Technology is finally eliminating geography as a barrier to real estate investing

Real estate, real estate technology, Investment, crowdfunding, Buy House Cash are some terms you see in ads every day however investing has elicited a variety of emotions, running gamut from excitement to anxiety. When dealing with significant sums of capital, feelings of apprehension tend to creep in, especially regarding neighborhood quality, tenant and property management issues and liquidity.

But those feelings of apprehension should be balanced by knowledge that real estate as an asset class offers high returns in low-interest-rate environments, provides diversification from traditional stock portfolios and has potential for -term appreciation.

Plus, there’s another, more recent benefit to consider for investing in real estate. Technology has enabled radical changes in how and where people invest in real estate. old adage that real estate investing is a local business no longer holds true.

Millennials, skilled professionals, overseas investors and retirees now have ability to acquire properties, commercial developments and homes like they acquire stocks or bonds. Remote investing makes single-family rental (SFR) investing a viable alternative investment option, and with returns that outperformed S&P 500 returns in 2015, it has emerged as a powerful wealth-building tool.

An initial wave of remote real estate investing happened via crowdfunding, which enables investors of all ages, risk profiles and wealth levels to acquire real estate. With as little as $5,000 down, investors across world can buy a stake in a single-family home, or with a larger investment, they can opt to purchase shares of a 300,000-square foot office tower. Realty MogulRealtySharesFundraise, YanexHome and more than 200 other firms valued at a combined $2.6 billion worldwide support this type of crowdsourced investing.

While crowdfunding may be a great way for novice investors to get their feet wet, there are some downfalls. Investors can only purchase a portion of a real estate project, which means they property along with several other investors — similar to timeshares. In some cases, hundreds of investors might a stake in a single asset through a limited liability company. Instead of having full ownership of real estate, investor possesses limited control over their capital, how it’s and where it’s distributed.

There is no real way of knowing whether interests of majority owner are aligned with interests of portion that is crowdfunded. Furthermore, there are potential liabilities based upon income charged to investor without receipt of any cash flow, lack of a secondary market for liquidity and dealing with requirement of new capital if a cash shortfall should occur. Investor fortunes could be lost, and they could be lost quickly.

As crowdfunding models have become more complicated, a new generation of real estate technology disrupters has addressed some of shortcomings of crowdfunding with a more holistic funding model, providing protection for investors and helping them build wealth through a combination of cash flow and appreciation.

Firms such as HomeUnion, YanexHome, in which we’ve invested, and OwnAmerica offer investors ability to buy an entire single-family home or create a portfolio of homes, fully customized to meet their personal investment needs. For instance, my portfolio of homes would focus on cities such as Cleveland and Indianapolis where cash flow is high, whereas another investor may prefer locations like San Antonio and Houston where there is more of a balance between appreciation and cash flow.

fundamental difference in this next wave of funding platforms is that they support true ownership of real estate. land is underlying asset, not a piece of paper endorsing fractional ownership. Additional benefits include receiving significant breaks associated with home ownership and investment guidance throughout entire holding period. In short, investors have complete authority over decision-making process.

Venture capitalists and individual investors have given this new wave of companies a strong vote of confidence over past few years. According to Venture Scanner’s portfolio management category, median funding value of real estate startups globally is $3 million. One of leading anti-crowdfunding companies, HomeUnion, has raised nearly $23 million in funding from VCs and has closed on the sale of more than $50 million in single-family rental assets since its inception. Similarly, OwnAmerica has traded more than $27 million during the beta phase of its new platform.

As crowdfunding segment plateaus and next generation of real estate startups continue to grow rapidly, these companies face a different set of challenges. They will need to manage concerns that investors have about lack of diversification by offering inventory in multiple geographies and across multiple micro-economies, ensure excellent customer service and fail-safe processes for inevitable eviction of tenants or to prepare for a catastrophic event, such as a fire.

In essence, experience of buying homes remotely must be entirely hassle-free, as should ongoing property management and eventual sale of asset.

As real estate technology continues to improve benefit for consumers, one thing is crystal clear: notion of real estate as a hyper-local business has turned upside down since arrival of these new platforms.

In U.S., single-family rentals currently comprise 40 percent of country’s entire rental stock, up from 34 percent in 2005. Individuals the majority of all single-family rentals — 83 percent — with REITs and other institutions holding the remaining small portion.

Hands-off investing, uninhibited by geography and free of the headaches associated with property management, has completely disrupted real estate investing forever. Here are some books in the link below you should read to help you understand better this subject.

 

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