A Good Option for Real Estate Investors?

Have you ever wanted to own a cash-flowing rental with rent guaranteed for the first year? Well, with Doorvest, it’s possible.

When using Doorvest, a property is acquired by Doorvest, renovated on your behalf, 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 need to headhunt for a good investment opportunity, Doorvest does the heavy lifting for you.

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 hypergrowth 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.”

So, is this a good option for real estate investors? Read more for our full Doorvest review.

What is Doorvest?

Doorvest was started by two friends in the startup scene in San Francisco. In 2014, the now-CEO Andrew Luong was searching for more financial security and started investing in real estate. Over the following 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.

That’s where Doorvest comes in. Doorvest aims to simplify the process, making your investment experience as streamlined as possible.

Doorvest’s business model

Before we begin, I should note that Doorvest has built out a Knowledge Hub and FAQ resources to answer all of your budding curiosities regarding the process.

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 purchase options in preparation for your upcoming investment opportunity.

After finishing the assessment process and placing a small deposit down, Doorvest utilizes its tech-enabled platform to begin sending curated homes that align with your desired preferences. In the background, Doorvest is continuously acquiring homes that match their customers investment criteria and renovates them in preparation for tenants. 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 $230,000,  the investor comes to closing with a down payment of roughly $45,000. 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.

As an expanding startup, Doorvest is now live in 4 markets, with more on the horizon. You can find investment opportunities in Houston, Dallas, San Antonio, and their newest region: Atlanta! The BiggerPockets community loves 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. Nothing unique, as those are the benefits of all single-family rental real estate.

Doorvest’s fees

Nothing in life or investing is free, of course. 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 a slight 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.

Who might use Doorvest?

Doorvest has two primary targets.

Career professionals

Working professionals with no prior interest in real estate seem to be Doorvest’s main target audience. Busy with life, work, and family, this investor wants to diversify and wants something as easy as buying stocks on their phone. With a call to Doorvest, transactions can be completed quickly with a preapproval for a mortgage or a quick proof of funds and down payment for closing. No need to visit the property, no calls in the middle of the night for toilets breaking. Rest assured someone else is handling everything.

Newer investors

Intimidated by everything they have read about finding deals, setting up local property management, and handling contractors, newer investors usually look to a turnkey company to handle all of the details for them. 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’s 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 $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 may leave you needing to wait some time before 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 lists this as a pro on their site: no need to write offers, estimate, deal with contractors, or tenants.

Everyone has different goals, and for the career professional above, this may be ideal. Doorvest wants to help you as much as you need, you can be as involved or not as you’d like. For any long-term investor who wants more options or to actually gain the skill set to scale their business, having a company do all of the work for you never lets you learn anything.

The cons I see for Doorvest specifically are the need to trust in a young startup company, high monthly costs, and the potentially limited strength of their guarantees. The company has successfully completed it’s Series A round of funding and additional rounds are anticipated as the company continues to scale. To date, Doorvest has successfully renovated and supplied its customers with 160+ properties. Being an early adopter in a company carries risks. If they find the model unsustainable and close down or can’t find more funding, it could leave all of their customers scrambling to pick up the pieces.

Having all of the properties in one market is severely limiting and puts all of the company’s eggs in one basket. For the right investor, the monthly fees should come with peace of mind if they want to remain hands-off. I’m still not entirely sure if the property management is in-house or if they are subcontracting it out and taking a cut of the fee. This could cause a problem if there are service complaints and Doorvest is now just one more entity in the chain to get things resolved.

Overall, I applaud Doorvest for making real estate investing easier to navigate and lowering the barrier of entry. I also love how they are able to work with beginner investors and more seasoned — differing their approach based on the preference of the investor. While the Company is still in its early days, it is making promising progress and excited to see what’s next!

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2022-04-07 16:58:51

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