Lynn Johannson, Advisor, Sustainability and ESG
January 4th, 2024
Lynn Johannson, President of E2 Management Corporation and Catalyst for THE Collaboration
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Real Estate 3.0: How Affordability and Fintech Are Driving the Ownership Revolution
NfX | Pete Flint | Sep 2022
Affordability issues breeding innovation: Real estate has always been more than just the largest asset class in the world. It is the embodiment of home and work, family and business – the opportunity of generational wealth, writ large. The American dream. One that has become increasingly out of reach to most Americans. Paths to ownership of real estate are expanding. What “ownership” even means is also expanding. Affordability and access to traditional home ownership has only eroded since the housing bubble in 2008, as lending standards tightened and home prices have soared in recent years. And yet, restriction breeds innovation and market changes create opportunity. From the front lines with proptech Founders, we’re seeing early signs of a real estate revolution.
See: Vancouver Proptech Startup addy Launches Canada’s First Crowdfunded Real Estate Investing App
Real Estate 1.0: The Information Revolution: The first phase of tech adoption in the home-buying process was Real Estate 1.0, an information revolution enabled by the internet. The problem was the lack of information about one of the most important financial decisions a person can make: buying or selling a home.
Real Estate 2.0: The Transaction Revolution: Streamlining the user transaction experience is at the core of Real Estate 2.0. We continue to look for ways to make it easier to transact in this space by reducing friction, cost, and uncertainty within the buying and selling processes. In the last few years we have seen several innovative transaction models take root.
Real Estate 3.0: The Ownership Revolution
In Real Estate 3.0, the very concept of ownership is what’s at play. Ownership structures and mental models are both changing. When you can digitize, take out cost, and break apart the ownership model, we see things change quite meaningfully.
- What if, instead of paying rent forever, those rent payments earned you fractional pieces of your house (or your business’s property)?
- Divvy is one example of this. It is a service designed for people who, to use the company’s own words, are “not ready for a mortgage.” Divvy offers them an alternative pathway to ownership: you pick out your home, Divvy buys it, you put down 1 to 2 percent of the selling price (much cheaper than your traditional down payment), which goes directly into a fund for your future down payment. Then, you rent from them at market rate for about three years. But 25% of that rent is put toward a down payment nest egg, rather than into the landlord’s coffers.
See: How Proptech is changing the real estate industry
- What if you could own slices of other people’s homes as an asset, and sell them as easily as you would a share of GOOG on the Nasdaq?
- The idea that home ownership can be both fractional and/or a widely available asset class is an interesting development that increases access for more consumers to participate in the larger real estate market.
- Pacaso is an example of a company embracing the fractional ownership idea. Pacaso buys luxury vacation homes, converts them into LLCs, and allows people to buy an equity stake in those homes through that LLC. In return, they get to stay in the home for as much time as that stake allows. For example, you might own 1/8th of a house, and get to stay there for a few months at a time. It’s a model that supports a nomadic lifestyle, or opens the door to second-home ownership – both of which are not the norm, but which onboard a number of new users into the market nonetheless.
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