Fintech is a very broad term. It applies to technologies that change the way we spend money, save money, invest funds, and buy insurance.
Investing in (and developing) real estate is yet another process undergoing major shifts thanks to fintech. Anyone interested in real estate investment should pay attention to these changes now. By understanding the ways fintech is altering the industry, you can use these innovations to your advantage.
The following are some of the more significant developments worth keeping an eye on. While it’s impossible to completely predict the overall effect that fintech will have on the real estate industry, these shifts reflect noteworthy trends.
Making Real Estate Investment Easier
Often, fintech companies are able to offer more affordable services to customers by operating primarily—if not exclusively—online. For instance, perhaps you’re considering buying a new insurance policy. The cost may be higher if you go with a traditional provider, because they have to pay the overhead required to maintain brick-and-mortar locations. A fintech provider, on the other hand, does not incur the expenses associated with this, which allows them to save money and to pass the savings on to the customer.
This principle can also apply to real estate investment. Cadre, for example, is a platform that allows high net worth investors to purchase commercial and multifamily real estate shares without the fees traditionally involved in funds and real estate investment trusts (REITs). Aiming to make the real estate market more like the stock market, the company is able to offer reduced fees essentially by replacing middlemen with technology.
In an early example of the kind of transactions Cadre has enabled, 20 investors together were able to purchase a mixed-use building in Queens, New York, for $60 million in 2016, and to close the deal in weeks, rather than months. Without Cadre, similar groups of investors typically would have had to invest in a fund and pay the associated fees, while the fund decides which buildings to invest in—typically without offering much explanation or many updates.
Letting Others Invest
Cadre does share some similarities with traditional real estate investment services. Specifically, it’s designed (for now) to cater to people and institutions with high net worths. This makes sense—investing in real estate requires a significant amount of capital. Thus, individuals with lower incomes have long been unable to participate.
However, fintech may be revolutionizing this, too. Fundrise is an example of a platform that allows users to invest as little as $500 in real estate portfolios. This type of service may open the doors to real estate investment in the same way that apps like Robinhood have attracted stock market investors who were previously unable to afford paying for broker fees.
Improving the Lending Process
As this blog has pointed out in the past, fintech has already made it possible for small business owners to get loans that traditional financial institutions might have denied. This isn’t due to predatory lending practices. Quite simply, fintech lending firms have greater access to information about an applicant. They leverage digital technology to better determine whether someone is a good candidate for business loan.
The same shift is occurring in commercial real estate lending. Additionally, these new technologies make the process of applying for a loan much more efficient, benefiting both applicants and lenders. Related fintech services have also made it much easier for loan applicants in general to know their FICO scores. This is yet another way fintech is speeding up what was once a cumbersome, opaque process.
Linking Buyers with Sellers
Finding qualified buyers for a property can be difficult for real estate agents in many markets. However, fintech real estate companies like Zillow have simplified it. Potential buyers can simply go to a website or app and browse available properties. This allows them to more easily find the right property for their budget and goals. It also makes it easier for real estate agents to connect with buyers who may be genuinely interested in their properties.
Improving Renters Insurance
Renters insurance overlaps significantly with the real estate industry. It’s also another sector that has undergone major shifts, thanks to fintech.
Companies like Lemonade and Jetty make it easier for customers to purchase renters insurance policies. Again, partially because they don’t operate brick-and-mortar locations, they can offer lower rates than most traditional insurance providers. They also cater to the millennial market more effectively. Despite the fact that most millennials rent, most don’t have renters insurance. With these new services, they can sign up for a policy via a mobile app. Simplifying the sign-up process makes renters insurance much more appealing, especially to people who are accustomed to the convenience digital technology offers. Additionally, these new fintech-enabled renters insurance providers make it easy for users to customize their plans, ensuring they get the right policy for their needs and budgets. These advantages could make renters insurance much more popular among young people.