One area of fintech that doesn’t get as much attention as it should is real estate. It’s the largest lending category in the United States that still relies significantly on decades old technology. Over the years we’ve seen this sector transform from companies in the real estate crowdfunding area to companies tackling all sorts of interesting opportunities in real estate today. In this post we’ll provide a breakdown of each area and some of the interesting trends we’re seeing.
Real Estate Crowdfunding
Real estate crowdfunding has benefited significantly from the rebound of real estate since the financial crisis. These firms, although perhaps not as hyped as they used to be, are still a very interesting part of fintech. At the time when many companies in this space were founded, it was the first time that investors had direct access to real estate investment opportunities online, most notably in the fix and flip market. From my perspective we’re in a more mature phase as there has been some consolidation over the past few years with RealtyShares being the largest platform to cease operations. However, there is still very much an interest in income producing assets as we continue to be in a low interest rate environment.
The most recent news comes from Fund That Flip which recently raised an $11 million round from Edison Partners. Other notable achievements for platforms include LendingHome completing their first securitization. We also recently heard that PeerStreet, another popular platform crossed the $2 billion origination milestone. Outside of providing debt and equity to an online platform, a company called Roofstock is worth mentioning here. I recently had the chance to speak with CEO Gary Beasley to discuss their original offering which allowed for direct purchase of single family rentals and their new offering Roofstock One, which offers direct fractional ownership in income producing real estate.
iBuying and Improving the Buying/Selling Process
Many consumers are all too familiar with the pain points associated with buying and selling a home. This is the area that companies like Opendoor, Offerpad, Knock and Zillow Offers have targeted. These companies all fall under of a term which is being called iBuying. The individual business models of each company varies slightly, but they all focus on giving you a no hassle offer for your home so you can quickly sell your home without having to worry about realtors, showings etc.
Over the past few years a number of these companies have raised enormous amounts of money due to the capital intensive business they are in. While clearly there is significant investor interest in this category, Steve Eisman of The Big Short fame recently went on record stating that Zillow is over its head in their home flipping platform and doesn’t understand the real risks. It’s an interesting contrast to the success we’ve seen these platforms report. Not surprisingly, Zillow is currently one of Eisman’s shorts.
Other companies I’d lump into this category are those which help with home affordability. As real estate prices have increased, companies have stepped in to take the burden of large down payments off of the borrower. One relatively well known company is called Unison which co-invests with a homeowner when they are looking to purchase a home. Other newer companies include ZeroDown which recently raised $30 million. This platform is tackling high cost of living locations like the Bay Area and allows homeowners to buy a home with zero down.
The most interesting area that fintechs are covering in real estate is the mortgage process. If you’ve bought a home recently I’m sure you would agree that there are areas for improvement in the mortgage process. Companies like Better, Blend and Roostify all have traction in this space. Most recently, Better closed an astonishing $160 million Series C round which included some interesting investors like Ping An, Ally Financial, Citigroup, American Express Ventures among many others. The company has now raised over $250 million for their growing business. The company expects to originate $4 billion in loans in 2019.
Blend, which raised $130 million back in June has taken a different approach, working with 150 lenders around the country. The company processes around $2 billion in loans every day. Personally, I can’t wait for new technology, no matter which fintech it is from to reach lenders small and large across the country. With all of the potential for API connections out there today there is no reason for so much manual work when it comes to the mortgage process. Over time, I expect that closing costs will come down as a result and that the actual mortgage process will no longer be the holdup to closing on a house. While I believe we’re on the right track there is still a long way to go with some of the largest mortgage lenders in the country today.
The above companies featured are just a handful of the ones that have traction in the US today and it’s going to be interesting to see which ones transform into household names. If you’re interested, some of the rounds highlighted above are tracked in our 2019 fintech funding Google Sheet which tracks fintechs that have raised over a $10 million this year. If you know of other companies doing interesting things in real estate I’d love to hear about them in the comments below.