Why AI can’t work in real estate investment management (yet)

Why AI can’t work in real estate investment management (yet)

The world of artificial intelligence (AI) has brought countless advantages across industries. Advanced computing power and AI-based algorithms make it easier to acquire, manage and adapt large chunks of data in record time, without human intervention (for the most part).

One of the most popular examples of AI at work is chatbots programmed with natural language processing (NLP), the capability of learning and making sense of human linguistics without translating words into scripts.

Yes, AI does wonders for marketing, healthcare, manufacturing, engineering, and the like. But when it comes to real estate investment management, there’s a need to cover the basics, aggregating fragmented data and making it more reliable for future AI applications to actually provide value.

Real estate is driven mainly by growing human needs and unpredictable market shifts. It’s based on simple demand and supply trends, and as we saw in the 2009 crisis, sometimes it’s very hard to predict and depends on many unrelated economical factors.

The real estate industry, and specifically real estate investments, are built upon personal relationships and networking, segregated or exclusive communities, and significant amount of private equity. This is very challenging to manage, and technology is key to make that work. But what kind of technology is the best fit to manage so much raw, fragmented data?

While advanced AI technologies provide the ability to make real time decisions and predictions based on data, real estate investment data is still too fragmented and segregated between excel sheets and applications to be able to apply AI optimally and for it to actually provide value for the industry .

Automation and reliable data will drive the modern real estate market for the years to come, and prepare it for the AI ​​era. With automation and efficient data management in property technology, or proptech for short, you can unlock the doors to newfound efficiency.

You’ll gain better control over investor relationship management, industry compliance fulfillment, and portfolio expansions (eg, turning total AUM from millions to billions).

The Current Landscape of Real Estate Investment Management Technology

Many real estate investors are tech-savvy — no surprise in the digital age with highly accessible information. In fact, proptech has become the rule rather than the exception among the most successful real estate investment firms. Investors expect to have a modern looking investor portal, and receive real-time insights on their capital.

From advanced CRMs to property management tools, a suite of established proptech solutions bridges the gap between agents, portfolio managers, investors and tenants. With the social challenges presented by the latest pandemic, proptech has progressed significantly, in order to provide the ability to manage, exchange, and optimize anything related to real estate in the digital age, from investment management, to buying and selling properties, to appraising assets, to improving tenant satisfaction and more.

Basically, the latest generation of proptech and real estate solutions aim to connect investors and firms, tenants and property managers, brokers and buyers, without friction and intuitively regardless of location and time.

With proper automation tools, data becomes much more reliable and managing it becomes almost effortless, with parties signing encrypted contracts digitally, transferring documents, editing rental clauses without reporting to a physical office, providing digital tours in assets or a portfolio or raising funds for the next deal/fund from investors.

Real Estate Investment Automation’s Position

While remote real estate technology streamlines and optimizes investment processes, there is one crucial issue that remains — time. Real estate investment firms juggle myriad tasks across multiple investors and investments daily, which makes it easy to lose track of what’s next.

Yet personalized outreach, which proves highly effective among investor communications, remains a deciding factor in many industries, including real estate. Traditionally, portfolio managers require paintaking manual involvement to realize the best results tailored to perfection.

The good news is that with the emergence of automation and reliable data comes solutions of unmatched convenience through advanced investment management. For example, you can now migrate specific investment details into official tax forms, calling or distributing capital and publishing updates on an asset or a portfolio in a matter of seconds — without delay or the risks of human error.

An Ongoing Mission to Interpret Data

One of the biggest challenges in real estate investment automation involves compiling the vast amount of fragmented data for each portfolio – usually from many different excel sheet. Insightful data on an investment management platform may include market trends, state laws, federal laws, and real-time calculations of real estate value based on buyer property, tax records, and home details.

While real estate investors can improve decisions and increase profits via a database of information, the process becomes futile with outdated, irrelevant or fragmented data. One major case in point is the failure of Zillow’s iBuyer model.

Developers promoted the iBuyer as a revolutionary tool that calculates home values ​​based on a series of data points.

However, the solution didn’t perform according to expectations. Its AI system simply lacked the necessary reliable data and sophistication to forecast future home values. According to reports, iBuyer’s disappointing performance included a median error rate of 1.9 percent for homes on the market, which could result in significant price changes and deprive investors of a large slice of profit.

Automation About AI

According to Danielle Hale, the chief economist of Realtor.com, investors can expect a wave of housing opportunities. Specifically, experts expect home sale prices to increase by another 6.6%, and home prices will rise an additional 2.9% on top of 2021 highs.

Similarly, market pundits believe commercial real estate (CRE) will continue to rise in 2022, potentially at rates similar to the double-digit rise in March 2021 for commercial and apartment properties. Investment opportunities ahead as we step into an increasingly unconventional world of possibilities.

The bottom line is that real estate operates in a highly dynamic industry. The current state of real estate investment data is making everything even harder to manage, especially when it’s so fragmented between data silos, and excel sheets. Automation and data integrity are of the highest importance for this industry, and present the foundation for a successful implementation of advanced AI tools for real estate, similar to iBuyers by Zillow.

Automation in Practice

Automation is about taking the convenience and efficiency of AI and refining them into personalized solutions. For example, an automated real estate CRM can streamline conversations between portfolio managers and investors, driving effective fundraising processes — a crucial aspect of real estate investment — for the ideal project outcome.

In another similar scenario, an automated real estate solution replaces multiple manual processes. Most investors, for example, can conveniently submit Schedule K-1 and other essential reports resulting in highly efficient processes that could improve profitability.


This column does not necessarily reflect the opinion of FinLedger’s editorial department and its owners.

To contact the editor responsible for this story: [email protected]

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