Investing

Real estate is not just a relevant asset class, it is an essential good that facilitates our development as a society. Due to a growing population and changing demographics, the demand for property has increased exponentially, especially in urban centers. However, only a small portion of the population has been able to profit from this increase in demand. Whether as a developer or investor, the access to real estate transactions is linked to financial firepower. Currently, a number of companies are trying to democratise real estate investing, granting investors with less liquidity the opportunity to participate in asset appreciation through digital solutions.

Equity Investing

Democratising equity investing via online platforms is one approach. Existing solutions for instance offer a co-investment model, enabling investors to participate in real estate transactions traditionally only available to institutional investors. Increasing the investor pool doesn’t just benefit investors gaining access to this alternative asset class, it also helps the developers and landlords as equity raising remains a vital, but difficult undertaking. Examples of this include Linus Capital, Brickvest and Exporo in Germany or Cadre in the US.

Lending

Online platforms also enable debt investments for a syndicate of investors. Through the pooling of the financial resources of smaller investors, debt can be issued to developers, landlords or homebuyers. While this scenario doesn’t offer the opportunity of potential asset appreciation, providing debt has the benefit of a fixed interest rate and a known loan term, creating clear parameters for participating investors. These platforms often use machine learning technology to underwrite assets and assess creditworthiness. With tighter financial regulations for financial institutions, smaller developers often struggle to raise the required junior loans for development undertakings, creating the need for alternative financiers — an interesting solution being the mentioned crowdfunding via debt platforms. Examples of companies in this space include Rendity and Estateguru.

Digital Brokerage

Purchase or sale of real estate via traditional brokers lacks transparency, is time-consuming and cost-ineffective.

Blok, a portfolio company of our partner fund Ringier Digital Ventures, has built a fully digitized marketplace for purchase and sale of a property. Through its fully automated service, it is making the purchase of properties cheaper and more time/cost-efficient. The sales process is fully digitized from the onboarding of the property, its evaluation and the organisation of viewings, all the way to the signing of the contract. Blok’s product features include an evaluation tool, real estate documentation featuring a machine vision algorithm for reading data from contracts, a marketplace with a bidding system and a workflow tool. While the majority of real estate transactions are still conducted “offline”, Blok is a good example of the trend that everything, including real estate transactions (often the largest and most emotional purchase in the life of a person), can be conducted through your web browser in a fully digital fashion.

TripleMint, a btov portfolio company, is a software-powered real estate brokerage that is changing the way people buy, sell and rent homes. Triplemint’s platform combines a hybrid approach of a powerful online property search tool that identifies pre-market opportunities through their tech sourcing engine

with an offline real estate team to make the end-to-end real estate experience more efficient. Further examples include Homeday, McMakler and Purplebricks.

Renting

Real estate leasing, or the rental market, represents another enormous opportunity for technology disruption due to an increasing mismatch between supply, the physical housing inventory, and demand primarily driven by rapidly changing consumer preferences and urbanisation. New concepts will emerge that provide more flexibility and customer-centric models as opposed to previously intransparent and inefficient processes.

Rent Optimisation

We believe that digital business models will gain a large market share, tailoring towards renters that are looking for a high degree of flexibility and convenience paired with the easy user experience that on-demand apps have established. In other words, making the rental discovery and booking experience as easy and frictionless as ordering a pizza. We look for concepts that can create new incentives for landlords, while being particularly tenant-centric, allowing for flexible renting without deposits and notice periods. One startup to watch is Kiko homes.

On-demand renting

Our portfolio company Nestpick is one of the largest search engines for on-demand housing. It provides a marketplace for renting mid- to long-term apartments online in a fast way. The website connects tenants with landlords and enables them to securely rent accommodation for three months to three years by verifying properties and holding security deposits. Other companies to watch are Homtogo and Homelike.

Co-Living

For all those who struggle with finding an apartment when moving to a new city, in addition to connecting with a new community, co-living is the perfect solution. While these solutions do not only offer various amenities and services powered by technology (co-working spaces, concierge services, cleaning services, WiFi, smart home technologies etc.), they also offer ways to make quick connections with like-minded people. Concepts such as Ollie or Common from the United States have taken a first leap in this direction. We are sure that with the continuing trend of urbanisation, limited space in cities, rising rents and changing lifestyles, this concept will also gain further attention in Europe. GoLiving, LifeX and Homeful are already setting first impulses in that direction, with further players likely to follow in the future.

Ownership

One of the most serious unsolved problems facing the millennial generation is that a large part of the younger population simply cannot afford to own property in the metropolitan regions of this world. Although we likely will see a short-term contraction in real estate prices, we believe the trend of rising rents will continue in the long run. While the ratio of median housing prices to median gross annual earnings was 6.9x in London in 2002, it increased to 12.8x in 2019, indicating that in this period house prices have grown twice as fast as salaries. On this front, innovative business models have been attempting different approaches for years. Here are four solutions we believe will gain a further foothold.

