Blockchain technology, crowd funding platforms, big data, and artificial intelligence. Will these industry disrupters impact real estate investing and how will they play a role in your personal investing endeavors? I’m going to give you a crash course so that you can get a better understanding how they will impact real estate investing.
4 Real Estate Investing Industry Disruptors
Many people think that blockchain technology is going to revolutionize real estate investing. It will change how the buyer and the seller come together with an offer, how the closing occurs, how things are financed, and even how the lenders put together their loans.
Crowdfunding platforms have evolved over the last several years and now their platform is open to everyone. You aren’t required to be an accredited investor anymore, so just about anybody can be a real estate investor now.
Big data is being collected on a colossal scale.
Artificial intelligence mines that big data and draws conclusions in a way never done before.
Confidence to Navigate the Future of Real Estate Investing
In this post I will provide you with clarity, and when you have clarity, you have confidence. When you are confident, you take productive actions which produce economic results and financial returns. My purpose is to help you learn more so you can use the power of real estate to produce more freedom.
To gain clarity we need to break down real estate into two components:
- Financing the purchase.
- The asset itself.
These new technologies are making a significant impact to financing. Financing used to be exclusive to banks, mortgage companies, and insurance companies. Then real estate investment trusts or REITs came on the scene. A REIT is where a pool of investors put money in and then that REIT buys real estate. Often REITs use banks to finance the first mortgage, and then use the funds from the REIT to pay the down payment.
Crowd funding platforms are the next generation of the REIT. Through these platforms even non-accredited investors with $1,000, or $5,000 can invest in a chosen property.
Are Crowdfunding Platforms a Good Investment?
- Crowdfunding Has Low Returns: The returns vary depending on the property and platform. The biggest problem you have is you are not a bank. Banks have an amazing tool that we don’t. They do what’s called fractional banking (10x), where they take $10,000 in deposits and lend $100,000 on real estate transactions. Banks can take a small amount of money and turn it into a lot even if the interest rate is weak. In contrast, when you put $10,000 into a crowdfunding platform, that’s all you’re putting in. That means the returns are smaller. I personally want better returns than that, however it does require me to be a more active investor.
- Lending Money Has Risks: You need to know there are plenty of risks and challenges when lending money, including being tied up in a deal or losing that money altogether. When you put your money in a crowdfunding platform you are lending your money for an interest rate. There are a lot of things that can go wrong. You need to be sure of the asset and that the people in charge of that asset are capable. I’m a hard money lender for my apprentices. Even though I try to reduce the risks by personally mentoring the person and knowing the deal intimately, ultimately there are still risks.
How Crowdfunding Platforms are Affecting Financing in Real Estate Investing
Crowdfunding platforms play a significant role in real estate investing because now we have access to more money than ever. As investors we’ve always had access to a lot of money. I built an easily searchable tool called the Hard Money Locator, which provides information on just about every hard money lender in the United States. There were already plenty of lenders and now with this new platform we have even more.
Their terms are similar to that of a hard money lender, so if as an investor you are looking to get money from a crowdfunding platform, the returns are comparable. However, the difference is there is more money in the market, and this tends to reduce returns. What I have noticed over many years, is that when there is more money available in real estate the over all returns from tradition investments tend to go down.
How Blockchain Technology is Affecting Financing in Real Estate Investing
Another aspect that is affecting real estate is Blockchain technology which allows for the tokenization of equity in a property. Currently, this is happening with a few larger investment properties. The owners are tokenizing their equity using blockchain technology, allowing people to be a partial owner. This is similar in many respects to the crowdfunding platform. You are transferring your currency to the owner of the property for a specified return. As I mentioned previously, those returns are going to be smaller.
It is important to remember that anytime an investment that is neat and tidy and well packaged, the returns are going to be lower. This is fine if you want to be a passive investor. However, the best investments are the ones you create. If you have been watching my videos and reading my blog, I hope you are wanting to be an active investor and that’s what transitions our thoughts to the asset itself.
2. The Asset
This is where the money is made. Quite literally the money is made by the developer selling to the buyer or the tenant paying the landlord. I would also argue that the real money is always made when you are the one who is in control and the principle in the deal. Then you can use the financing or the tokenization of blockchain technology to your advantage because you are in control, allowing you to get more profit, reducing the risks. Compare that to investing in a crowdfunding platform, where you have no control as a lender. When you are using financing to fund the deal as the principle in a deal, then you are in the driver’s seat.
