3 min read

New ways to invest in real estate

Tech is going to change how anyone can invest in real estate.
New ways to invest in real estate

Real estate investing is archaic. It involves walking, seeing, touching, paperwork, negotiating, relationships. It's just moved past fax machines.

I do it precisely for those reasons.

I like being able to feel my investment. (Irrational, right?). I know the process/paperwork/complexity of buying reduces competitive money. (Compare, say, to using Robinhood for investing.). I see the value of village-like local knowledge. (It's how I and many others uncover deals).

Will this "old school" model last forever? It seems pretty entrenched, like expensive college credentialing or healthcare in the US. But innovation happens at the edges. Who would have thought the taxi industry or retail would have been side-swiped by Uber and Amazon in less than a decade?

I've been diving into different ways to invest in real estate that involves tech. It's a somewhat new area that, like taxis and retail, is ripe for disruption. The offline is moving online. In practice it looks like:

  • Filtering and searching using common real estate performance metrics (yields, CAP rates etc.)
  • Financing and insuring real estate online
  • Outsourcing leasing and property management to a virtual team (with some feet on the street)

One trend is fractional ownership. That means I can invest in a sliver of a property with other investors. There are a myriad of these companies now: Crowdstreet, Fundrise, Cadre to name a few. They span both residential and commercial real estate.

I'm not a fan of fractional ownership. It doesn't mean you should feel the same. Here's my rationale:

  • I can't sell when I want
  • I can't easily add value
  • I don't know enough about the area/zoning/infrastructure etc.
  • I can't use leverage the way I want

I'm more interested in models which challenge the traditional "touch it, feel it" model. I've looked at five popular companies in this space: Bungalow, Belong, Mynd, Roofstock, and Landing. Each has its own sweet spot. I've summarized all five below.

Each company has a unique target market (see the first row in the table above). I find it hard to believe others reading this don't have some preference for the type of property they buy. My favorite feature is Roofstock's financial searchability. They've made it a lot like stock screening. And I know at least one of the other five companies is looking to build a similar feature.

Tech is definitively going to change other parts of the real estate business. Three examples:

  • Notarization is a giant pain in the a$$ and still feels late nineteenth century. Oh, you still need to see me in person, manually record it in a notebook and then do the embossed punchy thing? Cooooool. Solution: notarize.com
  • Viewing still means coordinating, visiting, masking (right now at least). Hasn't changed since the first caveman let out his vacation hole. Solution: matterport.com. Wait till Oculus becomes mainstream...
  • Financing involves negotiating, scanning, signing, filling in paper forms and more. It's not designed to be user-friendly. It's designed to protect lenders. The DMV competes with banks for sapping your lifeforce. Solution: better.com

I don't know how much tech will disrupt the landlording and real estate investing model. It doesn't matter much. The market is so huge that even a few percent going online is a big shift and a big opportunity. At the very least it opens the door to more people having access to real estate investing. And that's a good thing.

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Laziest Landlord
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