Innovations in technology have changed virtually all aspects of our lives: how we communicate, work, learn, and everything in between. As new technologies continue to emerge and evolve, the world of real estate is also experiencing seismic changes. It’s important that real estate investors stay on top of the latest changes in technology and how they’re changing the real estate game.
Did you know that a survey of more than 100 real estate professionals found that two-thirds of them reported that adopting new technologies was a strategic priority?
Let’s take a deeper look at how specific technological innovations are changing the real estate landscape.
Blockchain is a digital ledger that stores many different kinds of data, including information about cryptocurrency transactions, NFTs, and decentralized finance (DeFi) smart contracts.
Of course, any other conventional database is capable of storing this kind of data, but the blockchain is unique because it’s completely decentralized. This means that instead of having the data maintained in one location by one central administrator, such as in a bank’s database, several identical copies of blockchain databases can be held on multiple computers spread out across a blockchain network.
The advanced network of computers and algorithms facilitated by blockchain technology has the potential to empower blockchain real estate apps to disrupt the housing market forever.
Whether you’ve dabbled in cryptocurrency yourself or just skimmed a few articles on the subject, you’ve likely seen that Bitcoin, Ethereum, and other crypto coins have become synonymous with the blockchain. But when it comes to blockchain technology and real estate, it stretches much further than just crypto assets.
At its most basic level, blockchain real estate deploys a network of computers that will act as a more technologically advanced and secure escrow company. Blockchain real estate can help buyers, sellers, and investors exchange currency, records, contracts, and other information on one safe and secure network.
- Cecilia accepts Mark’s offer to buy her house. She requests the money over the blockchain.
- A large network of advanced computers, called nodes, get to work facilitating Cecilia’s request.
- The nodes use pre-set algorithms to verify and process Cecilia’s request.
- Like an escrow company, once the exchange can be verified, the actual exchange of funds and documents will occur.
- Following verification, a new block of data will be added to the blockchain ledger, forming another link in the chain of data (the blockchain).
- Once the new block of data is added to the blockchain, it’s impossible for it to be altered in any way.
Understanding the concept of tokenization is extremely helpful to gain a clearer view of blockchain real estate. Tokenization is a method in which an equitable interest in a property is turned into a token. The token becomes a digital representation of the equitable asset.
Say two investors, Bill and Jason, are purchasing a condominium together.
If they tokenize their interests in the real estate asset on the blockchain, Bill and Jason would each receive tokens to show their ownership of the condo on the blockchain.
If Bill and Jason each purchase 50% of the condo, they’ll each receive an equal amount of tokens. But if Jason purchases 80% of the condo and Bill purchases 20%, their tokens will reflect the difference.
When all tokens are added together, they will equal the asset’s total value. Separately, each investor’s tokens will demonstrate their share of the condo. No matter which way you crack it, tokens are used to demonstrate the following details of an asset’s ownership:
Once a real estate asset is tokenized, the owner(s) are free to trade, sell, and liquidate it over the blockchain.
Tokenizing real estate and using the blockchain to facilitate transactions is much faster and more secure, and it does away with the need for an expensive third-party escrow company.
As you can probably tell by now, blockchain holds the potential to completely transform the real estate industry. Let’s take a look at some other reasons why this technology has the potential to be so transformative:
Trading Platforms and Online Marketplaces
Any real estate investor knows how convenient websites like Zillow are to easily browse properties on-demand. However, platforms for trading and online marketplaces are still in their infancy.
As blockchain technology for real estate starts to gain some mainstream traction, more people will be able to participate in the real estate industry without worrying about malicious actors. The blockchain will create trading platforms that are more secure and faster, saving investors a lot of headaches and holding costs.
Real Estate Is Transformed into a Liquid Asset
When real estate is tokenized, it gives the whole asset class the ability to become liquid. What investor doesn’t want liquid assets? Before tokenization, one hang-up many investors had about investing in real estate was the assets’ illiquidity. In order to tap into the cash behind real estate assets, investors would more than likely have to sell their assets. Once an investor decided to sell, they would have to market their asset, host showings, and get ready for a lengthy closing process — making it a long and expensive process.
When real estate is tokenized, those concerns melt away because digital tokens on the blockchain signify ownership in a real estate asset, giving investors the power to simply sell their tokens without any of the hassles associated with traditional property selling. Instead of the months-long process of traditional selling, the blockchain makes it possible for investors to cash in on their tokenized real estate in mere minutes.
