Gary co-founded Roofstock in summer 2015 and assumed the role as CEO to build an Internet marketplace focused on the $2 trillion single-family rental (SFR) sector. Prior to Roofstock, Gary was CEO of Waypoint Homes and co-CEO of its successor company Starwood Waypoint Residential Trust (NYSE: SWAY), where he established himself as one of the leaders of the sector as institutional capital began to transform its landscape.
Prior to joining Waypoint, Gary served as both an operating executive and principal investor across a wide range of industries including hospitality, real estate, consumer Internet, and cleantech. After helping orchestrate Geolo Capital’s controlling investment into Joie de Vivre Hospitality in mid-2010, Gary served as JDV’s interim CEO until the company’s merger with Thompson Hotels in October 2011. Prior to joining Geolo Capital in the fall of 2009, he served as CEO of GreenVolts, an award-winning solar technology start-up.
Between 2001 and 2007 Gary was an operating executive with ZipRealty, where as its CFO he led the innovative Internet-based residential brokerage through its successful IPO before eventually being named its President. Gary also spent seven years with KSL Resorts, where he was instrumental in acquiring and integrating over $800 MM of hotel and resort properties. Earlier in his career, Gary worked for leading real estate industry firms LaSalle Partners and Security Capital Group. Gary holds a BA in Economics from Northwestern University and an MBA from Stanford Graduate School of Business.
Gary, thanks for taking the time to answer our questions about Roofstock. Congratulations on the financing with Lightspeed. We always like to start with background questions. Mind telling us about where you’re from, your background in real estate?
I grew up in a small town in Indiana, and ended up coming out west to get my MBA at Stanford. I have spent most of my career at the intersection of operationally intensive real estate and technology. I spent many years in the hospitality sector, doing M&A in the resort world and later running a boutique hotel company. Later in my career I was CFO of an Internet brokerage called ZipRealty, which we took public in 2004. I’ve always enjoyed the tangible nature of real estate, and have found it a fertile sector to try to innovate given the reticence of incumbent players to do so.
How did the idea for Roofstock come to be and what would be your easiest way to describe the company?
My co-founder Gregor Watson came up with the idea when he was trying to sell 500 leased houses in Dallas and was frustrated by his ability to find a way to do it without first vacating the homes and selling them through traditional broker channels. The MLS system works well for selling vacant homes, but is not well suited to selling income properties. Gregor approached me with the idea of building a low-friction marketplace to facilitate sales of investment properties on-line, and I was hooked. At the time I was running a company that owned and operated over 10,000 rental homes, and the idea immediately resonated. It became clear to us over time that we could create an entirely new way to transact which could fundamentally change the way real estate is bought and sold.
If I’m an investor and I want to invest in single family rentals, why choose Roofstock above anyone else?
The main reason to choose Roofstock is we are leveraging the extensive knowledge the founding team has in the sector and bringing that to the masses, increasing efficiency and driving down costs. Unlike some platforms which cater to investments across diverse asset classes, we are an inch wide and a mile deep…specializing in a segment we know intimately. Also, our fees are quite low, and transparency quite high. We also have a 30-day money-back guarantee in case you are not satisfied with a home you purchase on our site, which should give investors an idea of the confidence we have in our product offering.
One of your investors, Will Kohler, said, “Real estate is perhaps the greatest untapped sector for technological innovation in the U.S. today and Roofstock is quickly gaining traction with institutional and retail investors alike.” What do you think the biggest advances in technological innovation will be in the next say 10 years for real estate?
I think you will see more and more purchasing of property sight unseen, like we are facilitating on Roofstock, as virtual reality tools become more commonplace. Also, as more and more processes become paperless, transactions should happen faster and faster. Technologies like Blockchain have the potential to revolutionize transaction processing, and could ultimately lead to what are effectively instantaneous closings with 100% confidence.
If you are speaking to a first time investor in physical real estate, what advice would you give to someone interesting in investing in a single family rental?
