Blockchain, Crowdfunding, Big Data, Artificial Intelligence
Discover how blockchain technology, crowdfunding platforms, big data and artificial intelligence will impact the future of real estate investing, in 2019 and beyond. As with all new technology, there will be casualties, but you don't have to be one of them. Don't be left behind as these industry disruptors infiltrate real estate. Instead, you're about to learn how to use them to propel you to greater levels of financial success.
4 Real Estate Investing Industry Disruptors
Right now a lot of people are saying that blockchain technology is going to revolutionize real estate investing in many ways. From how the buyer and the seller come together with the offer, to how the lenders put together their loans. Even to how the closing occurs and how things are financed.
Crowdfunding platforms have been around for several years now. They have grown in being able to bring anybody into their platform. You don't have to be an accredited investor anymore, so just about anybody can be a real estate investor now.
Big Data and Artificial Intelligence:
Big data is collecting on a massive scale. Then artificial intelligence mines that big data, drawing conclusions that the human mind has never done before.
Confidence to Navigate the Future of Real Estate Investing
I'm going to provide you with clarity, because when you have clarity, you have confidence. When you have confidence, you take productive actions. Those productive actions produce economic results, and financial returns so you can have more money. My purpose is to help you learn more so you can use the power of real estate to produce more freedom. To gain clarity we need to break down real estate into its two components, financing the purchase and the asset itself.
These changes are making a big impact with regards to financing. Financing used to be banks, mortgage companies, and insurance companies. Then along came real estate investment trusts or REITs. A REIT is where a pool of investors put money in and then that REIT buys real estate. A lot of times REITs still use banks as the first mortgage, and they use the funds from the REIT to pay the down payment.
Crowd funding platforms are like the next generation of the REIT. Now, even non-accredited investors with $1,000, or $5,000 can choose the property that they put their money into. The returns vary depending on the property and platform. Because of this development, a question I get from time to time is, " Is it a good idea for me to invest in a crowdfunding platform?"
Crowdfunding Has Low Returns:
There is one problem you have, and it is, you are not a bank. Banks have an amazing tool that we don't have called 10x. They do what's called fractional banking, where if they have $10,000 in deposits, they can lend $100,000 on real estate transactions. Banks can take a little bit of money and turn it into a lot even if the interest rate isn’t strong. Whereas when you put $10,000 into a crowdfunding platform, that's all you're putting in. So, the returns are smaller. Myself, I want greater returns than that, however it does require me to be more active.
Lending Money Has Risks:
Furthermore, when lending money, there are a lot of things that can go wrong. You need to make sure the asset is correct and the people in charge of that asset is correct. I'm a hard money lender for my apprentices. As much as I try to reduce the risks by knowing the deal intimately and by personally mentoring the actual person, ultimately there are still risks. When you put your money in a crowdfunding platform you are lending your money for an interest rate. You need to know there are plenty of risks and challenges in lending money, including being tied up in a deal or losing that money altogether.
How Crowdfunding Platforms are Affecting Financing in Real Estate Investing:
Why this plays a role in the over all real estate investing industry is that we now have access to more money than ever. We’ve always had access to a lot of money. In fact, I built an easily searchable tool called the Hard Money Locator, which provides you with information on just about every hard money lender in the U.S. There were already a lot of lenders and now because of this new platform we have even more. Their terms are pretty much the same as a hard money lender, so if you as an investor are looking to get money from a crowdfunding platform, the returns are about the same.
However, what it does change is there is more money in the market. What I have noticed over many years, is that in times when there is more money available in real estate the over all returns from tradition investments tend to go down.
How Blockchain Technology is Affecting Financing in Real Estate Investing
Another aspect that is affecting real estate is Blockchain technology which allows for the tokenization of equity in a property. This is currently happening with a few larger properties. The owners are tokenizing their equity allowing people to use blockchain technology to be a partial owner, similar in many respects to the crowdfunding platform. You are transferring your currency, your lending net to whoever the owner of the property is for a specified return. Like I mentioned previously, those returns are going to be smaller.
An important lesson to remember is, anytime there is an investment that is neat and tidy, the returns are going to be lower. The best investments are the ones you create. If you want to be a passive investor it’s not all bad. But if you have been watching my videos, I hope you are wanting to be an active investor and that’s what transitions our thoughts to the asset itself.
This is where the money is made. Literally the money is made by the tenant paying the landlord or the developer selling to the buyer. Furthermore, I argue that the real money is always made when you are the principle in the deal and the one in control. The principle uses the financing or the tokenization of blockchain technology to their advantage because they are in control. This allows them to make more of the profits and reduce the risks. Compare that to investing in a crowdfunding platform, where you have no control as a lender. However, when you are the principle in a deal using financing to fund the deal then you are in the driver’s seat.
How Technology is Affecting the Asset
Big Data and Artificial Intelligence and the Traditional Investor:
Because of all the data points that are available right now and because we have computer systems to mine that data and draw conclusions, we are seeing is a trend where some are able to buy tradition properties better and faster than a traditional investor. Tradition investor is under more attack than ever before because now they aren’t just competing with other tradition investors, they are competing against computers. There are hedge funds with more capital that are able to source out the right deal and buy faster and easier.
For example, using hedge funds to fund their deals, developers out of Israel have an algorithm that searches for all the apartment buildings with 200 units or more in the United States. They use this algorithm to identify the best value add play deals.
Traditional investors are getting beat by data and artificial intelligence’s ability to mine that data, but this doesn’t concern me at all. Why? Because I’m a creative investor.
