point on. Tenant turnover, repairs, and everything else that goes with owning a rental is handled. Their client portal breaks down your month to month costs and how much cash flow you are receiving every month plus, the property report is nice to look at.
Since the startup is so young, they are only operating in one market currently, which is Houston, Texas. BiggerPockets members love Houston: It topped the list for both renting and flipping in our round up of the top cities where members ran calculator reports.
The four benefits the company is touting are cash flow, equity, tax advantages, and appreciation. The fees seem pretty standard for most turnkey companies that I’ve analyzed. The two main points of profit for Doorvest are when they sell the home to you, which comes with an 8% markup, and a monthly property management payment.
Most property managers charge 6 10% of the monthly rent, plus a tenant placement fee of up to one month’s rent every time the property is re rented. Doorvest charges a 15% per month property management fee, but no tenant placement fees, so depending on turnover rates this might break even. Busy with life, work, and family, this investor wants to diversify and wants something as easy as buying stocks on their phone. A call to Doorvest, preapproval for a mortgage, and down payment for closing, and the transaction is pretty much done. Many investors I know started with turnkey properties. However, they soon realized it’s difficult to use the BRRRR method on turnkey deals there’s simply not enough equity in the property to refinance. Once they had a good understanding of property purchasing and management, they could move on to more complicated deals.
Doorvest pros and cons
While the model is similar to many turnkey companies that are already out there, the tweaks they’ve made are interesting and very consumer friendly. Having any kind of guarantee was surprising, let alone a guarantee of the first year’s income and any additional renovation costs in that same year. The ease of transaction and the guarantees almost seem too good to be true. A down payment of hermes painted bag replica
$30,000 and then you just check into a portal like you would your stock app and watch the numbers go up or down.
I’d be interested to know if you could refinance the property, then change the portal math numbers to accurately reflect the new mortgage amounts, and how that tracking can be customized.
The main cons of turnkey companies revolve around equity. You are essentially buying a flipped property, except the turnkey flipper is selling it to you at near market price, which leaves little to no room for refinancing to get your down payment out. There has to be a lot of trust in the company; both that they did the renovation work correctly and that they are competent in the property management department.
The buyer is not really learning any real estate investment skills besides rudimentary deal analysis. Doorvest even has this as a pro on their site: no need to learn to do market analysis, look at properties, find an agent, write offers, estimate, deal with contractors and tenants, etc.