Proptech for the Real Estate Investor
Technology has started to shape the real estate industry. To put it in perspective, over $ 30 billion in venture capital was invested in real estate technology (or proptech) in 2019. Technology is used by every type of property investor, from the buyer to the property manager to the institutional investor. Knowing what’s out there is important to avoid missing out on potential deals or opportunities to increase your return on assets.
What is Proptech?
Put simply, Proptech is the use of technology to increase real estate efficiency, which ultimately leads to improved returns on investment, less friction and greater transparency. Well-known names in the proptech industry include Zillow (NASDAQ: Z) (NASDAQ: ZG), a property sales website; Airbnb, a vacation rental listing website; and Opendoor, an iBuying platform.
Now let’s examine how Proptech can improve returns for active property investors like landlords as well as passive investors.
The real estate lifecycle and the different levers you can pull as an active investor
Landlords typically have three main goals:
- Buy real estate for as little as possible.
- Generate as much cash flow (Net Operating Income or NOI) as possible from this property.
- Sell the property as much as you can when the time comes.
While it’s pretty easy to do, it’s important to get back to basics when considering how best to blend proptech into the real estate lifecycle. You need to strategize where you use real estate technology in your portfolio. Hence, it is helpful to consider the various levers that are available to you to maximize ROI.
Lever 1: acquisition
Raising potential deals is an integral part of an active real estate investor. There are more tools available to you than relying on foreclosures, using Zillow, or knocking on doors. Whether you’re a single-family, multi-family, or commercial real estate investor, there are technology tools you can use to close potential deals.
If you’re a single-family or small multi-family real estate investor, check out Rubik, an off-market deal-sourcing tool for buy-and-holds and fix-and-flip strategies, or Mashvisor, a single-family Investment analysis tool. Other tools to check out are Development AI, a deal-sourcing tool for small and medium-sized developers, or Reonomy, a commercial real estate data platform if you’re trying to find development opportunities.
Lever 2: Increased sales potential
After purchasing the rental property, your goal is to generate as much cash flow from it as possible. You can do this in a number of ways including maximizing the area of your rental property and reducing sales / improving tenant retention.
When all other things are the same, more area means more potential income, but without taking on a construction project there is very little you can do to increase the available area of a property. Fortunately, some proptech companies solve this problem by helping landlords maximize the space they already have. Ori and Bumblebee Spaces are robotics companies that use ceiling and wall space to increase the available storage space in an apartment. Den Living, a Los Angeles-based company, has taken a different approach to the problem by offering easy-to-set, construction-free bedrooms.
Reduce sales / improve tenant loyalty
Much of the wave of innovation in real estate was driven by the mental change of landlords – they see their residents as customers rather than tenants. There’s no question that the Silicon Valley mindset has led to this shift when you consider how tech companies track customer lifetime value (LTV), churn, and more. To that end, landlords have started implementing solutions that will add more value to people in their properties so that they will want to stay.
This mindset is reinforced by the fact that keeping a resident not only reduces vacancy, thereby maximizing revenue, but also saves landlords money when they need to market vacant property. A good example of a Proptech solution that helps with this is the Modern Message loyalty and perk program, a useful tool for improving property valuations for existing residents. Other examples include tech-savvy providers of amenities that help enhance the residents’ experience, such as Alfred, or Cobu, the virtual community building software that residents can use to create their own clubs, groups, and events.
Lever 3: Cost and time savings
Now that you’ve maximized the ceiling of your property or properties, the next thing you should look into is increasing cost-effectiveness. Fortunately, there are some proptech companies out there that can help. A good first place to look into is your leasing process. Companies like Matterport and VirtualAPT can help you digitize the leasing process through virtual tours, attract more prospects and achieve cost savings by qualifying tenants and minimizing the number of demonstrations required to complete a lease.
There are also some great property management solutions for smaller landlords like RentRedi that streamline most of a landlord’s duties, such as: B. Performing background checks, managing maintenance requests and collecting rentals.
Another thing to consider is that the right proptech solution may not necessarily lead to cost savings at the property level but also at the portfolio level. For example, a property management solution may not have an impact on the bottom line when you look at a property. However, it can save time and scale your portfolio.
I am not a landlord, but I invest passively in real estate
While the vast majority of Proptech was built for the active real estate investor or real estate company, some companies were built to democratize access to passive real estate investing. Traditionally, a passive real estate investor could only invest as a limited partner (LP) in direct transactions with a high minimum threshold for the check size, while he had to be an accredited investor. The alternative route has traditionally been to invest in Real Estate Investment Trusts (REITs).
Cadre is a proptech company working to provide better access for potential investors. Although investor accreditation is required, Cadre is moving down the traditional minimum check size while institutional deals are being reviewed. CrowdStreet is another player in this area. And if you’re interested in getting into the residential real estate market more passively, take a look at Roofstock.
The bottom line of Millionacres
Proptech has arrived and has its hands on all aspects of real estate. Anyone who’s bought, sold, or looked at a home has likely used Zillow. And if you live in an apartment building, or have ever lived in an apartment building, you have most likely been a user of a proptech solution that was implemented by an owner.
Proptech is not just intended for home buyers and sellers or the institutional real estate industry. There are tools out there today that can help you improve your real estate investment returns and access more investment opportunities. More will be available tomorrow and in the years to come.