Is Tech Making Real Estate More Profitable?

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Real estate investment offers extraordinary financial opportunities, but properties also take a lot of time and effort to effectively manage. With the rise of new technology, however, real estate is becoming more profitable than ever before. The proptech industry is changing everything from how we buy and sell property to daily management activities, and these improvements are also making the industry more profitable. 

The Nature Of Ownership

In order to understand what makes real estate so lucrative, it’s important to understand how properties are distributed. While apartment buildings are obviously owned by investors, with some units individually held, condos are increasingly becoming privatized; in Toronto, nearly 40% of condos are not owner occupied. Some of these may be second homes, but others are vacant or otherwise being rented out to tenants. This trend is increasingly common, both in other Canadian cities and in the United States. It also means that it’s not just huge conglomerates managing properties. There are a lot of investors with just a few properties trying to navigate this changing space.

Proptech’s Sales Shift

At the simplest level, proptech offers owners a simplified way of managing rental properties, from collecting rent to managing maintenance requests, but these tools are among the least remarkable. Rather, it’s the way that proptech facilitates sales that is having the greatest impact on the industry. 

Through new proptech-driven interfaces, buyers can now participate in 3-D viewings or schedule their viewings online, a growing number of independent owners can make sales without relying on a traditional broker as an in-between. Even the mortgage industry is taking the steps necessary to become digital-first. Stepping back from conventional mortgage offerings, new finance companies are supporting co-ownership models that can help people take steps toward ownership without taking out a conventional mortgage and which have the potential to reduce home ownership disparities. 

Cutting Operating Costs

Simple management programs have an obvious impact on cutting operating costs, but many real estate investors don’t realize just how sales-focused proptech can also boost net operating income. Net operating income specifically refers to whether a company or investment group has enough income to cover basic operating expenses like insurance, utilities, maintenance, and property taxes; it can be evaluated using a net income calculator. It isn’t a comprehensive financial evaluation, however, as net operating income ignores both income and expenditures outside daily management, including overall capital structure, income taxes, and company overhead. However, net operating income can provide a basic sense of how much it costs to operate a given property, as well as whether or not that property is generating enough income – it’s a good way to isolate a portion of a larger operation.

Companies using sales-focused proptech are better positioned to increase their basic operating expenses by cutting out a number of core real estate costs. Startup Opendoor, for example, is essentially a high-tech home-flipping service. The company will clean up a posted property, let users schedule their own tours, sans agent guidance, and even accept bids on the property. Considering how much owners and buyers typically pay to agents for their services in the course of a sale, as well as how much time agents spend performing labor that doesn’t directly generate income, such platforms offer an opportunity for all participants to shift into more immediately profitable roles.

Competition For Market Share

The current proptech revolution has been in process for years now, but ultimately what will make or break a given company is how much market share they’re able to claim. In addition to Opendoor, there’s also Redfin, Offerpad, and Knock, as well as traditional real estate and banking companies like Keller Williams and Coldwell Banker moving to offer iBuying options. And, of course, there are also sites like Zillow that are looking to shift from showing listings to facilitating sales more directly. It’s a crowded market and none of the players are quite identical, but they’re likely to look more and more alike as they each launch additional services. 

As various proptech firms compete for the home sales market, they should also be mindful of how their current offerings could serve the apartment market. These tools could help boost landlords’ income by automating or facilitating many of the same activities that they support for owners looking to sell – scheduling tours or providing virtual ones, managing background and credit checks, and generally removing a lot of the labor typically performed by office managers. Even larger property owners could potentially do away with these administrative roles, or cut back on them significantly, by implementing new proptech.

The Human Touch

Exactly how proptech will be used is sure to vary based on both owners and potential consumers, but anyone who’s worried about the importance of professional expertise and the value of the human touch can rest easy. Several companies currently specialize in pairing digital users with agents, and while the profit potential is high with proptech, landlords are unlikely to do away with all office support. Housing is still a community-driven field and landlords want to facilitate connection in whatever way their audience of potential tenants demands.

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