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Proptech for the Real Estate Investor

Proptech is driving efficiencies in real estate, ultimately leading to improved asset returns, reduced friction, and greater transparency.


[Updated: Feb 04, 2021 ] Dec 08, 2020 by Jeff Piltch
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Technology has begun to make its mark on the real estate industry. To put it into perspective, over $30 billion in venture capital was invested into property technology (or proptech) in 2019. Technology is used by every kind of real estate investor, from homebuyer to property manager to institutional investor. It will be important to be aware of what's out there to avoid missing out on potential deals or ways to boost your asset returns.

What is proptech?

Put simply, proptech is the use of technology to drive efficiencies in real estate, ultimately leading to improved asset returns, reduced friction, and greater transparency. Household names in the proptech industry include Zillow (NASDAQ: Z) (NASDAQ: ZG), a home sale listing site; Airbnb, a vacation rental listing site; and Opendoor, an iBuying platform.

So now let's dive into how proptech can improve returns for active real estate investors like landlords, as well as for passive investors.

The real estate lifecycle and the different levers you can pull as an active investor

Landlords typically have three main goals:

  • Buy property for as little as possible.
  • Generate as much cash flow (net operating income, or NOI) from that property as possible.
  • Sell the property for as much as possible when the time comes.

Although this is quite straightforward, it's important to get back to basics when considering how to best overlay proptech into the real estate lifecycle. You'll need to be strategic about where you deploy property technology into your portfolio, so it's helpful to consider the different levers available to you as you look to maximize ROI.

Lever 1: Acquisition

Sourcing potential deals is a crucial part of being an active real estate investor. There are more tools available to you beyond relying on foreclosures, using Zillow, or knocking on doors. Whether you're a single-family, multifamily, or commercial real estate investor, technology tools that can help you source potential deals are out there.

If you're a single-family or small multifamily real estate investor, check out Rubik, an off-market deal-sourcing tool for buy-and-holds and fix-and-flip strategies, or Mashvisor, a single-family investment analytics tool. Other tools to look at are Development AI, a deal-sourcing tool for small and midsized developers, or Reonomy, a commercial real estate data platform, if you're trying to source development opportunities.

Lever 2: Increased revenue potential

After you've acquired the rental property, your goal is to generate as much cash flow from it as you can. You can do this in a couple of ways, including maximizing the square footage of your rental property and reducing turnover/improving tenant retention.

Maximizing the square footage of your property

All other things being equal, more square footage means more potential revenue, but short of taking on a construction project, there's very little you can do to increase the available square footage of a property. Luckily, a few proptech companies out there are tackling this problem by helping landlords maximize the space they already have. Ori and Bumblebee Spaces are robotics companies that leverage space in the ceiling and walls to increase the amount of available storage in an apartment. Den Living, a company out of Los Angeles, is tackling the problem in a different way via its easy-to-set-up, construction-free bedrooms.

Reducing turnover/improving tenant retention

Much of the wave of innovation in real estate has been driven by the mental shift of landlords -- they're thinking of their residents as customers rather than tenants. There's no question the Silicon Valley mindset has led to this shift as you consider how tech companies track the lifetime value of a customer (LTV), churn, and more. To this end, landlords have begun implementing solutions that deliver more value to people living in their properties to make them want to stay.

This mindset is amplified by the fact that retaining a resident not only reduces vacancy, and thus maximizes revenue, but also saves landlords money from having to market a vacant property. A great example of a proptech solution that helps with this is resident loyalty and perks program Modern Message, a useful tool to boost property reviews from existing residents. Other examples include tech-enabled amenity providers that help enhance resident experience, like Alfred, or virtual community building software Cobu that empowers residents to create their own clubs, groups, and events.

Lever 3: Cost and time savings

After maximizing the top line of your property or properties, the next place you should look is at driving cost efficiencies. Luckily, there are some proptech companies that can help. A good first place to examine is your leasing process. Companies like Matterport and VirtualAPT can help you digitize the leasing process via virtual tours, draw in more prospects, and drive cost savings by qualifying renters and minimizing the number of showings needed to drive a lease.

There are also some terrific property management solutions for smaller landlords, like RentRedi, that streamline most of the tasks a landlord deals with, such as completing background checks, managing maintenance requests, and collecting rent.

Another thing to consider is that the right proptech solution might drive cost savings not necessarily on the property level but on the portfolio level. For example, a property management solution might not show a bottom-line impact if you look at one property, but it may free up your time and allow you to scale your portfolio.

I'm not a landlord, but I passively invest in real estate

While the large majority of proptech has been built for the active real estate investor or for real estate companies, some companies have been built to democratize access to passive real estate investment. Traditionally, a passive real estate investor has only been able to invest as a limited partner (LP) in direct deals with a high minimum check size threshold while being required to be an accredited investor. The alternative way has traditionally been to invest in real estate investment trusts (REITs).

Cadre is a proptech company working to give greater access to potential investors. Although they require investors to be accredited, Cadre is moving the traditional minimum check size down while vetting institutional-grade deals. CrowdStreet is another player in this space. And if you're interested in getting into the residential market in a more passive manner, take a look at Roofstock.

The Millionacres bottom line

Proptech has arrived, and it has its hands in every aspect of real estate. Anyone who has bought, sold, or looked at a home has probably used Zillow. And if you live in or have ever lived in an apartment building, you've most likely been a user of a proptech solution implemented by a property owner.

But proptech isn't just for homebuyers and sellers or the institutional real estate industry. There are tools you can use today to improve your real estate investment returns and access more investment opportunities, with more coming tomorrow and in the years to come.

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The Motley Fool owns shares of and recommends Zillow Group (A shares) and Zillow Group (C shares). The Motley Fool has a disclosure policy.