As every profession molds to meet the trends and demands of the times, there are people — and companies — who come along and squash traditions that remain in existence simply because “it’s always been done that way.” The real estate industry, of course, is not immune.

  • Forbes recently released its FinTech 50 list, a compilation of companies disrupting the finance biz.
  • SoFi and Fundrise are two startups that made the cut by making waves in real estate.
  • The big areas of the industry experiencing change are traditional mortgage lending and property investment.

As every profession molds to meet the trends and demands of the times, there are people — and companies — who come along and squash traditions that remain in existence simply because “it’s always been done that way.” And those people historically stand to make a lot of money.

The real estate industry, of course, is not immune to waves of major change. “Just as Amazon changed the way we shop and Apple reinvented the music biz, digital disruption is going to soon affect every aspect of your money: How you earn it, save it, invest it and spend it,” Forbes said in its recently released Fintech 50 list. “The U.S. financial services industry had pretax profits of $281 billion last year, and new technology is threatening every penny of it.”

Part of the disruption in the growing arena of financial technology, or Fintech, is coming from mortgage and real estate industry-related technology startups seeking to bring much-needed modernization to decades-old processes.

Two such companies made Forbes list, which highlights 50 companies with U.S. operations and viable products in the marketplace.

SoFi: Saying ‘so what’ to traditional mortgage lending since 2013

The first company is SoFi, also known as Social Finance Inc., a company founded in 2011 by a group of Stanford University School of Business graduates who saw opportunity in how the financial services industry collapse affected recent college graduates burdened with student loan debt.

The original SoFi model was an alumni-funded program to help college graduates refinance their student loans. But SoFi soon noticed that members of its borrower network were experiencing another financial pain point: obtaining mortgage loans to purchase their first homes.

In 2013, SoFi branched out into the mortgage space, specializing in offering jumbo loans to early-stage professionals with unique financial circumstances, such as those who are self-employed or working as contractors. Mortgage eligibility depends on a number of factors, such as credit scores, income and employment status. The company’s down payment requirements range from 10 to 50 percent. SoFi does not charge origination fees on its mortgage products or require private mortgage insurance on its loans.

SoFi now offers mortgages in 23 states plus Washington, D.C., with several more states slated to be added early in 2016. To date, the company has issued about $6 billion in loans.

Forbes labeled SoFi a “threat to traditional lenders.” Debra Jack, head of communications for the company, called traditional mortgage lending “a draconian process” and said the recognition by Forbes “reflects the strides we’ve made in mortgage innovation.”

“We’ve turned this experience on its head,” Jack said. “We know that modern homebuyers, particularly millennials, are demanding new ways to shop for a loan. We’ve created a fast, simple and flexible online way to get personalized quotes in real time, along with access to a SoFi mortgage specialist if you need more help. Homebuyers are also attracted to our 10-percent down payment jumbo loans with no PMI and unconditional property pre-approvals that compete with all-cash offers. Borrowers who have good jobs, strong credit and cash flow shouldn’t be denied a home because they don’t have a 20-percent down payment.”

Fundrise: Using crowdfunding to reinvent real estate investing

Also making Forbes’ list is Washington, D.C.-based Fundrise, a company that uses crowdfunding to combat what it calls a “broken” real estate investment model.

According to the company, current regulations bar all but the wealthiest 3 percent of Americans from investing directly, and the only option available to most people is a Real Estate Investment Trust (REIT) or similar fund. Once these fortunate individuals do invest in a fund, their money passes through the hands of several “institutional middlemen,”each of whom charges a sizable fee, before it ever reaches the real estate.

Finally, the money is pooled with thousands or even millions of other investments, and placed into dozens or hundreds of “mystery” properties.

“You’re kept in the dark about exactly what you own,” Fundrise contends on its website. “We started Fundrise with a simple goal: Give everyone the opportunity to invest in real estate.”

Brothers Ben and Dan Miller founded the company in 2010 around the time that the JOBS Act enacted securities regulation to streamline the process of equity crowdfunding in the U.S. Their first project, in the H Street NE Corridor in Washington, D.C., raised $325,000 from 175 investors, some of whom invested as little as $100 each.

Soon, real estate companies were contacting Fundrise to raise capital, so the company expanded its platform to allow conventional real estate investments from commercial developers.

Considered a trailblazer for bringing crowdfunding investment into the real estate market, Fundrise has the distinction of raising more capital in its first-round of Series A investment than any other crowdfunding company, totaling $38 million.

According to a recent report by research and advisory firm Massolution, real estate crowdfunding has emerged as a viable alternative to traditional financing, growing by 56 percent in 2014 to more than $1 billion in funding volume, with campaigns ranging in size from less than $100,000 to over $25 million.

“It’s an enormous honor for Fundrise to be a part of the Fintech 50,” said Fundrise CEO Ben Miller. “The U.S. real estate industry is one of the largest sectors of the economy and, as such, is riddled with inefficiency. We’re slowly starting to see more and more tech companies jump into the space and begin to change things. From payments to funding to underwriting to the rental, residential and commercial markets, tech is attacking the conventional system from every angle. It’s an exciting time to be a part of the space and the whole Fundrise team can’t wait to see what happens next.”

The Forbes recognition comes about a week after Fundrise announced its latest project: The Fundrise Real Estate Investment Trust, or eREIT, an online real estate investment trust with an initial offering of $50 million pursuant to Regulation A+. The regulation provides exemptions from SEC registration requirements, allowing some companies to use equity crowdfunding to offer and sell their securities without having to register the securities with the SEC.

The Fundrise eREIT offering will prospective investors with the opportunity to invest in an intended portfolio of properties across the United States for a minimum of $100. The aim of the eREIT is to use new technology to give both accredited and unaccredited investors the option to invest in real estate.

“We’ve spent the past five years working to revolutionize how real estate investment works and believe our solution is a superior, more efficient alternative to traditional real estate funding models as well as a challenge to the high fees and volatility of the stock market,” Miller said.

Email Amy Swinderman.

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