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Investing in real estate at an institutional level and spanning multiple markets at a national scale has always been a challenge. With different systems and processes, slightly different rules and regulations in every state (and sometimes even in different metro areas), there can be obstacles at every step: from figuring out how to find homes that fit a particular buy box, making a reasonable offer, following through with closing, making any required repairs, renting the home, and all that comes after.
It’s a challenge that institutional investors have tackled with gusto. New technology is allowing institutional investors to grow and scale even more efficiently and effectively. Buying properties all over the country, even diversified homes that don’t fit a single buy box, is now possible . And despite a shifting market, now is a critical time to look at real estate investment as a growth opportunity, and reexamine the systems that institutional investors have been using–and what they should consider adopting.
One advantage to investing in homes across dispersed geographic locations is the dispersed risk that comes along with it. If a large company or an entire industry where homeowners find employment suddenly faces a dip or goes bust, then SFR investors in those areas might also find themselves in a pinch. And natural disasters that affect large numbers of homes in certain places, such as wildfires or floods, can also impact an SFR investor’s portfolio if they’re concentrating their properties geographically.
New business models are allowing investors to break down geographic barriers and diversify their real estate portfolios more granularly than ever before. With these innovative tools, investors can access automated underwriting, modern remote closing experiences, and dashboards that help them manage multiple transactions at the same time, regardless of location
Using these tools helps SFR investors fast-track their own growth, and continue to push the entire industry forward.
“What is built over the next coming three to five years will be led by institutional relationships and involvement in the SFR asset class,” says Patrick Burns, Spruce’s CEO and co-founder. “And it will be to the benefit of retail investors, a pattern we’ve seen in other industries. We will all be empowered by the same tools—but the most rapid innovation will come from institutional involvement.”
Institutional buyers are creating well-oiled machines that allow these entities to find, bid, purchase, and rent homes in multiple locations, juggling several transactions at a time and managing all of the local anomalies to keep things running smoothly. And they’re able to do this through technology, leveraging tools that allow them to keep track of a complicated and constantly changing environment.
Some of the tools that institutional buyers are using to help streamline the process and manage their purchases include:
This trend will create a positive ripple effect for homeowners and first-time buyers as the standards and procedures for streamlining the real estate closing process are constantly improving.
“In place of thousands of different processes across the country, founded on millions of pieces of paper and unstructured data, we standardize and make structural the data and transactions — title, HOA, HUD — and make it available to our clients through APIs,” explains Burns.
“In place of the manual and local processes, we use data science and software to standardize processes and make them more automated,” he adds. “The result of this — for our clients, the SFR industry, and beyond — is a more predictable acquisition or transaction process, a lower cost process, and one that is fundamentally scalable.”
While market shifts are almost inherently a time of uncertainty, there is also a great deal of opportunity for investors. Real estate is one of the best long-term assets available to anyone hoping to build wealth and grow a portfolio, and knowing exactly where the best opportunities are in the country today will require synchronization and technology collaboration, which is thankfully now available to institutional buyers.
“This institutionalization that was there as an embryo ten years ago — prior to that, the traditional residential real estate industry was adequately, but not perfectly, supported by traditional closing services, appraisal services, and other services,” explains Burns.
“It wasn’t until this mass digitization and mass institutionalization had begun that people needed more digital infrastructure to run their acquisitions, dispositions, manage properties, and so on,” he adds.
By using technology to help streamline and institutionalize the SFR space, more investors and individual homeowners can unlock a deeper understanding of where their money is currently parked and how much they might be able to access today.
“We’re in a dynamic where homeowners have lots of home equity and uncertainty in their personal finances,” Burns says. “We have lots of demand for exposure to SFR assets, and I think the tip of the spear is the institutionalization of the SFR asset class–but what comes after that is a greater number of applications for homeowners and investors, both retail and institutional, to make more liquid, valuable transactions.”
Institutional SFR investors will set the tone for a great deal of future expansion and innovation in real estate. The investors that can withstand the pressure and heat of this current market environment will come through on the other side like a diamond: High in value and nearly unbreakable.
At Spruce, we work closely with large and midsize SFR investors to build out integrations and workflows that increase operational efficiency and agility. To learn more about how you can work with Spruce to make the most out of this brief period of reduced activity, fill out the form below or reach out to us at sales@spruce.co.
Request a demo or, start a conversation.
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