What real estate investors need to know about #proptech

What real estate investors need to know about property technology
by Brad Cartier, posted in Investment Strategy

Investing in real estate creates mountains of paperwork, surprisingly high and unnecessary transaction costs, oftentimes with unexpected delays in closing. But all of that is quickly changing as the real estate business is evolving before our very eyes.

In the same way that Uber is disrupting the transportation business and Amazon is reinventing shopping, proptech is revolutionizing the business of real estate investing. Here’s everything real estate investors need to know about proptech.

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What is proptech?

Property + technology = Proptech

The word ‘proptech’ is used to describe the technological innovations taking place in the real estate industry. Proptech is being used to reduce, automate, or completely eliminate many of the routine and non-productive tasks that real estate investors are forced to do every day.

Investors, landlords, and property managers are using proptech to reduce the friction and lower costs of owning and operating real property. Tasks such as valuing a property, doing deals, marketing, leasing, and managing are becoming cheaper and more efficient thanks to proptech.

Stessa, for instance, is making the process of tracking, managing, and reporting on your real estate investments effortless through a digital dashboard.

Savings from proptech drop straight to the bottom line, allowing investors to grow and scale up their rental property portfolios faster than ever before.

Evolution of proptech in real estate

Although proptech is a relatively recent catchphrase, technology has been used in real estate since the early 1970s:

1974 – 1980

HP-65 calculator was introduced by Hewlett Packard. Retailing for over $4,000 in today’s dollars, the programmable handheld calculator let investors calculate real estate financial metrics like cash-on-cash return, cap rate, ROI, and IRR in the palm of their hand.

1980 – 1990

Desktop and personal computers using Excel and Lotus spreadsheets helped drive the quantitative approach to real estate investing. Unlike today’s integrated financial management systems like Stessa, old fashioned software spreadsheets are closed systems that are very expensive to customize.

1990 – 2000

As the internet grew, online data aggregators like LoopNet, CoStar, and the Multiple Listing Service launched. Prior to this, it was nearly impossible to conduct any type of real estate research online.

2000 – 2010

Online portals like Zillow, Trulia, and Redfin evolved to become industry-standard platforms for obtaining sales and rental data throughout the entire country. Today, internet-based companies like these are scaling up by helping investors buy and sell, lease and manage real estate.

2010 – Today

Proptech companies begin to take shape. Companies like Stessa leverage the remarkable advancements in data collection, integration, and storage. By modernizing the business of real estate investing, the process of owning, leasing, and financially managing rental property has become much more efficient and profitable.

Proptech trends & examples: 2019 and beyond

Technology never stands still, especially in a $3.5 trillion dollar industry like real estate. Here are some of the most innovative proptech trends and examples real estate investors need to know:

  • Blockchain-based applications such as OpenLedger make the entire real estate process more efficient and transparent while reducing risk for all parties
  • Virtual reality lets tenants ‘tour’ a rental property 24/7 without a time-consuming showing appointment
  • Artificial intelligence (AI) like Alexa, Google Assistant, and chatbots automatically answer inquiries in real-time, 24 hours a day
  • Computer-aided design (CAD) to help tenants layout their furniture and imagine they’re already living in your rental property
  • Biometrics such as voice commands and facial recognition improve the safety and security of rental real estate
  • Geolocation technology uses AI to analyze big data sets on development plans in a specific geographic area to predict future property prices
  • Drones provide unparalleled 360-degree images of property, up-and-coming neighborhoods, amenity locations, and actual views
  • Internet of Things (IoT) makes property ‘smart’ by using sensors to monitor utility usage, lighting, property access, landscaping, and security
  • Stessa continues to help investors make informed decisions about their property portfolio with sophisticated financial reports, online document storage and organization, capital expense tracking, and tax package preparation
  • RentalStep provides an online booking system for tenant screening and credit checks
  • RentMoola helps tenants pay their rent on time by offering travel, shopping, and gift points
  • Amenify creates amenity programs such as cleaning, dog walking, and yoga classes for multifamily property owners
  • Homelight uses a machine-learning algorithm to match home sellers to real estate agents and increase the likelihood of a sales transaction
  • Rentberry is an online rental application and price negotiation platform for tenants and landlords, perfect for property that’s unique or difficult to rent

6 ways that proptech can help your business

Charles Darwin once said, “It is not the strongest of the species that survives, nor the most intelligent. It is the one most adaptable to change.”

No real estate investor wants to run the risk of becoming a dinosaur. These are the 6 biggest areas where proptech is transforming the real estate business – and keeping investors from becoming extinct:

#1 Property search process

Peer-to-peer networks such as Zillow provide property listing in a free, centralized database, eliminating the need for expensive subscription-based services like the MLS and realtor fees.

#2 Due diligence and financial evaluation performance

Digitizing real estate documents like property & loss statements, vacancy reports, tenant profiles, maintenance & property inspections, contracts, mortgages, and title paperwork reduces the likelihood of errors and speeds up the entire due diligence process by eliminating the middle-man.

#3 Property management

Proptech in property management is used to provide an integrated system from start to finish, securely and transparently. For example, the landlord and tenant digitally sign a smart contract lease that includes rent value and payment frequency. Then, the smart contract automatically initiates and collects monthly rent payments, pays operating expenses, and disburses profits to the owner.

#4 Title management

The current paper-based system of property title management is susceptible to title errors and fraud. In fact, the American Land Title Association reports that title and escrow companies find defects in 1 out of 3 titles during the transaction process. Using proptech in title management to build an immutable digital record of titles reduces the risk of fraud and puts billions of dollars spent on title fees back in the hands of real estate investors.

#5 Financing and payment systems

It takes between 30 – 60 days for a mortgage to be completed, sometimes even longer for international transactions and bigger commercial deals. Digitizing financing and payment systems streamlines and speeds up the acquisition and funding process by reducing the time spent on due diligence and loan documentation.

#6 Rental property financial management

Online rental property financial management platforms like Stessa track property performance and finances, with a digital paper trail that keeps documents in one place. Performance dashboards provide data at the portfolio and property level, income and expense tracking are automated, and bank-grade security with multi-factor authentication keeps data safe and secure.

Proptech, real estate investing, and you

Since the 1970s, real estate investors have been using technology to grow and scale their investment portfolios. Today, investors have access to proptech tools and technological innovations that were unheard of just a few years ago.

Real estate investors are using proptech to find property faster, speed up the title and mortgage process, and streamline property management and rent collection.

Key takeaways from this article include:

  • Property + technology = proptech
  • Examples of cutting-edge proptech companies are Zillow, Redfin, and Stessa
  • Blockchain, virtual reality, and artificial intelligence are some of the current proptech trends in real estate
  • Real estate investors benefit by using proptech for finding property, performing due diligence, financing and payment, and rental property financial management