By Ben Miller, Fundrise.
Technology radically transformed investing in the public markets, bringing us online platforms like E*Trade and Robinhood. These transformative sites lowered costs for retail investors, pushed traditional brokerages to change, and along the way democratized the stock market.
Now tech is now coming for private markets. Starting with real estate.
At Fundrise, we are able to raise and invest billions of dollars, manage millions of transactions, and operate more than $5 billion worth of real estate assets at a fraction of the cost of a typical private equity firm. That means lower fees for investors and more access to real estate assets for individuals.
Ten years ago, if you wanted to invest in private market real estate -- you’d have to be an investor in a pension fund or a high-net-worth individual willing to take on due diligence and ample paperwork. Today in about five minutes, you can download our app and invest in a portfolio of real estate assets.
Tech has both lowered the barriers to access to this market and lowered investors’ risk. With our platform, you don’t invest in just one property or one deal. We offer an automated service. Your risk is spread over managed strategies across multiple properties. And software makes it possible.
How’s that?
At Fundrise, we digitized the largest asset class in the world, real estate, essentially replicating for real estate all the things people take for granted in buying and selling stocks online.
We’ve automated everything involving the investment transaction (payments, agreements, compliance, automatic share records), as well as the financial processing of capital flows (dividends, appreciation, and real-time performance reporting).
A traditional major fund complex with 20 funds and hundreds of thousands of investors would usually have a couple of thousand accountants and operations employees. Fundrise has about 25.
That’s because we’ve built a technology infrastructure to do fund administration, the least sexy, yet arguably the most crucial and nearly invisible part of investment operations.
Last year it took only two Fundrise tax professionals to file 1.9 million tax forms (1099s) on our behalf. When we tried to upload the files to the IRS system, it broke their upload because no one had ever uploaded such a large digital tax filing! We had to mail in the forms on CDs. All this tax analysis and processing cost our investors $0. We built software to handle it.
Thanks to this tech, we can open up our platform to virtually everyone. Whether we have 2 million investors or one, the technology doesn’t care. Advances in our software enabled us to accept investments ranging from $50,000,000 to as low as $10, paving the way for an even steeper account growth curve. There is a near-zero marginal cost for each investor. No other platform in this space is doing this.
Just the beginning
Much of the real estate investing world has operated on fundamentally the same technology since the 1990s (Excel, PDFs, and accounting software).
Any financial analysis requires painstaking data collection performed by armies of analysts, working by hand. Their work is painstaking. These are typically well-paid MBAs, but their time is mostly spent not analyzing the numbers, but simply gathering them from disparate sources to organize them into rows and columns in a table.
We’re working to automate these processes, too. Fundrise has built an end-to-end software platform: we raise the money, analyze the market, invest in and manage the properties, and interact with the investors. This means we have powerful data within our grasp and can build an entirely different architecture to process the information.
Other companies organized like this include Netflix, Amazon, and Tesla. You wouldn’t simply call these companies an entertainment business, a retailer, or a car manufacturer. They’re also tech companies -- able to parse mountains of information to deliver additional value to their customers. Think pricing at Amazon. Or Netflix’s very specific recommendations for viewers.
Software can bring the same transformation to real estate investing. The tech will improve decision-making and substantially cut the manpower overhead. We don’t need eight MBAs across the country, gathering data, putting it into Excel models that are used only once. We don’t need a billion-dollar CEO leading sales and fundraising.
To wit, Fundrise employs twice as many software developers as real estate analysts.
You hear a lot about fintech companies these days. And certainly tech has brought change to a lot of consumer-facing markets. In the private investing markets, the revolution is just beginning.
All posts are the opinion of the contributing author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CAIA Association or the author’s employer.