What’s in it for Me? Real Estate Investment Technology

For those looking to diversify out of the stock market and into asset-backed or alternative investments, real estate has long been a popular choice. In 2014, things changed significantly for these investors; historically if they didn’t have $40,000 for a down payment on an investment property loan or $4 million to spend on commercial property development, they would be out of luck. Recently, however, we have seen successful startups looking to lower the barrier to entry for novice real estate investors.

Earlier this year, we examined the breakdown of proptech and where its four separate divisions fit into fintech. Today we’re taking a closer look at one of those categories, real estate investment technology, and 15 startups in that sector. Companies in this area are as diverse as the real estate industry itself, but they can easily be categorized under three major business models:

  • Crowdfunding
  • Cash flow share
  • Match-making platform

Here’s a quick comparison chart of companies working on crowdfunding and cash flow share models (right click to enlarge):

Here’s a more in-depth look at each company’s model:

Crowdfunding
Think of it as Kickstarter for Real Estate— it’s the most common model for real estate investment platforms. While many companies in this category take a different approach and host a variety of offerings, all rely on a crowdfunding model.

  • Cadre
    Cadre caters to a range of high net worth accredited investors and institutional investors who are willing to commit a minimum of six figures per deal. The company focuses on commercial, retail, and multifamily properties in all major U.S. markets. Cadre undertakes all sourcing and due diligence on properties before presenting the opportunities to investors. When users find a deal they like, they request their desired allocation to a specific property (or across multiple properties) and fund the deal. Investors receive quarterly distributions along with performance reports.
  • EquityMultiple
    EquityMultiple offers accredited investors debt and equity investments in commercial real estate projects. The company has raised $10 million since launching in 2015. Its partnership with Mission Capital – a national loan sales and commercial real estate advisory firm – has helped it access institutional projects, closing 25 and comprising over $300 million in total capitalization since launch. Its debt deals range from six to 18 months while the term for equity projects ranges from two to five years, during which time investors receive a share of the cash flow.
  • Fundrise
    Fundrise allows users to build a diversified portfolio of eREITs, a real estate investment trust built on the Fundrise platform that cuts out the middlemen often involved in traditional REITs. The REIT consists of commercial real estate investments and earns returns through rental income and property appreciation. Investors start with a minimum of $1,000 and select from three different U.S. geographies. Returns and distributions are specific to each listing, as is the term of each investment.
  • Groundfloor
    Groundfloor is open to accredited and non-accredited investors in eight U.S. states. The company sells debt securities called Limited Resource Obligations (LROs) to investors with a minimum investment of $10. Once investors purchase an LRO, they become a creditor to Groundfloor. Each LRO is paid back to investors when the borrower repays the loan, which ranges from a term of 6 to 12 months. If a loan fails to fully fund within 45 days, the company relinquishes the funds back to the investor.
  • LendingHome
    Lending Home is open to accredited investors looking to fund real estate investment projects for a term of 12 months or less. The company funds mortgages for real estate professionals and makes them available to investors as fractional notes. Each note sells for as low as $5,000, but LendingHome requires a $50,000 minimum investment to start. Lenders receive interest on a monthly basis and when borrowers repay the loan at the end of the 12-month term, the investor receives their principal.
  • Patch of Land (FF 2014 demo)
    Patch of Land uses a crowdfunded approach by matching borrowers in need of short term financing for a real estate project, with lenders looking for real estate investment opportunities. The company vets each property purchase and project (refinance, rehab, or flip) and curates information such as financials, appraisals, and project details. Under Patch of Land’s model the investor doesn’t own the property nor the title. Instead, users invest in a borrower payment dependent note– a contract with Patch of Land in which they receive interest for the term of the loan and then repayment of their principal once the term is complete.
  • PeerStreet
    PeerStreet enables accredited and institutional investors to invest in private real estate loans secured by first liens on real estate (in other words, not refinances or second mortgages) through partnerships with top-tier originators. The investments are short term, ranging from six to 24 months and are intended to fund a real estate project. Investor funds are held in an Investors Trust Account with City National Bank and in the event of default, the funds are FDIC insured up to $250,000. Users invest in mortgage-dependent promissory notes issued by PeerStreet. The minimum investment is $1,000.
  • RealtyMogul (FS 2014 demo)
    Founded in 2012, RealtyMogul operates under a crowdfunding model that matches sponsors and borrowers searching for capital with individual investors looking for a higher return. The company offers two investment types: joint venture equity investments, and a real estate investment trust (REIT).Joint venture equity investments focus on properties with existing cash flows (rented real estate). Throughout the term of the investment, which ranges from one to 10 years, investors receive a monthly return from the cash flow and a share of the proceeds when the property is sold. RealtyMogul offers a 1031 exchange option for investors for a tax-friendly funding option. The MogulREIT is an SEC-registered LLC formed to invest in and manage a diversified portfolio. The REIT requires a minimum investment of $1,000 and is open to both accredited and non-accredited investors and is generally more liquid than debt and equity funding, as it generally allows for redemptions once per quarter.
  • RealtyShares
    RealtyShares offers a minimum investment of $5,000 with monthly or quarterly cash flow options. The company enables accredited and institutional investors to invest in commercial (office, industrial, self-storage, retail, medical office and hospitality facilities) and residential (used for investment purposes, not owner-occupied) properties. RealtyShares sells securities related to secured real estate loans, equity investments in commercial properties, and preferred equity investments based on investor preferences. With equity investments, the company sets up individual LLCs for each property. Under this structure, investors own shares in the LLC. Interest distributions for equity investments are paid out on a quarterly basis depending on cash flow. When the property is sold, investors receive any appreciation realized over the term of the loan. For debt and preferred equity investments, users invest in notes corresponding to the loan and typically receive payouts monthly. The company does not offer a 1031 exchange but it does offer self-directed IRA investments through five preferred custodians.
  • Yield Street
    Yield Street sells a variety of asset-backed offerings– from real estate, to commercial equipment, to lawsuits– to help accredited investors diversify their portfolios. The company is also set up to handle larger opportunities for money managers and institutional investors. Yield Street manages the investments, which are divided into Special Purpose Vehicles (SPV’s) available for a minimum of $5,000. Interest payment frequency and the term of the loan vary per investment.

