Why Investors Are Focusing on Real Estate Fintech
The use of fintech has transformed the financial services sector over the past two decades. But what potential does Fintech have in the real estate sector and how can it be used by real estate investors to achieve greater returns?
The number of fintech companies operating in the real estate sector continues to grow at a rapid pace. Globally, between 2008 and 2017 the number of real estate fintech start ups increased from 246 to 1,372. During this time, cumulative investments in real estate fintech soared from $2.2 billion to $31.3 billion.
Real estate professionals have been eager to incorporate the technological innovations delivered by fintech into their businesses. This is reflected by the adoption rate of fintech in the real estate industry, which dramatically accelerated in 2019 according to the First American Real Estate Sentiment Index.
Some of the ways in which real estate professionals use fintech tools include real estate transaction services, online invoice generation, rental management, online marketplaces, and online real estate sales.
Profit Potential For Real Estate Investors
Property investors have also eagerly jumped into the world of fintech. Some of the ways that fintech is now used by property investors include:
Real Estate Crowdfunding
Real estate crowdfunding has become a popular option for many property investors since the GFC. It allows investors to obtain capital for their investments by raising small amounts of money from a large number of people, otherwise known as “crowdfunding”.
It is particularly useful for successful investors who currently have difficulty accessing a bank loan or who prefer to avoid the paperwork associated with traditional loans. Crowdfunding for capital can also be much faster than obtaining a loan from a bank.
Real estate crowdfunding has been particularly popular with investors who operate in the fix-and-flip market. There are several real estate crowdfunding startups that cater to this market, including Fund That Flip and PeerStreet, which recently reached $2 billion in property lending.
Improving the Buying/Selling Process
There are several fintech startups which make the process of buying and selling easier for investors. OpenDoor is a well-established real estate fintech company which gives investors competitive cash offers for their properties within 24 hours. This helps investors sell their properties very quickly, without the delays normally associated with selling real estate.
New York based Knock operates in the similar way. The company buys properties outright with cash and helps the investor owner secure a new investment property at the same time. A useful option for investors seeking to rebalance their property portfolio or move into new areas.
Other fintech companies help investors purchase properties by sharing the expense of the initial downpayment. Fintech companies that offer this service include ZeroDown and Unison.
Many of the fintech companies working in the real estate sector are interested in improving the mortgage process. They seek to take over the role traditionally played by banks, providing loans that are more affordable and easier to obtain.
The leading fintech companies offering loans include Lenda, Morty, and Blend. The loan application process is typically much faster than using a bank and interest rates are competitive, which makes them an attractive option for investors.
Buy To Let Investments
Investors who are interested in the buy-to-let market now have more options thanks to fintech startups like Immo Investment Technologies. This UK-based company purchases home on behalf of investors, which are then rented out.
The company buys properties where the vendors want to sell quickly, which helps them obtain a great price. They then refurbish the properties and rent them out. The investor doesn’t have to be involved in the micromanagement of their investment properties, as Immo Investment Technologies takes care of everything for them.
Real Estate Micro-investing
Fintech companies like Brick-X allow multiple investors to collectively own investment properties. The company purchases properties, then divides the cost of the property into 10,000 “Bricks” which are sold to investors.
Investors can purchase as many bricks of each property as they like, allowing them to spread their financial risk across many properties. Bricks can be sold at any time, which makes it simple for investors to cash in once they have made a profit.
Powerful Investment Property Calculation Tools
Real estate investors no longer need to complete complex spreadsheets in order to calculate the success of their investments. There are now several fintech platforms which make it simple to accurately calculate acquisition costs, funding structures, investment income, and tax deductions for investment properties.
Most of these platforms also offer financial projections and calculate after tax cashflow for your property portfolio. They are perfect for avid property investors as they save time and give valuable insight into the returns that are being achieved.
What The Future Holds
Real estate fintech services will only become more sophisticated into the future. They provide property investors with an opportunity to reduce costs, save time, and improve the performance of their investment portfolio. The key, as always, is to remain aware of technological innovations that are occurring within the industry and to take advantage of them whenever possible.
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