Story by Kenon Chen for HousingWire
My, how things have changed. Just a couple years ago there was incredible momentum building around alternative ways to purchase, sell and extract value from residential properties.
iBuyers led the way on reshaping the options available to sellers through direct, instant cash offers at scale. The highly competitive purchase market and bidding wars gave rise to power buyer models to help non cash buyers compete.
Creative solutions meant to help renters become homeowners and let homeowners tap into their equity without taking on additional debt began to spring up like the California wildflowers I hope last through the fall (is there a fall season in California?).
There were historic amounts of investment and funding, and for some traditional housing finance models, real fears of being disrupted. That is until interest rates tripled in the course of nine months, of course.
The pullback of capital and massive drops in the number of real estate transactions have simultaneously put pressure on alternative business models to become profitable faster, and to find ways to adapt in a changing market.
However, the major problems that these businesses are trying to solve have not gotten any less daunting, funding or not. In fact, they might have become more challenging in many cases. Lack of affordability, limited supply and the need to access equity without selling remain major friction points for homebuyers and homeowners alike.
This need for adaptation has resulted in the consolidation of companies, blurred lines between alternative finance with traditional mortgage products and new momentum for platforms that address the needs of existing homeowners.
With all this change, it’s worth exploring some examples of how proptechs are adapting, and check out some of the business models that have survived the market pullback.
Fractional and shared ownership
The concept of co-ownership and co-buying is far from a new one. Friends and family members pooling resources together for vacation homes and investment properties has been a common tradition for generations.
But with mortgage rates well above 7% and home prices remaining stubbornly high due to a lack of supply, co-buying is being looked at as a viable option for first-time homebuyers.
Shared ownership in an investment property can also provide a means to accelerate the growth of funds for future down payments, allowing first-time homebuyers a faster path to homeownership.
The problem with this process has been complexity and access to lending products. Coordinating multiple parties can be tricky, but startups like Nestment are providing a platform for allowing friends to buy together. These platforms are even moving toward matchmaking networks, where you can find people you haven’t met with similar goals for co-buying.