Big Data and Creative Investing:
As creative investors, we don’t focus on the property we focus on the owner. We target the person who owns the property and their problems. The property itself would never show up on the radar of any data mining tool as a potential investment opportunity. We focus on the seller themselves because it is with them that we can structure the best deal. We could be using funding from a crowdfunding platform or hard money lender. However, a lot of the times we finance through the seller themselves by taking over their existing loan or doing owner financing. I have a great video on that called How to Turn a Little into A Lot Part 2 that explains exactly how we do that.
Creative Investors Use New Technology to Their Advantage
How We Buy the Property:
In our creative investing we are using big data and artificial intelligence to our advantage. We have the largest list of motivated sellers. These are people who we have dealt with. We take that list and are able to upload that list to certain platforms and then that allows us to deliver our message to a similar audience of the original customer list. This can’t be done in a small way. You need to be able to access tens of thousands of motivated sellers contact records to active the artificial intelligence in such a way where it is effective enough to distribute your message to the right people at the right time. Why that's so powerful is that allows us to reach our audience far more efficiently than ever before.
How We Monetize the Property:
Furthermore, it’s not just finding the best deals, there’s another facet to creative investing that many of you will be able to expand upon in the years to come. Not just how we buy it but also how we manage it.
A perfect example would be vacation rentals. I have a video 3 Ways to Turn a House into a Cash Flowing Machine. In it I talk about the power of vacation rental investing, taking a property and turning it into a mini hotel. You can literally transform it’s productivity. I sold all my traditional rentals and went completely to short term vacation rentals because the returns are so much greater.
So, creative real estate also relates to how you monetize that property. As more money is available, either through crowd funding platforms or tokenizing a property that you own or control, the real power play is your skill to find, structure, and manage the best deals. That’s where all the money is going to be made. Rather than you trying to catch up to technology, technology is the wind at your back pushing you forward to more and more wealth.
The Future of Blockchain in Real Estate
They are experimenting with bringing buyers and sellers together with blockchain technology. These changes are exciting because they are putting together offers with a more transparent and efficient process. That along with a more efficient lending and closing process, make real estate more productive. However, traditional real estate agents are not happy with this. Their control of the buying and selling process and their 6% commission is threatened. That commission has been under fire for years by the flat fee industry. We have embraced the flat fee for a long time and it’s a huge part of our ability to sell the property with lower cost and commission.
The fact that blockchain technology has the ability to better organize the process of buying a house, I can see a future where agents play a limited role in real estate. Much in the was that Uber has undermined the taxi business. If you are an agent and you don’t learn how to use this new technology to your advantage, that 6% is going to vanish.
Blockchain Fuels Cryptocurrency
I know so little about Cryptocurrency, but I will say this, in real estate, whether the currency is the US dollar, or Mexican peso, typically what investors will do is take currency and convert it into real property. They do this because real estate is pretty much inflation-proof. It's real, you can touch it and see it. So, can the use of cryptocurrency in real estate make a big impact?
It could, but all I’ve seen so far about it is in South Florida. They changed the law so that any transaction more than a million dollars has to be far more transparent. Literally overnight, a lot of transactions came to a grinding halt, because organized crime and drug cartels used real estate to launder their money. As a result, they are using cryptocurrency to buy real estate because it is more difficult to track the process.
Crypto currency is also being used in relation to tokenization. You can buy portions of property through your cryptocurrency, so if the value of your bitcoin is continuing to dwindle, maybe it is time to move it into some real estate.
In summary, as more and more financing becomes available it is going to reduce returns on a global scale. In terms of your own personal investments, if your investments are all neat and tidy, the returns are going to be substantially lower. Whereas if you are the principle in the deal and use creative techniques to locate and structure your deals, you will be in the best possible position for all these changes to benefit you, not swallow you up. In contrast, the traditional investor is under total attack right now from these industry disruptors.
Furthermore, due to blockchain’s potential ability to decentralize and better systematise listing a house, I see that the traditional agent model is completely under attack as well. I see that barrier coming down. If you are a traditional investor or agent, I would have some concerns and make some adjustments now.
If you want all of this to be the wind at your back, if you don't want to be trying to run to catch up to technology but you want to be able to lean back and let technology make you wealthier, consider becoming a first-class market leading creative real estate investor. That's what my apprenticeship program does. We take complete beginners and we turn them into money-making machines.
Limhi Calderon says
I am interested in becoming an apprentice for your creative real estate Investors mastermind course.
Freedom Mentor says
Have you made application to our Apprentice program?
John Hawkins says
Great information and also very eye opening. Just started real estate investing so this is indeed something to watch and implement into the new strategies of the future.
daniel erez says
I enjoy very much your presentations and always looking fwd to hear from you, thanks very much,
I have a note I want to sell, Can you help me to find a buyer?
Freedom Mentor says
I am glad you are enjoying my content but I have nothing to offer about note buying or selling.
Georges Abinader says
First, happy new year to you Phil!
Your YouTube videos are great, thank you for all the content and effort you are putting in their making.
Michael Hippolyte says
Access to understanding the significance the future hold for real estate investing using other ventures is important .Show me
Jesse Berreles says
You are the best!
Tom Gates says
Thank you Phil: Very informative content; outstanding delivery. Tom Gates. Pacific Palisades, Ca. 90272.
Kevin Carmichael says
Great information, Phil. Always enjoy listening and learning.
Kandi Bartsch says
Thank you for sharing your knowledge and your confidence. Your humor is appreciated also.