The Atlanta housing market is booming. With low-interest rates and strong resident incentives, Roots Real Estate Fund is approaching renters with community cohesion in mind, while simultaneously attracting strong investors. On today’s show, we’re pleased to welcome the founder of Root Real Estate Fund, Daniel Dorfman.
Transcription:
Jim Fitzpatrick:
Hello everyone, Jim Fitzpatrick. Thanks so much for joining us for another edition of the Atlanta Small Business Show. Today we have got with us Daniel Dorfman, who founder of a really cool business venture out there that’s called the Roots Real Estate Fund. And a lot of people are very excited about this new concept and this new fund. So that’s why we wanted to bring you, the founder, of this great fund in here to tell us about it.
Jim Fitzpatrick:
So, let’s start at the beginning. First and foremost, welcome in to the show. We appreciate you taking the time out of your busy schedule. We heard about the Roots Real Estate Fund. We wanted to learn more because it’s a really cool concept. And it’s putting a lot of people into homes and giving them a sense of ownership that typically would just be typical renters in some sort of a dwelling. And at the same time, it’s also making your investors, a nice profit in doing so. So I’m going to let you take it from there for the viewers that are out there, tell them about the Roots Real Estate Fund.
Daniel Dorfman:
So Roots Real Estate Fund was developed and created as a way to not only make our investors money, but to think about the tenant or residents as we like to call them, in a different way. For a long time, landlords have kind of looked at their tenants as just kind of disposable moving pieces. And in reality, those people are the people who have the biggest impact on your return and on your property. So our mission is to be a commercially motivated, but community inspired real estate fund. And we do that by investing in people through our properties. And that means that we treat our residents like partners, which they are, and give them a seat at the table with us to be alongside us in this journey.
Jim Fitzpatrick:
Okay. So let’s drill down on that a little bit. If I’m interested and I’m one of your residents and I’m living in one of your units, so to speak, might be a single family, it might be multi-family, right?
Daniel Dorfman:
That’s right, yeah, absolutely.
Jim Fitzpatrick:
Okay. And I’m one of your residents. What’s the advantage to me versus if I lease or rent a home from someone else?
Daniel Dorfman:
So we have developed, what’s called our, Living It Like You Own It Program. The first thing we do is we take your, as a resident, your deposit and we put it in an account and we pay 5% compounding interest on that account for as long as you live within our communities. The next thing we do is we give you the opportunity to earn a rebate each month that you live in the house, like you own it. And there’s very small criteria to that. We want our residents to succeed. And so the criteria is pretty simple. Don’t have the police called-
Jim Fitzpatrick:
Don’t have the police called, right? That seems pretty simple.
Daniel Dorfman:
Yep. Take care of the small things like checking your smoke detector, fire alarm, and do a quick walkthrough once a quarter for us on video, around the property, through the property, just kind of a maintenance check, if you will. And do those little things, take some ownership, living in it like you own it-
Jim Fitzpatrick:
Maybe pay the rent on time.
Daniel Dorfman:
Oh yes, absolutely. Pay the rent on time and you get this wonderful rebate and you get to kind of stack up this savings account at which at the end of your time staying with us or living with us, you’re going to get to walk with some capital and hopefully be able to put that down in your next venture.
Jim Fitzpatrick:
Wow. That’s really cool. Can you give me some sort of an example as to what kind of a rebate we’re talking about? What over a three-year period of time or five-year period of time, if I’m one of your residents, what kind of money are we talking about?
Daniel Dorfman:
Yes. So let’s just take, for example, $1,200 renter, and they’re living in the place, and after three years, they’re going to be able to walk with around $3,500, as long as they lived in it like they owned it. And then after five years, it’s roughly around 5,000 bucks that they’re going to be able to take, put down somewhere else, or hopefully stay within our communities, decide to go move to one of our other rental properties and continue to build and invest with us.