Cash flow share
These companies offer investors returns on the cash flow of the property. They do not cater to borrowers and instead own the properties themselves.

  • CK Mack (FF 2012 demo)
    CK Mack is a Montana-based startup that allows users to invest in the cash flow of rented real estate in $25 increments for a minimum of 12 months. The company maintains ownership and responsibility for the properties themselves and takes care of all property management responsibilities.
  • Brickx
    Australia-based Brickx divides the purchase price of houses into 10,000 units, or bricks, and places each unit for sale on its marketplace. At the end of each month, members receive their share of the net rental income of the house. Brickx takes care of all property management.

Match-making platform
These are Lendio-type platforms that simply serve as a matchmaking platform for borrowers and investors. They are not a party to the transaction.

  • CrediFi
    CrediFi offers a platform that matches borrowers, brokers, and lenders. The company does not invest on the users’ behalf.
  • Crowd Street
    Crowd Street hosts a marketplace that matches accredited commercial real estate investors with borrowers, which the company refers to as sponsors. It was created to offer investors easy access to private equity real estate operators, such as commercial real estate developers and managers.
  • RealCrowd
    RealCrowd allows accredited investors to browse, compare, and invest with professional, private, commercial real estate companies. The platform simply serves as a matchmaker for investors and real estate professionals and is not involved in the transaction.

Our proptech series continues next week with a closer look at mortgagetech players.

Finovate Alumni News

On Finovate.com

  • Coca-Cola Credit Union Chooses Bankjoy as New Mobile Banking Partner.
  • What’s in it for Me? Real Estate Investment Technology: A comparison of Realty Mogul, CK Mack, Patch of Land, and other real estate investment platforms.

Around the web

  • GMC Software announces new partner advantage program.
  • Uniken appoints Nishant Kaushik as Chief Technology Officer.
  • i-exceed earns Gartner Magic Quadrant recognition as notable vendor in Asia Pacific for mobile app development platforms.

This post will be updated throughout the day as news and developments emerge. You can also follow all the alumni news headlines on the Finovate Twitter account.

Why PropTech and MortgageTech Are the Future of Fintech

If this is the first time you’ve heard the term proptech, it won’t be the last. Proptech (also known as real estate tech or REtech) and its subset mortgagetech have been around since 2014. Here’s why 2017 is poised to place proptech among the ranks of wealthtech, insurtech, regtech.

This year has already been favorable to mortgagetech and proptech companies. SoFi, for example, is about to close a massive, $500 million round, its competitor LendingHome topped $1 billion in mortgage loan originations last year, and RealtyShares has seen over $300 million raised on its platform. According to CB Insights, since 2012 the real estate technology sector has closed 817 deals worth $6.4 billion. Of that amount, $2.6 billion closed in 2016 alone, which represents a 40% increase from that sector’s funding in 2015.

