The real estate industry, known for being slow to adopt new technology and ways of doing business, is currently seeing a major digital transformation. From how people search for or finance properties to how investments are made, technology advancements are disrupting traditional real estate financing models. This technology shift brings easier and more accessible real estate financing options for buyers and opens real estate investments to more people.
The Digitization of Real Estate Financing
Similar to how e-commerce made shopping available at one's fingertips, the digitization of financing has put the ability to get approved for mortgages and loans directly in the hands of applicants. This gives buyers more control and transparency over the financing process.
Online Lending Platforms
Online lending platforms are using technology to provide faster mortgage approvals and more options than traditional banks. Using algorithms that can analyze multiple factors instantaneously, these lending platforms can provide customized loan terms tailored to an applicant's financial profile and needs. This is streamlining a financing process that used to heavily rely on human underwriting and paperwork.
As examples, companies like Quicken Loans and loan Depot are providing online portals where applicants can get pre-approved digitally within minutes or hours rather than days or weeks. The internet has brought convenience and speed to an antiquated system.
Use of Big Data and AI
Lenders are utilizing big data, artificial intelligence (AI), and complex algorithms to automate more of the financing process. Machine learning models can pull data from countless sources to analyze an applicant's finances, creditworthiness, home value, risk analysis, projected income changes, and more.
This sophisticated data analysis achieves higher approval rates, lower default rates, and expanded access to financing. AI is also being used for document upload, payment tracking, customer service queries, and other tedious processes to create more seamless experiences.
Streamlined Application Processes
Between online forms, e-signatures, and document upload abilities, nearly the entire financing application journey can now be completed online for a more seamless, self-serve process. Applicants can submit all required documents without having to fax or print paper copies.
E-signature capabilities are also minimizing trips to branch locations and speeding up approval timelines by days or weeks. Technology is removing friction and barriers at nearly every step of obtaining financing.
Emerging Financial Products and Services
In addition to the digitization of processes, new types of financial products and creative financing structures are emerging that give more options to buyers and investors. This democratization and diversification of financing creates more paths to home ownership.
Creative Mortgage Options
As housing affordability is decreasing while prices outpace wages in many markets, new mortgage structures are rising to meet buyer needs. Non-traditional loans like 80/10/10 or 80/15/5 mortgages require lower down payments by blending two loans. Graduated mortgages start with lower payments that increase over several years as the buyer's income grows. Deferred loans allow buyers to delay payments for 6 months or a year after closing.
Adjustable rate products offer lower initial payments with predictable payment cap increases over time rather than drastic payment shock down the road. More customizable structures provide flexibility, especially for first-time buyers trying to crack competitive housing markets.
Fractional Home Ownership
Fractional ownership allows multiple parties to purchase portions or shares of one property. This reduces the amount each investor has to pay individually. Along with the rise of online property share marketplaces, fractional investments are opening access to high-priced markets like popular vacation destinations that investors previously may not have been able to afford on their own.
Cryptocurrencies are also making their way into real estate financing through crypto-backed lending. Rather than selling crypto assets, investors can use their cryptocurrency as collateral for cash loans to purchase real estate. This allows cryptocurrency holders to tap into their portfolio’s value to buy property without liquidating their coins. As cryptocurrencies become more mainstream, crypto-backed lending brings more capital into the housing market.
New Models of Investing in Properties
Technology is also transforming traditional real estate investing by expanding who can invest and how money flows into properties. New models like crowdfunding democratize investing while concepts like tokenization turn real estate into tradeable digital assets. This increases efficiency and opportunity.
Real Estate Crowdfunding
Real estate crowdfunding pools money from multiple investors, both small and large, to invest in properties or developments together. Top crowdfunding platforms like Fundrise give investors access to assets like commercial properties, apartment buildings, or mixed-use developments that previously required high net worth. Now small retail investors can gain exposure.
Instead of needing millions upfront to invest, people can start investing with minimum contributions of $500 or $1,000. Real estate crowdfunding expands opportunities for wealth-building.
Tokenization of Assets
Blockchain technology and tokenization allow physical assets like real estate to be converted into digital tokens that can be easily traded online. Investors worldwide can buy and sell tokens representing shares of properties and buildings. This increased liquidity brings more investors to the real estate market.
Along with fractional ownership, tokenization provides more entry points for individuals without substantial capital to invest small amounts into lucrative real estate markets. Democratization of global property investment is a paradigm shift.
Money Coming from New Sources
Between the rise of non-bank online lenders and alternative capital from crowdfunding or cryptocurrency investors, money is flowing into real estate from new sources. This influx of capital sources expands options for borrowers and developers.
Less reliance on traditional banks and loans creates a more competitive financing marketplace. Developers can access capital faster to fund projects while buyers enjoy quicker loan decisions, lower barriers to entry, and customized financing. Technology expands options.
The real estate financing landscape is undergoing rapid transformation thanks to digital disruptors increasing efficiency, expanding opportunity, and bringing more customization and inclusiveness to the space. Borrowers now have more tailored loan products to choose from and alternative routes to capital through online lenders, crowdfunding endeavors, crypto-backing, and more. Investors also gain more entry points to property ownership through fractional models and tokenization. Real estate investing is no longer solely for the ultra-wealthy. Technology unlocks doorways for more people to access wealth-building income streams and investment portfolio diversification through property. As adoption of these digital tools and emerging concepts accelerates, real estate financing will become even more streamlined, open, and accessible in the coming years.
What are some examples of online real estate lending platforms?
Some top examples are Quicken Loans, loanDepot, Better.com, and Lenda. These end-to-end online lenders use technology to provide faster and easier access to mortgages.
What is fractional real estate investing?
Fractional investing allows multiple parties to purchase ownership shares or percentages of one property. This reduces the upfront capital needed from each investor.
How does crypto play a role in real estate financing?
People can use cryptocurrency as collateral to obtain cash loans for real estate purchases through crypto-backed lending. This allows crypto holders to tap into their portfolio’s value without selling.
What does tokenization mean for real estate?
Tokenization converts physical real estate assets into digital tokens on a blockchain, which allows properties to be more easily traded online by investors across the world.
How can I invest in real estate without large capital?
New models like real estate crowdfunding and fractional ownership provide entry points to property investing for retail investors through small contributions rather than millions upfront.