How Technology is Affecting the Asset
Big Data and Artificial Intelligence and the Traditional Investor
The tradition investor is under attack more than ever before because now they aren’t just competing with other tradition investors, they are competing against computers. Computer systems are mining available data and can draw conclusions from that data. Because of this we are seeing a trend where some companies can buy traditional properties better and faster than a traditional investor. There are hedge funds with more capital that are able to source out the right deal and buy faster and easier.
Traditional investors are getting beat by data and artificial intelligence’s ability to mine that data, but this doesn’t concern me at all. Why? Because I’m a creative investor.
Big Data and Creative Investing
As creative investors we focus on the owner, not the property. We pursue the property owner and their problems. We focus on the seller themselves because it is with them that we can structure the best deal. In these cases, the property itself would never show up on the radar of any data mining tool as a potential investment opportunity. We could be using funding from a hard money lender or crowdfunding platform, however often the financing is through the seller themselves by taking over their existing loan or doing owner financing.
I have a great video on this called How to Turn a Little into A Lot Part 2 that explains exactly how this is done.
Creative Investors Use New Technology to Their Advantage
How We Buy Property
In creative investing we are using big data and artificial intelligence to our advantage, compiling the largest list of motivated sellers. These are people who we have dealt with. We take that list and upload it to certain platforms which allow us to deliver our message to a similar audience of the original customer list.
This can’t be done on a small scale. You need to access tens of thousands of motivated sellers contact records to effectively distribute your message to the right people at the right time. Using artificial intelligence in this way is so powerful because it allows us to reach our audience far more efficiently than ever before.
How We Monetize the Property
Furthermore, it’s not just finding the best deals. There’s another facet to creative investing that many of you will be able to expand upon in the future. Creative real estate also relates to how you monetize that property; how we buy it and how we manage it.
A perfect example would be vacation rentals. I have a video 3 Ways to Turn a House into a Cash Flowing Machine. In it I talk about the power of vacation rental investing, taking a property and converting it into a mini hotel. You can literally transform it’s productivity. The returns are so much greater, that I sold all my traditional rentals and went completely to short term vacation rentals.
Use New Technology to Create More Wealth
What we are seeing here is, as you have more access to capital through crowd funding platforms or tokenizing a property that you own or control, the real power play is your skill to find, structure, and manage the best deals. That’s where all the money is being made. Rather than you trying to catch up to technology, technology is the wind at your back pushing you forward to more wealth.
The Future of Blockchain in Real Estate
Blockchain technology can bring buyers and sellers together and put together offers with a more transparent and efficient process. More efficient lending and closing process are exciting changes in the industry because they make real estate more efficient.
Blockchain Technology Threatens Tradition Real Estate Agents
However, traditional real estate agents aren’t happy with these changes because it threatens their commission and control of the buying and selling process. That 6% commission has been under fire for years by the flat fee industry. We have adopted the flat fee for a long time and it’s a significant part of our ability to sell a property with lower cost and commission.
I can see a future where agents play a limited role in real estate because blockchain technology can better organize the process of buying a house. If you are an agent, you need to learn how to use this new technology to your advantage.
Blockchain Fuels Cryptocurrency
I know very little about Cryptocurrency, however, no matter the currency, in real estate what investors do is take currency and convert it into property. They exchange currency for real estate because real estate is essentially inflation-proof. It’s tangible, you can touch it and see it.
So, can the use of cryptocurrency in real estate make a big impact? There is potential there, but so far all I’ve seen about it is in South Florida. They changed the law requiring transactions over a million dollars to be far more transparent. Literally overnight, a lot of transactions came to a grinding halt because organized crime and drug cartels used real estate to launder their money. As a result they are using cryptocurrency to buy real estate because it is more difficult to track the process.
Crypto Currency and Tokenization
Crypto currency is also being used in relation to tokenization. You can buy portions of property through your cryptocurrency, so if the value of your bitcoin is continuing to dwindle, maybe it is time to move it into some real estate.
Embrace the Future with Creative Real Estate Investing
In conclusion, as more financing becomes available it is going to reduce returns on a global scale. In relation of your own personal investments, if your investments are all neat and tidy the returns are going to be substantially lower. On the other hand, if you are the principle in the deal, using creative techniques to locate and structure your deals, you will be in the best possible position. These will changes benefit you, not swallow you up.
In contrast, the traditional investor and agent model is under total attack right now from these industry disruptors. If you are a traditional investor or agent, I would have some concerns and make some adjustments now.
If you want all of this to be the wind at your back, if you don’t want to be trying to run to catch up to technology but you want to be able to lean back and let technology make you wealthier, consider becoming a first-class market leading creative real estate investor. That’s what my apprenticeship program does. We take complete beginners and turn them into money-making machines.