In the U.S., there are a handful of reasons 2017 will be favorable to real estate. Interest rates are projected to rise for the second time, millennials are starting to buy their first homes, and investors are looking to diversify out of the volatile stock market. On top of all of this, regulations are slated to loosen under the Trump administration, and changing in regulation brings opportunities for innovation.

Players

The broader category of proptech can be broken down into four basic segments.

1- Mortgagetech
These are mostly B2B companies specifically focused on facilitating part of all of the mortgage application process. They do not lend or service the loan.

2- Digital mortgage lending companies
These online lenders facilitate the mortgage application process and service the loan.

3- Real estate investment tech
Companies in this category are focused on the investment aspect of commercial and residential real estate.

4- Pure property plays
These don’t have a fintech angle but play a role in the broader proptech industry. Since this category is out of scope for this blog, this list only encompasses a fraction of companies in this category. Check out CB Insights’ coverage of commercial real estate technology for more.

What’s ahead in 2017

  • Expect to see more mortgagetech-bank partnerships along the lines of Roostify’s recent deal with JP Morgan Chase. As banks try to gain a competitive edge for market share, more established banks will need to leverage mortgagetech offerings.
  • We’ll see more niche alt-lending solutions such as SoFi that facilitate the application process and save borrowers on closing costs.
  • Expect to see more players offering real estate investment technology, coupled with some consolidation in real estate crowdfunding companies.
  • Outside of fintech, we’ll see more platforms aimed at cutting out the middle person, the realtor; and more business models such as Knock and GoldenKey that make the selling process easier.

You don’t have to take my word for it

We posed the question, How do you see proptech/ mortgagetech growing in 2017? to these Finovate alums working in the space. Here’s how they responded:

BhatRajesh Bhat, CEO and cofounder of Roostify:

“We expect to see further widescale adoption of digital mortgage solutions – to the point where one should expect it to be table stakes in 2018. We should also expect to see more players emerge in the space as investors see larger market adoption and validation.”

 

Screen Shot 2017-02-23 at 9.52.53 AMLinda Schicktanz, Chief Advisor of CK Mack*:

“If there is one area ripe for fintech innovation, it’s real estate investing. Why put 30% down just to gain massive management headaches when you can now invest in rental cashflow online with very similar returns? Fintech and Real Estate are like peanut butter and jelly, they just go together!”

Screen Shot 2017-02-23 at 8.30.31 AMNima Ghamsari, cofounder and CEO at Blend:

“There is going to be an explosion in the use of data driving the mortgage process in 2017. Both Freddie Mac and Fannie Mae have announced their data initiatives toward the end of 2016, and lenders are starting to push consumer financial data aggregation into the core components of their customer experiences. This ties in nicely to the industry-wide push forward to a more digital, end-to-end process that started in 2016.”

Screen Shot 2017-02-24 at 4.07.54 PMJilliene Helman, CEO at RealtyMogul

“The impact of digital technology on the real estate industry and mortgage technology is still in its infancy, but I see both less experienced and more sophisticated investors, alike, moving toward a process that takes place entirely online. With over $250 million of capital invested and 100,000 registered investors on the platform, RealtyMogul.com is a testament to this change. The more that technology can offer real estate borrowers and lenders transparency, as well as the efficiency of process and convenience, the faster both sides will adapt.”


*Full disclosure: I’m related to Linda Schicktanz. Yup– she’s my mom.

Finovate Alumni News

On Finovate.com

  • “2016 CNBC Distruptor 50 Features Klarna, Kabbage, Twilio, and Motif Investing”
  • “Ping Goes the Blockchain: Partnership Brings Consensus, Kill Switch with New Platform”
  • “Ripple Receives BitLicense to Sell XRP”

Around the web

  • FICO launches its Academic Engagement Program, helping business students get hands-on experience with analytic software.
  • Mashable features Dashlane in its list of “7 can’t miss apps.”
  • Ping Identity partners with blockchain innovator, Swirlds.
  • Braintree announces new integrations with Demandware and Netsuite.
  • Top Image Systems earns spot in the Russell Microcap Index.
  • Bloomberg Businessweek profiles TransferWise, ‘London’s Lonely Unicorn.’
  • The economist looks at Strands and Entrepreneurial Finanace Lab’s roles for businesses in developing countries.
  • Unicredit launches Appathon powered by Open Bank Project.
  • Crowdtrader looks at C.K. Mack’s new take on crowd-sourced real estate investing.

This post will be updated throughout the day as news and developments emerge. You can also follow all the alumni news headlines on the Finovate Twitter account.

 

SEC’s Recent Vote May Ease Operating Restrictions for Nine Finovate Alums

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The U.S. Securities and Exchange Commission (SEC) this week unanimously voted to approve the proposed rules that will govern online crowdfunding. Under these provisions, companies will be allowed to offer and sell securities through crowdfunding.

