Roots Bought 78 Homes From Its Own Sponsor. The Prices Are Round Numbers, Split 78 Ways

What the filing reports

We covered an earlier Roots affiliate purchase in August, and the full Roots review sets out the fee stack, the redemption terms and the resident-rewards mechanic that this piece assumes. The one-cent shortfall in the total is real and it is in the document: Flipside 26's eight allocated prices sum to $3,394,999.99, a rounding residue of dividing $3,395,000 eight ways. It is the sort of detail that tells you which direction the arithmetic ran.

The ratio is the whole story

A Form 1-U reporting a property acquisition lists each address with a "Purchase Price by Roots" and a "Current Market Value." Read one at a time, they look like 78 separate deals, each struck a little under appraisal. Read together, they cannot be.

We took every price block in the document — 23 of 23; the extraction asserts the count before it computes anything, because a partial parse of a filing is how you manufacture a finding that is not there — and divided each allocated price by its stated market value:

Fifty-three houses in three states, built at different times, in different condition, and every one of them priced at 87.33431% of its own appraised value. The two values in the first row differ by one part in ten million, which is rounding, not negotiation.

This is not an accusation, and it is worth being precise about why. Two of the three lots were purchases of an LLC, not of houses: you agree one price for the company, and then you allocate that price across its assets, which is ordinary and is required for tax and accounting purposes. The filing does not pretend otherwise — it calls each figure an "allocated purchase price", which is the technically correct term and is exactly what our arithmetic shows.

What the arithmetic does establish is how to read the "Current Market Value" column. Nobody appraised these 78 homes and then negotiated 78 prices that landed a fraction under each appraisal. Three prices were agreed, one per selling entity, and the appraisals were the key used to spread them. The $3,349,000 gap is therefore a single number agreed three times, not 78 independent instances of buying below market, and a reader who takes it as 78 confirmations of a bargain is reading a pattern that the allocation put there.

No appraisal is attached

We pulled the accession's own file index. It contains one document, form1-u.htm, and no exhibits. There is no appraisal, no valuation letter and no fairness opinion attached to a $25.2 million purchase from the sponsor, and the offering circular explains why there would not be:

"We have not engaged an independent valuation services firm, and do not intend to do so until such time as we are required to do so."

The contrast worth holding is with the non-traded REITs we cover that are sold through brokers, where FINRA forces an outside valuation every year — and where, as in Summit Healthcare REIT's own 10-K, the company still writes that future estimates "will be performed by the Company." Regulation A does not require one. Form 1-A contains the words "appraisal" and "fairness" zero times; Item 13 requires related-party transactions to be disclosed, and Roots discloses them. The rules that force a third-party appraisal on non-traded REITs — FINRA Rule 2231, which is why the listed non-traded REITs we cover publish annual estimated values from outside firms — attach to broker-dealer customer statements, and Roots sells direct. So the absence here is a feature of the regime, not a breach of it. It does mean the number in the "Current Market Value" column has no outside author, and that the same party is on both sides of the trade that sets it.

What the sponsor has made

The offering circular states it in one sentence, and it is the most useful sentence in the document:

"The Sponsor has sold properties to the Company with a built-in gain of approximately $1,492,488 in 2024 and $9,274,815 in 2025. The Sponsor has not taken any of this gain in the form of Company equity."

Both halves matter. The first is the scale: the gain the sponsor booked selling houses to the REIT rose six-fold in a year. The second is a real mitigant and we are not going to skip it — the sponsor took cash, not units, which means it did not also dilute the members it sold to.

The circular also records that the sponsor's role is structural, not occasional. The FY2025 annual report states the company held "476 total properties as of December 31, 2025, 366 of which were curated properties purchased from the Sponsor." That is 76.9% of the portfolio bought from the people who manage it. This is the stated model — Seed InvestCo buys and renovates, the REIT acquires stabilised homes — not a deviation from it. The question for an investor is not whether it happens. It is what the price is, and who checks it.

The three things to hold onto

1. The "Current Market Value" column is one number per seller, spread by appraisal. Do not read a 13.28% gap as 78 separate bargains.
2. Two of the three lots were entity purchases. Buying an LLC brings its history with it — its basis, its liabilities and its contracts — in a way that buying 17 houses does not. The 1-U does not describe what else came with Flipside 22 and Flipside 26.
3. The financial statements covering this deal do not exist yet. The latest audited figures are December 31, 2025. The semiannual report for the first half of 2026 was not yet due when we published, and the first audited statements to include the August purchase arrive with the FY2026 annual report in roughly April 2027. Not yet filed is not the same as missing, and anyone telling you today what this acquisition did to the portfolio is telling you something no filing contains.

Method

The purchase figures, the lot totals, the ratios and the count of price blocks are ours, computed from the filing, not taken from any summary. We downloaded the Form 1-U from SEC EDGAR with the required user-agent header, stripped its markup, and extracted every block matching the document's own pattern of "Purchase Price by Roots … allocated purchase price … Current Market Value." The script asserts that the number of blocks it captured equals the number of times the phrase appears in the document (23) and refuses to compute a total otherwise. On our first pass it captured 21 of 23 — two blocks are formatted differently, with the cents split away from the dollar figure — and the assertion is the only reason we noticed. A total from 21 of 23 blocks would have been wrong by $5.4 million and would have looked entirely plausible.

Search controls were run on every document so a zero can be told apart from a failed read: in the 1-U, "Flipside" appears 3 times, "Roots" 27 and "Sponsor" 3; in the offering circular, "Sponsor" appears 134 times and "built-in gain" twice. The quotations from the offering circular were located in the document itself (accession 0001493152-26-022456), not quoted from a secondary source.

The exhibit list comes from the accession's own file index. The FY2025 portfolio and net-result figures are from the annual report on Form 1-K (accession 0001493152-26-020769), audited by Moore, Colson & Company, P.C. We have no affiliate relationship with Roots, receive nothing if you invest, and hold no position of any kind.