Real estate has been a volatile market over the last decade, leaving many people wary of investing in residential and commercial properties. As a result, would-be investors are looking at the market differently and using new strategies to achieve success.
Technology has been a major factor in that shift, empowering investors to research their options remotely, compare and contrast different investment strategies through online tools and ultimately make transactions with limited professional help. Here are three trends that are helping to bring new investors to the space.
1. Data-driven investing.
As big data becomes more useful for the public, the real estate industry has been looking for ways to gather and present information that will help drive purchasing behavior. Bill Lyons is the founder and CEO of Revestor, a real estate search engine that provides data to help evaluate investment properties. “In the past, real estate investors needed access to the MLS, rental income data, expenses like HOA fees, occupancy rate, insurance, taxes, mortgage calculators and the sale price of homes sold nearby," Lyons explains. "Then they would have needed to input all of those numbers into a spreadsheet to analyze the potential value of a property. Now you can do all of that with a few simple steps online.”
While data has been a hot consumer trend in other industries, real estate has been slow to catch on. In most industries, big data adds immense value, increases revenue and pushes the industry forward. In the case of real estate, however, professionals have less motivation to make big data available to the public because it infringes on their expert knowledge and value to the consumer.
But that is likely more perception than reality. Data-driven investing shouldn’t replace real estate professionals -- it should help them become more specialized. “It allows investors to quickly analyze investments from a buy-and-hold perspective, utilizing a long-term rental or short-term rental strategy, or from a fix-and-flip perspective," Lyons says. "Realtors can then market these investments to their existing databases and new prospective clients.”
Realtors empowered by a more comprehensive set of data can spend less time researching and more time selling.
2. Short-term rentals bringing new investors to the table.
As apps such as Airbnb and VRBO continue to grow in popularity, more and more people are looking to invest in short-term rental properties. Some experts are critical of short-term rental properties as investments because they operate differently than traditional holdings. Akira Mori, a Tokyo-based real estate expert, offers a different point of view. “In my experience, in the real estate business, past success stories are generally not applicable to new situations," Mori says. "We must continually reinvent ourselves, responding to changing times with innovative new business models.”
Millennials are a group of potential investors that have begun to reinvent the real estate market. They are hesitant to purchase real estate because of the market fluctuations they lived through while they were young. But millennials are avid users of services such as Airbnb and consequently are drawn to investing in the same way. Since they are the generation that has driven the growth of the short-term rental market online, they have experiential knowledge of the industry.
A study from NAH revealed that 48 percent of millennials want to buy a home in the near future, but 53 percent of them would struggle with financing due to student debt. If provided with the data on potential returns, millennials may be willing to invest in a short-term rental property more than a traditional home.
3. Untapped potential.
The success of residential-driven applications demonstrates how much the industry can grow if it leverages technology to open up the market to new consumers. A report from the Federal Reserve shows that real estate is by far the largest asset for the United States, coming in at $40 trillion. There is enormous potential for entrepreneurs to create financial freedom by tapping into that market.
The key is leveraging technology in such a way that helps them consider all the factors involved so they can avoid purchasing a property that does not turn a profit. Additionally, the industry needs to continue to drive technological innovation by opening up the same kind of information and access for commercial investment properties.
Real estate has undergone a lot of change in recent years, so it’s important to leverage new tools to find the investment that fits your long-term financial strategy best. As Lyons explains, “Do your research, know your numbers and be a sniper! Once you know an area, and a strategy in that area, get razor-sharp focused and the opportunities will come. Make use of all the data you can, whether it’s local rent, occupancy rates, seasonality, etc. Most importantly: Know what your exit strategy is.”
Data is no longer exclusive to professionals, but it can be accessed online by those looking to evaluate investments. Real estate technology is enabling more people to become real estate entrepreneurs, which will help drive growth in a traditionally boom-and-bust industry.