Some of these companies have been waiting since early 2012, when Obama signed the JOBS Act, for the SEC to create the regulation, which is intended to protect private, non-accredited investors. 

Investors who earn under $100,000 per year will be limited to $2,000 per year investment, or 5% of their income, and those who make over that amount will be limited to invest 10% of their income annually. However, in order to reduce burdens on the companies raising the funds, and the funding portals, the new regulation does not explicitly require them to verify the income of the individual investors.

According to the SEC’s press release, its proposed rules would require SEC-registered intermediaries (broker-dealers, funding portals) to:

    • Educate investors
    • Manage the risk of fraud
    • Provide information about the issuer and the offering
    • Furnish communication channels
    • Facilitate the offer and sale of crowdfunded investments
The proposed rules would prohibit them from:
    • Offering investment advice or making recommendations
    • Soliciting purchases, sales or offers to buy securities 
    • Restricting compensation for solicitations
    • Holding, possessing, or handling investor funds or securities

Before the rules are passed, they must go through a 90-day comment period, after which, they may be altered to reflect the comments. Once the final rules have been decided, the nine Finovate alums below will be able to solicit to non-accredited investors, subject to the SEC’s final ruling.

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Founded: 2011

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Founded: 2012

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Founded: 2010

motiflogo.jpg

Founded: 2010

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Founded: 2012

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Founded: 2012

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Founded: 2010

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Founded: 2012

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Founded: 2011
FinovateSpring 2012 demo

From an operational standpoint, life for these startups will be a bit easier after the SEC passes the provisions, since it will increase the number of investors on their platforms. They will, however, be faced with increased regulation, which Forbes estimates will cost more than $100,000 annually. This estimate includes procuring and offering disclosure documents, enlisting a funding portal, running background checks, and filing an annual report with the SEC.

The first provision of the JOBS Act, which allows companies to advertise to accredited investors, went into effect September 23.

C.K. Mack Uses Rental Real Estate to Give You a Higher ROI

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Next, C.K. Mack demonstrated how its platform can provide investment returns using rental real estate:

“C.K. Mack brings the returns generated by rental real estate to the online investing market. With the beta launch of our investment platform, accredited and institutional investors will be able to sign up, log in, and invest as little as $25 in the cash flow of rented property. This opportunity will be open to all investors as soon as we have SEC approval. 

Our website offers investors several high-equity properties, along with due diligence information so investors can balance anticipated return on investment with a comfortable risk level. C.K. Mack’s new web platform opens the historically-popular field of real estate to a broad audience, allowing unprecedented diversification and stellar returns.”

Product Launched: September 2012
HQ Location: Billings, MT
Company Founded: July 2012
Websiteckmack.com
Twitter: @_CKMack
Finovate demo videofinovate.com/fall12vid/ (demo video will be posted next week)
Introducing Linda Schicktanz (Founder & CEO) and Marcus Zoeller (Co-Founder & CTO)
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Disclosure: I am related to the founder of this company.

FinovateFall 2012 Sneak Peek: Part 3

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Here is third and final look at the companies that will demo at FinovateFall September 12 &13 in NYC. Each company provided a short summary of the innovation they will debut on stage. In case you missed them, check out Sneak Peek Part 1 and Sneak Peek Part 2
Don’t miss the opportunity to experience the hottest innovations in financial technology. Get your FinovateFall ticket here.
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Web-based attacks have been on the rise, and financial services is one of the primary targets of criminal, political, and chaotic actors. These attacks can cost institutions millions in lost transactions and business productivity each year, and even higher losses in their brand value and reputation. 
Akamai’s Kona Site Defender is the first cloud-based Web security solution to help financial services institutions protect against both large scale denial of service and sophisticated application-layer threats seeking to compromise their brands, applications, and associated data.
Innovation type: banking, online, security

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Banno brings instant pre-transaction insights derived from location, historical spending outliers and upcoming bills to its mobile experience.
When looking at bank statements, people naturally perform regression analysis and predictive modeling to find outliers in spending. In other words, Where did my money go? We feel that everyone needs more absolute data points to help in this decision process. Grip’s dashboard provides easy access to your immediate historical financial perspective, allowing insight into spending over time while exposing anomalies with transaction level patterns ordered by what’s most important today.
Innovation type: Mobile, payments, PFM

