Investing in real estate is enticing for so many reasons. But not everyone has the free time, education, or will to buy and manage properties. Enterprises offering turnkey real estate seek to connect would-be real estate investors with property. In this post I’ll talk about Doorvest and my own experience purchasing an investment home with this company.
Doorvest is a turnkey real estate company founded in 2018 by cofounders Andrew Luong and Justin Kasad. Andrew is a real estate investor with a background in finance. Justin is a computer engineer with previous experience building startups.
Together, they founded Doorvest with a mission to advance financial security for all.
The shorter term focus in these first years has been serving as a sort of an ecommerce shop for investment grade homes. As of this writing, in August 2022, they do not offer in-house financing but partner with lenders such as Beeline Title.
Why should you be interested in Doorvest? Because if you haven’t thought about investing in real estate, you could be missing an unmatched opportunity for wealth building.
Why is real estate an attractive asset class?
Whole books have been written on this subject, but I will summarize the points as succinctly as I can.
1. Real Estate Benefits From Leverage
Real estate or real property can be purchased with borrowed money, which is a form of leverage. Most of the time, investors can buy property with 20-30% of the asset value in cash. Then all of the gains are multiplied.
Consider for example the investor who purchased a home for $100,000 with 20% down. In the next five years, the home appreciates by 20% to $120,000. Although the asset value has appreciated by 20%, the investor’s actual return is 100%, based on their cash investment of $20,000.
On the other hand, suppose the value of the home dropped from $100,000 to $80,000. At that point, the investor has lost 100% of her initial investment. Hence, leverage is a double-edged sword.
Luckily this kind of massive shift in asset values is infrequent in real estate markets.
2. Real Estate is a Hedge Against Inflation
There are two reasons that real estate protects against inflation. First, with rising inflation, just as the cost of milk and the cost of a plumber will be higher, so will the cost of RENT.
As a landlord, we enjoy the benefit of raising rent. In many cases, the underlying fixed expenses of a property do not change substantially. Therefore inflation can boost cashflow from rental property.
In addition, the underlying value of the property may rise too with inflation. Double-win.
3. Real Estate Tax Advantages
Another significant benefit of real estate is the unparalleled tax advantages of this asset class. First, often rental income is pocketed tax-free, but in a completely legal way. How can this be? Well, when reporting income from rental properties at tax time, we are allowed to deduct the depreciation of the building. Depreciation is an invisible expense. For single family houses, the value of the structure can be depreciated over 27.5 years.
For example, that $100,000 property may represent a structure worth $80,000 and land worth $20,000. Each year we own the property, we can deduct ($80,000 / 27.5 = $2,909) from the income earned. The ability to expense depreciation can reduce or abolish income taxes from the total rental income.
When selling rental properties, real estate investors can delay or avoid paying capital gains taxes. You can’t do this with other asset classes. One way to delay paying taxes is to take advantage of a 1031 exchange, which allows an investor to purchase another property with the proceeds of a sale, so long as they follow certain rules. By repeating the process of 1031 exchange on properties as they appreciate in value, investors can avoid paying taxes on the gains on rental properties until they die. And after death? The properties have stepped up in basis, and the heirs need not worry about paying a large tax bill if they should choose to sell.
In the case of previous personal residence, real estate capital gains can be avoided so long as the owner 1) lived in the home for two of the previous five years; and 2) the gains do not exceed $250,000 for individuals and $500,000 for married couples.
Avoiding tax drag while growing wealth is a powerful advantage of real estate investing.
4. Real Estate Offers Unmatched Dividend Yield
Net worth is a vanity metric if there’s no income to show for it. At the core, we all invest to have financial security. Some assets, like rapidly appreciating Tesla stock, grow our net worth without providing a penny of income.
Real estate purchased well can yield a substantial cash-on-cash return, even after all expenses. And the best part is that pocketing the dividend, the rental income after expenses, does not reduce the overall value of the asset.
What’s more, the income from real estate can be shielded from taxes by taking advantage of tax planning including perfectly legal tax deductions.
5. Real Estate Offers Asset Appreciation
Finally, real properties do appreciate in value over many years. While we have enjoyed unusually strong growth in the 2020s, it is reasonable to presume that properties will continue to appreciate over ’30s and ’40s, though perhaps at slower rates.
Given the relatively high, tax-free cash-on-cash return (or dividend yield), in some cases exceeding 10%, asset appreciation can be slower. In other cases, with more expensive properties with lower cap rates yielding lower cash returns, asset appreciation may account for a greater portion of total returns.
Given the diversity of real estate, investors can craft a portfolio of properties to suit their goals, for example combining properties with high cash yield with others with high expected property appreciation.
Doorvest allows investors to choose their strategy with each property they invest.
My experience: Doorvest Review
I will close on my first property with Doorvest tomorrow afternoon.
Would I recommend the company? From my experience so far, yes.
I decided to purchase with Doorvest after some initial searching for turnkey rental properties. As a newer company, there were very few reviews online. There was one Bigger Pockets thread available. Hence, I chose to write a review myself.
Doorvest educates investors first, noting they sell properties in markets including Atlanta, Houston, and Dallas. The typical purchase price is $225-450,000.
After answering questions about how large a home I would seek to purchase, Doorvest asks what is my strategy as an investor?
Because we already own a few rental properties, I chose Open To All, so I could review all the choices myself.
At that point, Doorvest asks for a credit card so that you can place a $100 deposit. This is a gateway to the ability to review the homes for sale. You will not be able to browse their opportunities without placing this deposit.
Once the deposit is placed, a Doorvest team member will call you and email you to discuss your goals and begin the process of showing you candidate properties available for purchase.
The homes I reviewed were in the Atlanta and Houston area, renovated, and in the $180-250,000 range.
We chose to purchase a home for $241,000 in the Atlanta area. Doorvest offered a first-year guarantee of 100% of rental income and 0% property management for this property. We put together a DSCR loan with downpayment of 25%, 30 year fixed, at 6% rate.
Through Doorvest, I connected with a lender at Beeline.
The process of purchasing with a DSCR loan is much simpler than any other mortgage I’ve ever used. Far fewer documents are required – just your credit score, your cash assets, and the property’s financials. I look forward to doing it again!
We close on the property tomorrow. I’ll plan to update in future posts about how it’s going.
Thanks for reading!
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