With increasing economic uncertainty and no end in sight to hyperinflation, investors are frantically searching for stable investment opportunities that can hedge against inflation.
Precious metals such as gold and silver are an option, but returns tend to be limited to simply outpacing inflation, so this does not attract many investors. Real estate is more popular because it generally produces cash flow as its value increases, but with massive demand and limited inventory, it is becoming less viable. Direct corporate investing can be an effective option as long as you find a solid company in a growing industry. Currently, real estate technology, also known as proptech, is one of the most profitable growth industries.
Nearly $19 billion in equity and debt capital was raised in the US proptech category in 2021 — more than double the capital raised in 2020, according to a recent report from Houlihan Lockey, a global investment banking firm. Of that, 154 projects raised $20 million or more, which is more than 2.6 times the number of $20+ million rounds in this category on an annual basis. Several projects, including AvantStay, Lessen and Up & Up, have also raised more than $100 million in capital.
There are two main factors driving this opportunity.
The first is the huge demand for real estate. It is not uncommon for today’s property to sell for tens or sometimes hundreds of thousands of dollars over the asking price. Aggressive bidding wars often start once a property enters the market, causing prices to skyrocket. And in many cases, the sale closes long before buyers who find the property through traditional channels, such as the MLS system, have a chance to bid.
The second is that the industry simply hasn’t kept pace with technology. This includes brokers, brokers, investors, property managers, sellers, and anyone else who is casually connected. The real estate industry is generally about ten years behind other industries when it comes to technology.
Due to increased competition led by rising demand and declining inventories, hyperinflation, and more aggressive acquisitions by institutional investors, the industry is compelled to evolve. Effectively making use of technology is no longer a luxury – it will need to thrive over the coming years. Businesses and employees alike will need to become more efficient, access and analyze large data sets, and build relationships with customers, partners, and suppliers across multiple channels.
Matt Andrews, a real estate investor and venture capitalist who also runs an incubator group of technology real estate investment companies, explains,
Institutional investors have learned a lot after the recent real estate crash. At the time, it was like the Wild West and a lot of small investors were able to make a lot of money quite easily, but the landscape has changed dramatically since then. Today, we not only compete with well-funded institutional investors, but we also compete with a growing army of smaller investors as well. Proactive investors take advantage of technology to find and close more deals more quickly, leaving fewer opportunities for those who are not taking advantage of technology effectively. Bottom line – it’s no longer a luxury, it’s a necessity if you want to thrive in today’s real estate industry. “
Andrews’ group, Family Mastermind, places great emphasis on this because its members understand the role technology has played in the success of their fellow members. During virtual and in-person events, group members frequently share, in detail, exactly how they are using technology to manage and grow their business so that other members can implement strategies in their own business.
Technology has played a huge role in recent years in making better decisions in the real estate industry and this role will become even more important in the coming years.
In the past, auditors, developers, and investors had to rely on small, local data sets and their guts to make predictions of market trends, which provided limited accuracy and are prone to biases. But today, professionals are taking advantage of big data, algorithms, and artificial intelligence to quickly analyze huge national data sets. As reported by the consulting giant, McKinsey, this makes predictions more accurate because a larger data set includes more relevant variables and helps reduce statistical anomalies. Being able to do a more accurate analysis means being able to spot trends early, and this leads to a lower investment cost along with a faster and greater return on investment.
“The world of real estate and home relocation is now so complex that without data we are all guessing. Data does more than describe a trend, a location or a person, it can predict trends in the future. It can learn from countless past events. So The data is descriptive and time-based. These are the two dimensions that data can help with so that marketing is targeted and more personalized than it has been in the past.”
Professionals now have access to more data than ever before, as well as the tools to analyze that data quickly and accurately to make better-informed decisions. This ability was previously only available to giants, but thanks to technology, the playing field has been leveled to create a strong competitive advantage for those who choose to take advantage of it.
For investors who are not comfortable investing in smaller proptech companies, a more traditional route is available through the stock market. There, investors can easily buy shares in household names like Zillow, Redfin and Opendoor through traditional brokerage accounts, but so far, this path has failed to succeed because proptech stocks have consistently underperformed the market in recent years.
Charles Payne, host of Fox Business Make Money, explains, “There is no doubt that this giant industry is perhaps the most divided (disparate healthcare systems are perhaps the most fragmented) and presents a huge opportunity. The problem now is timing and implementation. Perhaps that is why There is a lot of investment capital for the private sector at the moment.
The challenges are illustrated by the saga of Zillow who has turned to her technology know-how and algorithms to aggressively enter the home buying and selling business. When management announced its new initiative in April 2018, the company’s stock was trading at $46.00. The goal was to buy up to 5,000 per month by 2024.
Wall Street liked the idea and the stock shot like a rocket, rising to $198.00 by February 2021. But it turned out that the “in-house technology advantage” wasn’t enough and soon the company had too much inventory and seemed to be lagging a step behind the plodding industry of retail investors and the handshake business. Since then, the shares have returned to $40 per share.
This would be a huge place for investors but the timing and proper net play are not clear to me at this time.”
Proptech has expanded into the burgeoning world of blockchain, where ownership is tied to real estate stocks. Think of it as partial digital ownership of a physical property, and you can acquire that property at a much lower cost while still receiving many of the same benefits of owning it outright. According to Stylecaster and RLBLC founder Ari S.
The key, regardless of whether you choose to invest directly in smaller proptech companies or in stocks of large publicly traded companies, is first, to truly understand the real estate industry.
Making a sound investment decision requires that you understand the competitive landscape and how the company fits in with it. Does the company bring something unique to the table, or is it just another solution to looking for a problem? For example, perhaps the industry does not need yet another A CRM system, but a tool that helps brokers find and connect with homeowners before They decide to include their home that might be of great value.
The idea is to search for companies that meet a particular need that interests others in the industry. This could be something other companies don’t handle at all, or it could be something they don’t handle very well. But it is important to make sure that there is actually a market for that product or service.
Oftentimes, when an investor lacks experience in a particular industry, he may think that something is a great idea but the people who work in that industry don’t. This is why it is essential to have some experience in the real estate industry, or invest time in talking to others, to ensure that the companies you are considering investing in offer a valuable product or service that others will spend their hard-earned. money on. The real value comes from making the working lives of industry professionals easier, more efficient and more productive. If the company can do this, it is likely to be a solid investment. However, it is often the most effective investments in companies established by someone in the industry to fill a need in their own business that has not been filled by other companies.
This industry will continue to evolve, and over time, technology will eventually catch up with the rest of the world. But in the meantime, there is a huge opportunity for investors looking for solid growth.
This article was submitted by an outside contributor and may not represent the views and opinions of Benzinga.
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