When people hear the term "fintech," or financial technology, they likely don't immediately think of multifamily housing. Most people probably associate fintech with digital and mobile payment companies or investment apps, brokerage services, and robo-advisors targeting millennials and Gen Z consumers, such as Acorns or Robinhood.
While these are mainstream use cases, fintech solutions are making their way into many industries besides the traditional banking and financial services, and multifamily housing is no exception.
Rent is generally a person's largest continual expense. This, paired with the fact that people have become accustomed to fintech solutions in their daily lives, has really opened the door for the proliferation of fintech into rental multifamily housing. The fintech brokerages and robo-advisors of the world have "broken in" consumers, so the time is right.
The benefits of fintech
At its core, fintech is meant to make financial processes more efficient. When you think of it from this lens and really dig into the multifamily acquisition and management cycle, fintech proliferation in the multifamily arena makes sense. While the obvious impact of fintech solutions is on "modernizing" rent payments, it's crucial to look at the operational efficiencies from a property management perspective as well.
When you boil it down, there are three key actions that lead to a successful multifamily investment property:
- Find high-quality tenants who will take care of the property and pay on time.
- Keep those tenants happy so they stick around.
- Manage the property efficiently.
Here are four ways fintech companies are helping multifamily owners be more successful in those three areas.
Savvy is helping landlords screen renter applications more efficiently and effectively. Renters are generally screened based on credit scores, but since landlords are worried about future ability to pay, credit scores don't always show the whole picture.
Savvy looks into the applicant's bank records to verify identity, income, cash flows, and rent payment history digitally. All the applicant has to do is apply via a link online and grant bank account access to Savvy. From that, a one-page risk summary is delivered to the landlord or property manager. Not only does this help landlords better screen tenants, leading to less money spent on collections or evictions, but it may also draw more applications, since it makes it so simple to apply.
Depending on the market and geography, it can sometimes cost a renter three to four times one month's rent to move into a new apartment (first month's rent, last month's rent, deposit, and sometimes a broker fee). Even in a world where landlords are offering concessions such as one month's free rent (like we're living in now), this upfront cost can be burdensome. And you can't forget about the actual cost of moving, too.
Both Jetty and LeaseLock are helping to modernize and update this process. They've turned the security deposit into an insurance product. Instead of paying a month's rent upfront, the renter can make smaller monthly payments in exchange for coverage against any damage done to their unit -- what the security deposit is intended for. In the case of LeaseLock, this can be over $5,000 in coverage.
Being able to offer something like this can make a big difference for multifamily owners and operators competing for high-quality tenants. This can also lead to less back-office work, such as managing escrow accounts and other administrative costs that are often forgotten when it comes to security deposits.
Rent payment plans
Once that hefty upfront move-in fee is paid, renters still have to make their monthly rent payments. Till is working with landlords to customize payment schedules for their tenants.
The process is pretty simple:
- Renters fill out an online application.
- Till verifies the rent balance owed.
- Till gathers financial information from the renter's bank accounts to understand their cash flow situation.
- A personalized payment schedule is built for the renter.
These flexible payment schedules are truly a paradigm shift. Not only do they actually improve a renter's ability to pay rent, but they also provide flexible, personalized leases, which simultaneously increase cash collected for landlords while reducing property management time spent chasing delinquency and bad debt. Till says this process has increased on-time collections by 20% to 50%, and site teams have reduced the amount of work spent on collections by 70%.
Return on rent
What's in your wallet? Well, if it's a credit card, probably cash back. Stake is bringing that same data-driven reward to landlords for their tenants.
In markets where landlords are forced to give concessions to entice tenants, the go-to is often offering rent free for a month or more. One month free is about 8.3% of a 12-month lease, a significant cost. Worse yet, no landlord has heard renters say "Thanks for the free rent" at the end of their lease. Instead, it's "What have you done for me lately?"
Stake flips this concept around, offering property-specific cash-back rewards to renters that cost landlords less than the concessions they have in place. The renters are only eligible for cash back if they make their rent payments on time, which means less money spent on concessions and less time spent on collections.
And at the end of the lease, residents see exactly how much they've earned through their "return on rent" and are more likely to renew (landlords can even offer a new reward for the next lease to boost renewals).
The Millionacres bottom line
At the end of the day, multifamily landlords are in the business of maximizing cash flow and net operating income (NOI). The goal is to generate as much cash as possible each year while owning the building and then be able to sell it for as much as possible when the time comes, which is why NOI is so crucial.
It's important to remember that no fintech solution is a catch-all; market conditions, geography, and building dynamics need to be considered. For instance, coastal markets like New York, Boston, Los Angeles, and San Francisco are different from the Midwest, which is different from the Southeast. And building class is an important factor as well. Class A, B, and C properties all have different needs. Number of units is also crucial to consider, since a property with 100 units has different needs than one with 500-plus units.
All told, there are some great tools available now, regardless of these factors, and there will surely be more coming.