Rent-to-buy

When acquiring property, often 10–20% of the value is covered by a downpayment and the remaining amount through a mortgage. However, the majority of millennials already struggle to provide the initial down payment. So-called rent-to-buy solutions offer relief to this problem. In such models, the landlord grants the option to the tenant to purchase the property at a later date. In this event, part of the rental payments made can be converted into a monthly down payment. A leading company in this field is Divvy. In addition, there are hybrid solutions that are receiving increased popularity. One concept allows tenants to buy only the share of the apartment that they can really afford. The remaining ownership share, which can be paid off via a rental payment, is then held by Strideup.

Home financing

Due to the aforementioned problem of rising property prices in European cities, debt financing plays an increasingly important role for most real estate buyers. However, existing mortgage providers are only slowly digitizing and adapting to changing external factors (flexible labor such as freelance work, 0-hour-contracts, changing jobs etc.), leading to many potential homebuyers not being able to participate in the market due to antiquated underwriting models. Providing solutions to this problem will not only enable people to purchase their dream home, but higher ownership rates also have wide-ranging benefits for the economy. Loanlink, for instance, is an online mortgage lender that provides home buyers with pre-approvals in under 10 minutes. Other examples include Better, Habito, Loandolphin, GenerationHome and Proportunity. With these solutions, demographics that would otherwise not pass initial credit checks can gain access to financing alternatives through a richer data set and a more nuanced underwriting model of the lender.

Home-equity release

The amount of capital tied up in homeownership is likely immense — unlocking this capital will be a major opportunity for economic growth in the future. Once a mortgage is paid off, innovative concepts can help release liquidity for homeowners. There are several companies attempting to tackle this market; one example is Unison, which converts up to 17.5% of a home’s value to liquidity. In return, Unison shares a portion of the home’s value when the person decides to sell. Figure, a similar company tackling this problem, allows you to borrow against the equity of your home by offering a fixed-rate line of credit, provided in 5 days.

We believe that releasing parts of equity from real estate will be vital in the future in order to unlock additional equity and increase liquidity of an otherwise illiquid asset class, especially compared to traditional turnover rates of several months.

iBuying Home Sale

Finally, iBuyers represent a dramatic shift in the way people are buying and selling homes, offering in many cases a simpler and more convenient alternative to a traditional home sale. How iBuyers operate varies, but the underlying idea is that a company estimates the value of a home and makes an offer. If the seller accepts, iBuyers take on the burden of owning, marketing, and reselling the home. Depending on the service, the benefit is the certainty of an all-cash offer and more control over when a person moves.

Tiko, our portfolio company, is the leading iBuyer in Spain. The business uses technology to make an offer on a home within hours, offering a faster and more convenient alternative to a traditional home sale. Tiko owns the homes and is thus acting as a middleman in residential real estate transactions. Other companies in this space include Casavo and OpenDoor.

Data Analytics

Today, most valuations in the DACH market are provided by traditional incumbents, claiming a large portion of the market share. Customers include appraisers and banks, that require an expert valuation to determine value before financing a real estate transaction.

However, the landscape is rapidly changing in light of two key dynamics: The first being increased availability of data. Today’s property data is not just a record of historical transaction values — there is a wide range of data available affecting a property’s value, such as infrastructure, light, noise-pollution and demographics. The second factor driving change is the growing range of customers. Increasingly, companies such as developers and realtors are using data-driven valuation tools in their analysis, and provide these features to their clients. Customers are demanding dynamic tools, an easy-to-use UI and a great UX. Incumbent legacy players have only slowly adapted to these new demands, giving rise to more innovative companies.

Pricehubble, one of the portfolio companies of the Helvetia Venture Fund, is the European market leader for AI-driven property analysis. The SaaS model gives clients access to structured data from over 150 sources. Customers include companies from all sectors of the industry, including banks, brokers, developers, etc. Pricehubble is facilitating the analysis and valuation of residential properties, which can be used to understand the market better and faster, evaluate potentially interesting assets, maximize rents and yields, and optimize disposal strategies. Other companies offering data-driven real estate analysis are RealXData in Germany and Housecanary in the UK.

Closing Remarks

Overall, despite the recent COVID-related challenges of the property market, we continue to believe in the immense potential of new innovation in the PropTech space. While we tried to identify areas that are interesting, the ideas in this blogpost barely scratch the surface of some of the solutions in the PropTech space. Also, I am sure that our view only is incomplete, so I am always happy to start a conversation, receive feedback and learn from experts in this space! Reach out here on Medium or email me at bd@btov.vc.

This blogpost was originally published on Medium on August 13th, 2020.