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The Operating System of Real Estate

The OS of Real Estate

Most proptech companies operate in the world of atoms. They’re operators and lenders of real estate. They sometimes build their own software to help with workflows. Similarly, every large real estate group has their own proprietary software. The operating systems these proprietary software run on are the same. The operating systems of real estate are the accounting systems.

When people think about real estate tech, they tend to think about marketplaces and listing services, e.g. Zillow and AirBnB. These marketplaces are extremely valuable and a way for prospective tenants/buyers to locate properties and a way for owners/managers to list properties. These marketplaces perform a vital role in the real estate ecosystem. They’re the tip of the iceberg.

Real estate is an industry of capital and leverage on that capital. When capital is plentiful, real estate companies leverage this to develop and purchase properties, lend capital, renovate, etc. This is great as one can scale operations. But these are low margin, low barrier to entry business models. 

The fundamental tech in real estate is archaic. Imagine if every accounting system including Quickbooks had a closed API. To start any business, you’d need to use a closed accounting system. It makes for odd business incentives. There are real estate groups who would love to use services like AirBnB or partner with other co-living companies, but they don’t work with their existing accounting systems. The data models don’t match, and it’s not worth the annoyance and risk for most real estate companies to go into new asset classes. This is why there are so many upstarts listing on AirBnB instead of existing players. Even so, large groups are attempting to innovate to increase returns.

IoT devices are exciting. But IoT devices are expensive with difficult to quantify benefits. Sensors will decrease in cost over time and become more commodified. Their benefits will be quantified in terms of compliance with regulations, preventative maintenance, and the ultimate impact on net operating income. Systems that run, control, and speak to sensors will form platforms. It’ll be a key API layer that will need to integrate with the core of property operating systems, i.e. accounting systems.

The problem is that the core is rotten. It’s an amalgamation of apps patched together, e.g. when one approves an invoice, they want to compare it to the current budget. So they open up a reporting module, run a report of the property, find the line item the invoice is under, and add up YTD spend.  Then, they open a budgeting module, run a report for the property, find the line item of the invoice, calculate how much has been spent YTD, and what is left in the budget if the invoice is approved. If the item is within budget, they go back to the invoice and approve it. When told that future software can surface all that information at the invoice level, owners say they don’t need to see the invoice. Just auto-approve if the invoice is within budget.

The entire workflow is automated by combining three pieces of software in one platform. Imagine what can be done if all software is internally integrated in one system.

To efficiently hyper-scale, you need to play in bits. The hard part of the bits is that you need to replace the current systems. Switching costs are perceivably high, and the initial build is tremendous. There are hundreds of workflows that need to be solved. If one builds a system that works for those hundreds of workflows, and a system documented and intuitive enough for users to learn– they’ll conquer the market. This is what we’re doing at Ender.

Real estate is death by a thousand cuts. Ender blunts the blade.