One of the most popular new real estate trends is fractional ownership, which allows investors who don’t have tons of upfront capital to still invest in real estate. Fractional ownership lets investors buy a “piece” of a property that they then share with other investors. While fractional ownership can be purchased with currency, investors can also use tokens to invest in this emerging real estate class.
Investment fractionalization can be backed by blockchain technology, which ensures that ownership claims can’t be contested and provides a secure way for investors to identify their shares in investments as well as claim their shares in the asset’s revenues or profits.
Blockchain real estate operates via smart contracts, which have many advantages over traditional contracts, including the fact that the blockchain can create, authenticate, and audit contracts in real-time, from anywhere, without the need for a middleman. Smart contracts can also contain instructions for the transaction that will only accept the payment once all instructions are followed, and all requirements are met. This provides all parties with total transparency and reduces the likelihood of payment disputes.
In fact, smart contracts offer total transparency in all real estate investment transactions, adding certainty and security for investors.
With fractionalized investments, in particular, the transactions can get quite complicated because different parties are involved, and there are a lot of details to keep track of and numbers to calculate. Smart contracts solve these complexities by automatically computing and implementing the correct courses of action when all conditions are met, which gives them the potential to make all real estate transactions faster and more accurate.
Financial technology, or “fintech” for short, refers to new technologies that aim to improve and automate the financial services sector. Fintech is used to help companies, business owners, and consumers improve the management of their financial operations, processes, and ultimately lives through specialized software and algorithms used on computers and smartphones.
Fintech is revolutionizing the real estate industry because of its ability to make buying, selling, and investing much more convenient. Here are a few examples of how:
Fintech is eliminating the need (and cost) for real estate agents. Instead, fintech has created apps and websites that let people sell their homes online and have everything handled directly through the website.
Fintech has also made the process of renting an apartment, home, or office space much easier. Property owners can simply put their listings on apps and websites and let potential tenants come to them. There are even apps that let renters pay their rent with the click of a button.
Thanks to fintech, the days of having to physically walk into a bank to apply for a mortgage are a thing of the past. Fintech technology allows buyers to go through the entire loan application process online, including getting approved for a mortgage. All that’s required is for the buyers to send in the necessary documents and their e-signatures, and the technology will handle the rest.
Fintech is also speeding up the amount of time it takes to get approved for a loan by making it much easier to get approved. Since everything from the application process to the documentation requirements is handled in the cloud, it ensures everyone is on the same page. This means the loans are processed much faster without the hold-ups and delays commonly seen in the traditional mortgage application process.
Speaking of documents, signing and making sure documents end up in the right hands is a critical yet time-consuming part of the real estate transaction. Fintech significantly cuts down the time it takes for the closing process by using apps and websites to streamline the process of signing documents.
Developers are also benefiting from the new tools that fintech is bringing, including new ways of:
- Forecasting acquisition costs
- Forecasting investment income
- Funding structures
These new methods are helping developers refine their budgets and cut costs. What’s more, the digitization of fundraising is well underway, as there are a number of new e-fundraising platforms that allow individual investors to access a network of investors. These simplify the process of finding investment properties and other investors who may be interested in a fractionalized real estate investment opportunity.
Fintech is also changing the real estate investment game through the emergence of apps and websites that allow investors to purchase small shares of a property, requiring far less capital than traditional real estate investing. People can purchase shares of investment properties, vacation homes, single-family homes, condominiums, commercial development projects, and any other type of real estate they can imagine. These platforms are excellent tools to help new investors diversify their investment portfolios without the need to raise large sums of capital.
Proptech is an emerging technology within fintech. It stands for “property technology” and is used to provide real estate purchase, management, and investment services, including property listing, rental, and mortgage applications. There is an influx of new startups in the proptech space with the goal of disrupting the real estate industry with their innovative solutions.
Examples of proptech companies include real estate marketplaces that innovate how people find homes to purchase or invest in and manage their mortgage payments online straight from their mobile devices. Other proptech companies focus on financial services, such as digital-only mortgage lending and investment solutions.
One example of an industry-leading proptech company is Airbnb, which now has a higher valuation than some of the world’s largest hotel chains combined.
Proptech enables real estate professionals to gather data and interpret it, allowing them to make better, more informed decisions. The technology also enables them to automate and expedite administrative tasks, allowing them to focus on client-facing work instead of administrative tasks.
In a nutshell, proptech is shaking up the real estate industry and transforming how real estate agents, buyers, sellers, and investors do business as the technology provides more opportunities for business growth.
There are many ways that proptech is reshaping the purchase and management experience in real estate, including by:
- Cutting out the middleman in the purchase of a property.
