Why Real Estate Technology is the Next Big Growth Opportunity for Investors — PropTech

Why Real Estate Technology is the Next Big Growth Opportunity for Investors — PropTech

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Precious metals like gold and silver are one option, but returns tend to be limited to simply outpacing inflation so this is unattractive to many investors. Real estate is more popular because it generally produces cash flow while appreciating in value, but with massive demand and limited inventory, it has become less viable. Investing directly in companies can be an effective option as long as you find a solid company in a growth industry. And right now, real estate technology, also known as proptech, is one of the most lucrative growth industries.

Nearly $19 billion in growth equity and debt capital was raised in the U.S. proptech category in 2021—more than twice the capital raised in 2020, according to a recent report by Houlihan Lokey, a global investment banking firm. Of that, 154 ventures raised $20 million or more, which represents more than 2.6x the number of $20+ million rounds in the category year over year. And multiple ventures, including AvantStay, Lessen, and Up&Up, raised capital in excess of $100+ million dollars.

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There are two key factors driving this opportunity.

The first is the massive demand for real estate. It’s not uncommon for a property today to sell for tens or sometimes even hundreds of thousands of dollars over asking price. Aggressive bidding wars often start as soon as a property hits the market, quickly driving prices up. And in many cases, the sale is closed long before buyers who find the property through conventional channels, such as the MLS system, even have a chance to put a bid in.

And the second is that the industry simply has not kept up with technology. This includes Realtors, brokers, investors, property managers, vendors, and virtually everyone else tangentially related. The real estate industry is generally about ten years behind other industries when it comes to technology.

Because of growing competition driven by high demand and low inventory, skyrocketing inflation, and more aggressive acquisitions by institutional investors, the industry is being forced to evolve. Effectively leveraging technology is no longer a luxury—it will be essential to thrive over the coming years. Businesses and employees alike will need to become more efficient, access and analyze large datasets, and build relationships with clients, partners, and vendors across multiple channels.

Matt Andrews, a real estate investor and venture capitalist who also runs an incubator group for real estate investing tech companies, explains,

“Institutional investors learned a lot following the last real estate crash. Back then, it was like the Wild West and a lot of smaller investors were able to make a ton of money pretty easily, but the landscape has dramatically changed since then. Today, we’re not only competing against well-funded institutional investors, but also a growing army of smaller investors as well. Proactive investors are leveraging technology to find and close more deals, more quickly, leaving fewer opportunities for those who aren’t effectively leveraging technology. Bottom line—it’s no longer a luxury, it’s a necessity if you want to thrive in the real estate industry today.”

Andrews’s group, Family Mastermind, focuses heavily on this because its members understand the role tech has played in fellow members’ success. During both virtual and in person events, the group’s members frequently share, in detail, exactly how they’re using technology to run and grow their businesses so other members can implement the strategies in their own businesses.

Technology has played a huge role in recent years to make better decisions in the real estate industry and that role will become even more important in the coming years.

In the past, Reators, developers, and investors have had to rely on small, localized datasets and their gut to make market trend predictions, which provided limited accuracy and was prone to biases. But today, professionals are leveraging big data, algorithms, and artificial intelligence to quickly analyze massive, national datasets. As reported by consulting giant, McKinsey, this makes predictions more accurate because a larger dataset includes a greater number of relevant variables and helps to reduce […]

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