Jim Fitzpatrick:
You mentioned other real estate properties and for the resident to stay with you or stay within your organization. Let’s say I’m a single guy, and I need a one bedroom apartment because I don’t have any kids or anything. Lo and behold, I find the woman of my dreams and I get married to her and we realize we need a little bit more room, right? I can come to you and say, “Hey, what else do you have so I can stay within the group?”
Daniel Dorfman:
Absolutely. So we simply take your current deposit, we shift it over to another home, bigger or in other circumstances, unfortunately, sometimes our residents have change in income or anything like that, and have to move back towards another smaller unit, but still want to save and be able to be part of the program.
Jim Fitzpatrick:
So they have that flexibility to go either way.
Daniel Dorfman:
Absolutely.
Jim Fitzpatrick:
Right, right. That’s pretty cool. And the whole idea is that, because you mentioned that you’re giving the community, you’re giving really back to the community at the same time, helping investors and in doing so, you’re giving these people an opportunity to feel a sense of ownership. I mean, these people are now interested. They have a vested interest in how that home holds up, right? And the maintenance of it.
Daniel Dorfman:
Absolutely. So what it boils down to is I’ve spent my career in real estate around Atlanta and have watched too many times where someone’s entire family savings has gone into a home, to be able to pay it off. And their families handed them down this house, and unfortunately, because of circumstances, they either have to sell quickly or can’t afford to keep it up. And so this is really focused on, can we give another option? An option where you always have this growing investment where you’re able to participate in the growth, but not necessarily be on the hook if a roof goes out or if you have a plumbing issue. I don’t know if you know this, but in Georgia, median income is around $3,400 a month. And so when you start to take out rent and you start to take out all the expenses-
Jim Fitzpatrick:
There’s no extra money.
Daniel Dorfman:
There’s no extra money and so when you’re in single family ownership and you’re responsible for those charges and taxes and all that good stuff, it’s difficult to keep up. And so our goal is to give people a platform, to be able to experience the growth and participate in the wealth that they’re creating, because they’re paying the mortgage and they’re paying for our investment properties. Why not give them a seat at the table?
Jim Fitzpatrick:
That’s fantastic. So who can invest in the fund?
Daniel Dorfman:
So currently we can accept accredited investors into the fund. We’re working with the SEC and with goading through all those regulatory hurdles, to be able to include everybody into the fund, including our residents. So, six months from now, we hope to be able to say to the renter or resident, “Hey, not only could you have the option of doing the 5%, but you could actually pull this in and own a small piece of this house and all the other houses on the platform. Really giving ownership and allowing everybody to participate is our goal.
Jim Fitzpatrick:
Yeah. That’s very cool. And would I ever be liable to pay more than the amount I invested?
Daniel Dorfman:
No. So one other thing besides taking the front side risk out, by making sure that we’re purchasing tenanted properties, the other thing we try and do is mitigate repair and maintenance risks. And so investors in the fund will never be billed back or their returns are never affected by maintenance or repair issues at the properties. We’ve already accounted for that. And so that does not affect any bottom line towards that-
Jim Fitzpatrick:
So there’s no big surprise. So if I’m an investor and all of a sudden, I’m not going to get this notice that says, “Oh my gosh, three houses were flooded,” or, “Needed a roof or whatever.”
Daniel Dorfman:
Nope. Not at all. So the investors in the Root’s Real Estate Fund are their investments only impacted by the resident payment of rents and not by changing of those types of items.
Jim Fitzpatrick:
And you have a whole team that keeps these properties rented?
Daniel Dorfman:
Correct, yes.
Jim Fitzpatrick:
Okay. And you all do the background checks and all the inspections and the whole deal?
Daniel Dorfman:
Yep, absolutely. So they’re professionally managed. The partner that we work with manages over 600 doors in Atlanta, and we’re 33 of them the moment.
Jim Fitzpatrick:
Nice. Right. There’s a lot of experience there. How long am I committed to the investment?
Daniel Dorfman:
So after the first year, investors can pull out at every quarter, and there’s no penalty, no fees or anything like that. So in terms of a real estate investment, it’s pretty liquid. We give the opportunity to 10% of the total equity of the fund to be cashed out each quarter.
