The Tech Revolution in Real Estate Lending: Are We Overlooking the Basics?

[Chris Seveney]

Over the past quarter, I have seen around $1B in defaulted fix and flip loans - many of these from new lenders since 2020 and more of a "tech platform".

As we all know, the intersection of tech and real estate investing has brought incredible innovation, especially in hard money lending. I continue to see new platforms promise ease of use, lightning-fast approvals, and streamlined processes. On the surface, it’s a game-changer. But as someone who’s been in the trenches of real estate investing for almost 30 years, I continue to see some flaws.

Some of the flaws I have witnessed are when tech-driven companies seem to lack backing from experienced underwriters or seasoned real estate professionals. Instead, they’re relying heavily on algorithms to make underwriting and valuation decisions. While algorithms can analyze data at scale, real estate isn’t just about numbers—it’s about nuances and the most important component of real estate is understanding its value, and that to me (maybe I am old school) but can only be done by physically visiting and walking the property.

So for me, factors like local market conditions, property inspections, and borrower credibility can’t be fully captured in a formula. Without a deep understanding of these elements, can you underwrite a deal via an algorithm ?

What are we seeing? Borrowers overleveraging, deals falling apart, and platforms absorbing starting to selll off these losers. 

Now do not get me wrong, tech has its place in real estate, but it’s not a replacement for expertise. For me - my two cents are no amount of innovation can replace sound underwriting and valuation practices.

Curious to others thoughts

[Dominic Mazzarella]

Quote from @Chris Seveney:

Over the past quarter, I have seen around $1B in defaulted fix and flip loans - many of these from new lenders since 2020 and more of a "tech platform".

As we all know, the intersection of tech and real estate investing has brought incredible innovation, especially in hard money lending. I continue to see new platforms promise ease of use, lightning-fast approvals, and streamlined processes. On the surface, it’s a game-changer. But as someone who’s been in the trenches of real estate investing for almost 30 years, I continue to see some flaws.

Some of the flaws I have witnessed are when tech-driven companies seem to lack backing from experienced underwriters or seasoned real estate professionals. Instead, they’re relying heavily on algorithms to make underwriting and valuation decisions. While algorithms can analyze data at scale, real estate isn’t just about numbers—it’s about nuances and the most important component of real estate is understanding its value, and that to me (maybe I am old school) but can only be done by physically visiting and walking the property.

So for me, factors like local market conditions, property inspections, and borrower credibility can’t be fully captured in a formula. Without a deep understanding of these elements, can you underwrite a deal via an algorithm ?

What are we seeing? Borrowers overleveraging, deals falling apart, and platforms absorbing starting to selll off these losers. 

Now do not get me wrong, tech has its place in real estate, but it’s not a replacement for expertise. For me - my two cents are no amount of innovation can replace sound underwriting and valuation practices.

Curious to others thoughts

On the surface I agree with your sentiment. But I think I would need to see more data to make an informed decision. Such as, what percentage of those $1B in defaults came from tech platforms as opposed to traditional lenders? And are there other factors that could be attributed to those defaults?

One example would be the office sector being hit hard with defaults. This had nothing to do with economic or underwriting issues but was driven by covid and many workers beginning to work from home. 

There may be other issues at play here that have little to do with a lack of experience at real estate tech platforms.