I would encourage them to clearly lay out their goals, and tolerance for risk in order to achieve return, to guide their property selection strategy. Some investors want safety and security, and low volatility, and may be very happy with a solid 4% yield with a newer home in an upscale neighborhood. Others may want to buy a lower-priced home in an area with lower median incomes and lower quality schools which offers a significantly higher yield, willing to accept more volatility in cash flow for greater potential return. Like any investment, the more risk you are willing to take, the more potential return you can achieve.
Why would you invest in physical real estate when you can just invest in a REIT Index?
The main reason to invest in physical real estate vs. a REIT index is the lack of correlation to the stock market. In nine of the last 10 bear equity markets, residential property values actually went up.
Do you own any rental property? What was your experience like buying your first property? What mistakes did you make? What would you do differently?
At my last company, Waypoint Homes, my partners and I bought thousands of single-family homes and converted them to rental properties. We learned lots of lessons, like there is no substitute for buying right; investing the appropriate amount in renovations (not over or under improving; the right level for the target market); and getting the right property management solution in place to attract solid renters and keep them happy to keep the homes full.
What motivates you to get up and go to work every day?
I love building businesses, and working with smart, motivated, creative people. We are building an incredible team at Roofstock, and I can honestly say there hasn’t been a single day since we started the company 18 months ago that I have dreaded going into the office. That is truly a joy. Also, can bring my dog Bode in every day, and he’s become a member of the team. Check him out; he’s on our team page on the website!
What would you say are your biggest personal and professional accomplishments? Why?
I am very proud to have a wonderful family, tremendous network of friends and business colleagues, and a career that has allowed me to constantly keep learning and growing as an executive and as a person. I have been fortunate to have “rung the bell” twice taking companies public: once in 2004 as CFO of ZipRealty on NASDAQ; and a second time as co-CEO of Starwood Waypoint Residential Trust on the NYSE in 2014. Thus I have had at least two “once in a lifetime” career experiences. Having the opportunity to start Roofstock as a founder is in many ways the most personally satisfying, as it has allowed me to leverage everything I have learned over my entire career and create a company from an idea. It is one thing to join companies that are already going and make them better, and an entirely different challenge to go from “0 to 1”.
Are there any people who have influenced you a great deal in life? Who and how did they influence you?
I have been fortunate to have had some incredible influencers and mentors in my life. My parents raised me to believe that, despite my very humble beginnings, I could do anything I wanted with my life if I truly applied myself. My brother Greg actually showed me this was possible by defying the advice of his high school guidance counselor by going to Dartmouth instead of Rose Hulman Institute of Technology, which his counselor strongly advocated. At our 2,700-student public high school in Indiana, nobody had apparently ever gone to an Ivy League college, and Greg’s counselor certainly did not think he was smart enough, nor did we have enough money, or enough refinement, to fit in. Greg did not buy that argument, and went anyway. I saw him thrive there, and it emboldened me to look beyond my comfort zone for college and beyond. By showing me what was possible, I was able to ski in his tracks before finding my own fresh powder. For this I am forever grateful.
What are your financial and/or exit goals with Roofstock? Do you hope to go public someday?
I firmly believe that if you build a great company, the exit options will largely take care of themselves. We are focused on building a great company that changes the way real estate is bought and sold. If we can do that, there will be plenty of options for our investors and employees to realize value.
Is there a single family unity on Roofstock right now that you like most? Which one is it?
There are lots of homes on our site right now that I really like. One in particular I like is 714 Baskins Circle in Atlanta:
It is a 4 bedroom, 2.5 bath home on a half-acre lot in a very nice neighborhood with low crime and excellent schools. Priced attractively at $162,000, with a gross yield of 9.4%. As identified in the inspection report included in the diligence vault, the home needs a new roof soon, which may be discouraging buyers. I view this as an opportunity to buy the home below estimated fair market value and invest in a new roof, and have a desirable asset at an attractive basis that should generate strong rental demand over time given its curb appeal and desirable neighborhood.