- Assisting with leasing and administration duties.
- Offering insights into how a property’s tenants use their space.
- Using market data to evaluate investment, development, leasing, and purchase opportunities.
- Managing and underwriting.
Similar to fintech, proptech solutions streamline a vast range of real estate processes, including:
- The building experience: Proptech aims to consolidate a vast array of functions through the use of centralized tech hubs to allow tenants to pay their rent, make maintenance requests, and contact their landlords from one central location.
- Smart homes: Smart homes make up a significant portion of the proptech segment, ranging from smart thermostats and lightbulbs to energy monitoring and conservation.
- Real estate: As we mentioned in the previous section, real estate fintech and proptech streamline the whole home buying and selling process, from the paperwork and document-signing to the financial transactions.
- Real estate sharing: As more and more industries move toward the sharing economy, proptech is redefining how land, offices, storage spaces, and apartment complexes are occupied.
There are two main domains in real estate proptech:
Residential proptech refers to all of the digital products that real estate companies have developed to create platforms to make it easier for people to own or rent properties, including:
- Property search platforms
- Property management tools
- Property sale tools
- Financing tools, such as digital lenders and brokers and alternative financing
- Mortgage lender software to facilitate loan applications and management
- Real estate closing tools, such as insurance and other tools for transaction management
- Loan management systems
The second primary domain in real estate proptech is:
CRETech stands for Commercial Real Estate Technology, and it covers all of the innovative tools that companies and CRE professionals deploy to run, search, rent, and sell property assets. This space is shaped by:
- Property search platforms
- Property management tools
- Construction planning and management tools
- Evaluation and financing tools, including underwriting management and debt financing platforms
- Asset utilization, such as retail and industrial building management and co-working and co-living space management
The Internet of Things (IoT) is another component of proptech that is transforming real estate. IoT refers to smart devices and appliances that are connected to the cloud digitally and that constantly send and receive information.
With IoT, smart sensors can alert investors and property managers of any issues as they arise. The sensors can also be used for predictive maintenance, enabling investors to identify and fix issues before they spiral into major problems.
In the future, it’s expected that IoT will also revolutionize the home inspection process by allowing homebuyers to download a comprehensive history of a property’s maintenance records and upkeep through smart devices connected in the home, including HVAC, electrical, and plumbing plug-ins. This means no more guessing or paying for expensive inspections to identify issues and understand a property’s condition.
These devices also help with energy efficiency and can save the property owner a lot of money.
As the popularity and reach of IoT grow, usage will stretch well beyond individual smart devices, and we’ll start seeing entire smart buildings and even entire smart cities. These entities will be constantly connected, always sending and receiving data. These innovations will pave the way for big data, AI, and machine learning to create even more insights and improvements that we currently can’t predict.
Artificial intelligence (AI) is another area transforming the real estate landscape, including by:
Real estate agents depend on AI to help them predict the future value of properties. AI does so by combining marketplace data and CRM, including transportation, crime rates, schools, and other marketplace activity. By quickly collating and calculating large data sets, AI can produce more accurate property value estimations much faster than a real estate agent attempting to do so manually could.
There can often be a disconnect between the real estate agent and investor in terms of what exactly the investor is looking for in a property. AI solves this challenge by enabling the agent to convert all communication with their client into data that the AI can use to optimize recommendations.
Machine learning AI is changing the tedious home buying process by creating a faster, more user-friendly, and transparent experience. One aspect of AI, augmented reality (AR), is the perfect solution for busy investors who may not have the time or ability to travel to every property they’re interested in. Instead of looking at static listing photos or a blurry FaceTime call with their real estate agent, investors can put on an AR headset and get a 3D walk-through of a property without leaving their home or office. Talk about a simplified and much more convenient process!
Many international investors already depend on VR and AR to help them get a better view of properties. As VR becomes more mainstream and immersive, this trend will only continue to grow.
AR and VR are also improving the staging process by increasing the perceived value of a property by providing an affordable way to virtually stage listings. For new builds, VR also helps create realistic imagery of the architecture and walk-throughs that help buyers experience the property, even before the ground has been broken.
New technologies are upending the way people invest, providing faster, safer, and more accurate ways to complete real estate transactions. Of course, we live in a time when technology evolves faster than the speed of sound. So, while these technologies may be emerging today, they’re just the tip of the iceberg in terms of the innovations we can expect to see in the real estate market of tomorrow. More creative and innovative products and solutions will become mainstream and continue to make real estate investing more accessible, faster, and more affordable.
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