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Gift cards represent an estimated $110+ billion business in 2012. Consumers have $40 billion in unspent funds and are clamoring for digital solutions as well as connections to their favorite brands. Increasingly, these branded currencies are becoming a larger portion of the commerce cycle and consumer wallets. Retailers, merchants, financial institutions, digital wallets and marketers are all looking to capitalize and participate in this space. 
At Finovate, Blackhawk is premiering its GoWallet Digital Services. These services help a host of digital players power deep engagement with consumers while creating new revenue streams through prepaid branded currencies.
Innovation type: Cards, mobile, rewards

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CK Mack announces the debut of its innovative investment platform featuring an investment product based on a tangible, insured asset; Rented Real Estate
Real Estate has been a haven for the wealthy investor since the dawn of time. Now anyone will be able to share in the cash flow of rental property without the high dollar buy-in previously needed to invest in this profitable market. Current low interest rates and market insecurity combine to make CK Mack an exciting option for portfolio diversification. 
Innovation type: Investing
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Euronovate is a “Zero paper company” aiming to transform every legal paper signed into an ab-origine electronic document with the same legal validity in all verticals worldwide. The new Pad Ensign10 and software platform ENsoft provide better legal and security management for electronic signature.
Euronovate is the first company to offer an end-to-end approach with legal support for electronic signature rules, process reenginering, system integration, hardware, software platform and digital archiving. Customers benefit from lower costs, a more efficient process, and an overall better experience.
 
Innovation type: Back office, sales, security

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Finovera is your free personal bookkeeper. It is the easiest and most convenient way to receive, organize and manage household bills, financial statements and important family documents – all in one secure digital file cabinet. Users link their accounts once, and Finovera automatically brings in new bills and statements, making bil
l workflow management hassle-free.
Finovera disrupts the old way of dealing with paper documents and brings the simplicity, efficiency and convenience to household information management. Finovera helps banks and credit unions to reduce customer service costs, increase customer satisfaction and deepens relationships to maximize customer wallet share.
Innovation type: Mobile, payments, PFM

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The CHOICE direct-to-consumer model allows retail customers to create individualized savings and/or investment solutions from the convenience of any channel and device by selecting the term, guaranteed minimum rate, liquidity and source of additional potential return, all with the security of FDIC insurance, in a completely transparent, clear and honest manner.
Innovation type: Back office, banking, investing, mobile, online

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See the next generation in knowledge-based authentication – a SaaS solution that allows businesses to present custom, out-of-wallet questions to consumers using their own data. 
IDology’s ExpectID Enterprise gives banks the ability to generate out-of-wallet questions using their internal proprietary customer transactional data located behind their firewall and without ever having to share that data with us. It is time to replace your shared secret questions (What is your mother’s maiden name?) with a higher security model that isn’t compromised by social media or vulnerable to account take overs. Be able to meet FFIEC compliance guidelines while creating a safer authentication method on high-risk transactions.
Innovation type: Identity, security

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See how the vexing problem of cross-channel integration has finally been solved! Financial institutions can now seamlessly connect the online and branch experience for consumers as they shop for financial products. 
A consistent consumer experience, easy ‘take your work with you’ cross channeling, best practice branch consultations, helpful product guidance, higher conversion rates, increased brand loyalty – just some of the many compelling benefits of Leadfusion’s new Cross Channel Selling solution. Unveiled publicly for the first time at FinovateFall 2012, from the leader in financial experience management.
Innovation type: Banking, marketing, sales

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Manilla.com is a free, award-winning service that helps consumers manage everything in their lives in one place. Using just one password, consumers can track their financial accounts, household accounts and utilities, subscriptions, daily deals, and travel rewards, all through Manilla.com or Manilla mobile apps. 
Manilla stores account documents, sends reminders to help avoid late fees, and gives consumers a complete overview of their accounts, all through a clean, simple interface. For businesses, Manilla decreases costs by moving customers to paperless billing, accelerates revenue by driving on-time payments, and offers a powerful marketing platform for businesses to engage their customers.
Innovation type: Communications, mobile, PFM

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MShift presents AnyWhereMobile: a new payment network that enables Community Banks and Credit Unions to become the issuers of mobile wallets. 
Simultaneously, the AnyWhereMobile payment network will multiply the net Interchange income of both debit and credit for Community Banks and Credit Unions, slash the merchant discount fees borne by merchants by more than half and eliminate the majority of fraud. The huge savings generated by AnyWhereMobile empowers merchants to generate more merchant-centric rewards and discounts for consumers.
Innovation type: Banking, cards, payments

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PlayMoolah is on a mission to change the way kids and teens use their money! We design fun technologies for kids to experience money management to earn, spend, save, invest, and give. Through real dollars, real action, and real impact, we hope for kids to take control of their money, and become empowered by using it to live their dreams and create value for the world.
Innovation type: Marketing, online, PFM