By Clayton Bryan
Real estate investment has traditionally been a game for the privileged few–but the status quo is changing. There are millions of younger retail investors looking for new opportunities to grow their wealth, with a strong appetite for real estate. According to RealtyShares and Harris Interactive, more than half of Millennials are interested in real estate investing.
Yet, retail investors still have limited options when it comes to accessing real estate as an asset class, which can hamper their ability to diversify their portfolios.
Fintor aims to fix this by removing restrictions so that aspiring retail investors can participate in wealth creation and diversification. The platform allows investors to snap up fractional equity shares of real estate properties for as little as $5. This opens up real estate to a whole new swathe of investors, not just the wealthy.
The Nuts & Bolts
Problem:
The rise of the retail trader has made a remarkable impact on the investment landscape in recent years. Retail investors historically made up 10% to 14% of the market before the introduction of commission-free trading in 2014. Now they represent about 25% of the market.
That shift played out as regulation around investing has relaxed, investment tools have been greatly improved and simplified (see Robinhood), and information has become more accessible. Part of that trend traces to the crowdfunding section of the JOBS Act of 2012, which helped a wider pool of investors access opportunities once limited to Wall Street.
The issue is that most of this new access has focused on public and private equities. Only recently have we seen the JOBS Act core fundamentals get applied to other types of securities, or the securitization of collectible assets such as shoes, watches or comic books.
Against that backdrop, Millennials and Gen Z investors have felt left out of the largest asset classes of all: real estate. As of 2019, Millennials as a generation held approximately zero net real estate wealth. They face several obstacles, including large capital requirements, a complicated and time-consuming process, and low liquidity.
Solution:
Fintor’s app allows retail investors to buy fractional equity shares of real estate properties. That gives smaller-scale investors the ability to participate in real estate deals and manage diversified portfolios without needing large amounts of capital. This also enables property owners to simultaneously access new sources of liquidity.
Fintor will issue these fractional securities through a SEC approved “mini-IPO,” a process made possible by Regulation A, a crucial component of the JOBS Act. The large stakeholders (often a real estate development company) might have the option to still manage their properties while using the Fintor platform to liquidate parts of their assets.
After buying shares, Fintor users can trade them with each other after a three month lock-up period. Both primary and secondary trading is in partnership with a self-clearing broker-dealer that is SEC approved to sell shares in all states, with all transactions conducted through an escrow service.
Users access returns through monthly rental income and capital appreciation. At the right time, the asset is sold on the real estate market and cash from the final sale and any profits are distributed between shareholders and transferred into their Fintor accounts.
Fintor identifies properties by targeting neighborhoods with high rental income and fast growth potential by analyzing real estate and economic metrics, with forecasts based on local insight, proprietary surveys, and extensive data analysis. It then works with real estate investment and development firms, as well as individual owners, to source properties to list on the platform.
Getting to know Fintor:
Fintor’s founders Farshad Yousefi and Masoud Jalali bring the right combination of real estate and financial expertise and technical skills needed to build the infrastructure of an investing platform.
Farshad, who’s CEO, studied finance at the University of San Diego, while Masoud, who’s CTO, earned a PhD in engineering from UC San Diego. The pair met while attending startup events and became roommates soon after. They both shared a passion for building impactful companies, one that shapes the next generation.
Together, they helped found Visionful, a computer vision-based parking management company that was part of 500’s Batch 25 in 2019. Farshad served as COO of Visionful.ai, while Masoud provided much of the technical muscle power.
After Covid-19 impacted Visionful.ai’s business, the pair decided to sell its assets. They were already eying real estate, intrigued by the lack of access average retail investors faced, which inspired Fintor’s launch.
Fintor is also working toward UN Sustainable Development Goal #8 to promote inclusive and sustainable economic growth, Goal #10 to reduce inequality within and among countries, and Goal #11 to make the cities and towns where we live more inclusive, safe, resilient and sustainable.
Why now?
Democratizing real estate is overdue. Younger generations have flocked to investing tools such as Robinhood and are looking for more opportunities to grow and diversify their wealth across different asset classes. This trend should continue in the years ahead. Technology-driven disruption within financial markets is increasing at an unprecedented rate, and offers further potential to impact asset classes from art to precious metals. Real estate is a logical next step: the combined value of all homes nationwide rose by almost $2.5 trillion in 2020 — the most in a single year since 2005 — to a whopping $36.2 trillion, according to Zillow.
The future of Fintor:
Fintor’s goal is to make investing in real estate more intuitive and more affordable. The company already has a queue of interested retail investors signed up to adopt the platform and is lining up properties to list from a booming real estate market in the U.S.
You can learn more about Fintor at: https://fintor.com/
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