Jim Fitzpatrick:
Okay. Well that works. That works. And can I invest with my IRA or 401k money?
Daniel Dorfman:
You can. Absolutely. So we have several different partners that kind of do that type of investment for IRAs. And it really depends on the company. It needs to be self-directed in terms of that, but there are ways and we have a lot of our investors have chose to do that path.
Jim Fitzpatrick:
That’s fantastic. So what does the end game look like? Do you guys have just ultimately hundreds of rental units, maybe thousands of rental units?
Daniel Dorfman:
Yeah. So, so the end goal for the Roots Fund, it’s a $75 million, open-ended fund, based out of Atlanta and probably reaching into the Southeast into different markets. And the end goal is to create a asset pool that pays a really strong cash on cash dividend, and continues to grow year over year, and gives everybody who’s participating, the opportunity to grow with it and pass it down, so we’re excited about it.
Jim Fitzpatrick:
That’s fantastic. And currently, kind of give us an overview. How many front doors do you have?
Daniel Dorfman:
So currently we have 35 doors. 65 plus residents that we’re helping. And I will pause there to say, we’ve been dreaming about this kind of opportunity to create this for a while. And so the ability to kind of speak to these people and to see the impact it’s having, has been absolutely tremendous. So 60 plus of those folks.
Jim Fitzpatrick:
How does the investment work out for the average investor that comes in ?
Daniel Dorfman:
Great question. So what we try and do is again, we say we’re commercially motivated. We understand that this needs investment to drive it. And so our properties produce a very consistent cash on cash return. And we do not even look at properties that don’t produce a 6% or higher in that ballpark.
Jim Fitzpatrick:
Nice return.
Daniel Dorfman:
Yeah. It’s not bad. And so we take that 6% and we also focus on the appreciation of the assets, right? So there’s two factors, there’s the cash on cash, which is a distributed dividend. And then there is the, it’s a term called IRR or Internal Rate of Return. And that’s a blend between the cash on cash and the appreciation of all the assets. And we are currently structured to be around 14% IRR, probably closer to 16%.
Jim Fitzpatrick:
Wow. Yeah, that’s awesome. What was the motivation behind starting something like this? It’s very innovative and certainly there’s a need for it out there, both on the investment side, as well, as on the side of these people that are renting, right? Spending so much money and not getting anything back or any equity.
Daniel Dorfman:
So kind of a perfect storm in terms of where we were as a company. Our background is residential real estate. We started, we have a great team of agents who work with us every day. And as you continue to do this in these hot markets, you see the gap between ownership and rentership widening, not shrinking. And so it just becomes tough to watch. And so we’re trying to kind of help in that, bridge that gap a little bit. And even if it’s on a small scale, kind of helping individuals, have those services and educational pieces to hopefully get out there and succeed.
Jim Fitzpatrick:
And it’s a great time because rates are still low, right? So you can acquire properties and then at the same time, you’ve got rents that seem to be moving up at the same time. So that in and of itself is a perfect storm for a fund like this, right?
Daniel Dorfman:
Absolutely. So again, Atlanta is a very strong market, you know it very well. And our sweet spot is finding those properties that are kind of in these sub markets that are ready to kind of handle a little bit better appreciation and also are able to still give an affordable rent.
Jim Fitzpatrick:
That’s fantastic. Very innovative. If people want to learn more, what’s the website?
Daniel Dorfman:
investwithroots.com.
Jim Fitzpatrick:
Okay. We’ll show it on the screen here, but I want to thank you, Daniel Dorfman, founder of the Roots Real Estate Fund. Thank you so much for coming in and sharing your story. It’s an innovative way to get people into homes, have them feel, as you said, rentership, but it’s really kind of a sense of home ownership, which is great work that you’re doing. So thank you so much for coming in.
Daniel Dorfman:
Absolutely. Hey, thanks for having me.
Jim Fitzpatrick:
Thanks.
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