Updated: Feb 24, 2022
Technological advancements have the potential to disrupt any industry and real estate is no exception. The real estate industry is currently experiencing a transformation due to a number of key technologies that are starting to be used more and more frequently. In this blog, we will break down the top five most important technologies that are transforming real estate currently and what you need to know about them.
Most people associate blockchain with famous cryptocurrencies like Bitcoin or Ethereum. But in the last few years, blockchain technology has really started to spread out into many different areas besides currency. Blockchain is being used more and more in real estate because it is proving to be extremely useful.
Blockchain technology can be used to verify encrypted transactions and to authenticate the validity of various financial records. Blockchain can also be used to digitally store important real estate documents such as property titles. With blockchain, it can also be significantly easier to verify ownership and sale histories, which could eliminate a large percentage of title disputes. Admittedly, its come a long way.
Additionally, real estate, or fractions of real estate can be tokenized and be bought and sold. This could make it easier for real estate investors to sell all or portions of their real estate investments by reducing friction in the sale process. Further, many people are also starting to accept cryptocurrencies like Bitcoin for real estate purchases, perhaps because Bitcoin shares a some similarities with real estate such as scarcity, price appreciation, being an inflation hedge, being a store of value, etc.
Blockchain technology is also opening up a world of opportunities in the world of digital real estate in the metaverse. Digital plots of land in metaverses like Decentraland are starting to sell for serious money. Of course, these investments are not as stable as traditional real estate, but they do present exciting speculative opportunities for investors who are looking for high-risk, high-reward investments. Digital real estate in the metaverse runs on blockchain.
2. Virtual and Augmented Reality
Virtual and augmented reality are being used more and more in the real estate industry because they make it possible for people to get a better and more immersive look at properties online before deciding whether or not to go view them in person or to consider buying them.
The COVID-19 pandemic really pushed VR and AR to the forefront of the real estate industry because people didn’t want to literally risk their lives to go and see a property or attend an open house.
With VR and AR, prospective real estate buyers can wear VR goggles or headsets and view properties in 3D detail. This enables them to get a much better idea of the scale of the property, the feel of it, the details of the property, etc. Viewing a property in 3D with the help of a VR headset or an AR tool is significantly better than just looking at a picture or even a 3D drawing of it.
Fueled by the pandemic, many real estate professionals are now offering VR and AR viewing opportunities for their property listings. Although COVID has definitely helped to strengthen this trend, it is likely to continue long after the pandemic ends because it is so helpful for people. However, don’t forget that technology can also be enhanced. So, while it’s helpful for initial evaluations, I highly recommend you only partner with a syndicator who has physically walked the property themselves before investing in it. While the technology is helpful, it shouldn’t replace the fundamental best practices for syndicators and the investors that entrust their funds with them.
3. The Internet of Things (IoT)
The internet of things (IoT) refers to devices that are connected to the internet. Examples of IoT devices include smart lights, locks, thermostats, etc. The internet of things is becoming more and more relevant for real estate. This is because it is making property management much easier and more efficient, and because it is increasingly desired by prospective tenants.
Many renters and buyers are now looking for “smart houses” and “smart apartments” that come with all of the latest IoT devices. These devices can make it easier and more convenient for people to manage their homes, while also helping owners to justify making the investment more profitable by comparatively increasing the rents for these higher-end additions. For tenants, and investors, these types of modifications create a mutual win-win and are frequently part of our value-add strategy when we acquire new properties.
4. The Cloud
Throughout the pandemic, the cloud has been heavily used to assist with certain real estate operations that are normally carried out in person. One example is with closing. Many people carried out virtual closings during the pandemic and cloud technology was instrumental for these closings.
When cloud technology is used for real estate closings, all of the documents are stored in the cloud. Electronic document signature was used heavily in conjunction with cloud technology during closings.
Many real estate agents, buyers, and sellers found this process so efficient that it is highly likely that the cloud will continue to be used for e-closings long after the pandemic is done. The cloud can help to eliminate endless and unnecessary document printing. With e-closings, buyers and sellers can finalize their agreements quicker. Everyone wins, which is part of the reason why this technology is helping to transform real estate right now.
5. Equity Crowdfunding
Crowdfunding is being used more and more by real estate developers to fund real estate projects. This gives them a newer and more inclusive way to generate the funds to pay for real estate investments. Equity crowdfunding is the process of allowing anyone (the crowd) to fund real estate projects by making investments in them. Equity crowdfunding is similar to multifamily real estate syndication, which is where a syndicate invests accredited investors money into real estate projects to generate stable returns.
Equity crowdfunding and multifamily real estate syndication are similar in that they both involve sourcing funding for real estate projects from investors. However, unlike equity crowdfunding, multifamily syndication often is only for accredited investors. This means that equity crowdfunding is a better option for lower net-worth individuals who want to invest in real estate but can’t afford to invest through a syndicate. Equity crowdfunding often involves lower returns, but the financial and educational barriers to entry are lower, making it attractive for many people.
There are now many equity crowdfunding platforms that people can invest in, including Fundrise, YieldStreet, RealtyMogul, CrowdStreet, and more. The SEC requires higher financial barriers to entry for multifamily syndication because it wants to ensure that people can adequately afford the risks of larger-scale real estate investing.
Equity crowdfunding platforms are changing the game for real estate because they are allowing people to get exposure to real estate investing without having to leverage huge amounts of capital. Essentially, they are lowering the barrier to entry while allowing people to experience some of the excellent benefits of real estate investing, such as stable cash flow.
For many people, however, equity crowdfunding platforms serve as an entry point to more serious real estate investments that might come a few years down the line when the people have more capital to deploy.
Technology is changing the game in real estate. All five of the technologies mentioned in this article have all had a tremendous impact on the real estate industry in the past few years, and especially since the pandemic began.
If you are a real estate professional, then you need to be aware of all of these technologies and how they are impacting the market. While they are fun, exciting, and helpful, be sure to also take into consideration the potential “cons” associated with them. Being adaptable and harnessing technology is absolutely necessary in today’s world, but there is still a place to balance it against fundamental investing approaches, as well. The great news is, you’re free to pick and choose as it serves you best. Real estate investing has been, and always will be, a lifelong learning adventure.
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About the Author
Ellie is the founder of Blue Lake Capital, a commercial real estate investment firm specializing in multifamily investing throughout the United States. At Blue Lake Capital, Ellie partners with both institutional and individual investors to grow their wealth by achieving double-digit returns by investing alongside her in exclusive multifamily deals they usually don't have access to.
A defining factor of Blue Lake Capital’s strategy is founded in utilizing machine learning/artificial intelligence throughout the course of all acquisitions and asset management. This advanced technology enables the company to produce accurate and data-driven forecasting for all assets on a market, property, and even tenant basis. In doing so, Blue Lake is able to lead commercial investments with the full capabilities of today’s technology.
Ellie is the host of REady2Scale, a podcast that highlights the assets, processes, and strategies for the multiple approaches to successful real estate investing.
She started her career as a commercial real estate lawyer, leading real estate transactions for one of Israel’s leading development companies. Later, as a property manager for Israel’s largest energy company, she oversaw properties worth over $100MM. Additionally, Ellie is an experienced entrepreneur who helped build and scale companies by improving their business operations.
Ellie holds a Masters in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.
You can read more about Blue Lake Capital and Ellie Perlman at www.bluelake-capital.com.