Real estate investment can be an intimidating field to get into. Crowdfunded real estate investments are even more daunting for some investors as they promise higher potential returns but carry more risk. Artificial intelligence (AI) can make this market more comfortable for many.
The broader finance industry is no stranger to AI — 99% of financial services organizations already use it to some extent. Applying it to real estate crowdfunding investments could significantly improve several key areas.
Automating Market Research
Automating market research is one of the most promising applications of AI in real estate crowdfunding. Finding an ideal investment opportunity can be challenging, especially in a market as large as commercial real estate. AI can analyze and compare hundreds, if not thousands, of available properties in minimal time to highlight promising opportunities.
Manual market research is slow and prone to error. Humans are likely to confuse factors or miss crucial details when dealing with massive, repetitive datasets. That’s not ideal for high-risk investments like crowdfunded real estate. By contrast, AI delivers the same accuracy every time and is substantially faster.
AI may also provide more accurate property valuations, largely by removing human bias. One study found that biases result in median home values in Black neighborhoods being 55% lower on average than in white tracts. Training AI models to rely less heavily on prejudiced historical data and consider more factors could reverse this trend to make a fairer market.
Improving Risk Assessment Accuracy
AI could more accurately assess investment risks. These assessments are crucial in any type of investment, but are particularly important in high-risk categories like real estate crowdfunding.
Machine learning models can predict a property’s potential risks in the same way they can highlight the potential for profitability. That includes automating due diligence, like reviewing property inspections and other legal documents. Some AI platforms claim they can perform this verification in roughly 60 seconds — a far cry from the several days it typically takes.
In addition to being faster than manual risk assessments, AI verification is more reliable. AI algorithms are less likely to miss key data points and can catch historical trends that may be too subtle for humans to notice.
Personalizing Investment Recommendations
AI won’t just perform this research and assessment to provide general insights. One of its most promising advantages is that it can tailor investment recommendations to individual investors. This personalization makes real estate crowdfunding more accessible and equitable for a greater variety of investing goals.
A crowdfunding opportunity ideal for one investor may not be for another. Different investors can handle varying levels of risk and likely have separate views on what a good return timeline looks like. Machine learning can identify these unique characteristics to tailor recommendations the same way platforms like Netflix and YouTube personalize content suggestions.
Personalized investment advice does exist apart from AI, but it’s expensive and time-consuming. That’s not ideal for new investors or in cases like a 1031 exchange, where people have just 45 days to select properties to swap for their current investment. AI can adapt to unique needs in seconds and doesn’t require paying for human experts’ time.
Securing Investments and Fighting Fraud
AI also has several behind-the-scenes applications in real estate crowdfunding investments. Cybersecurity and anti-fraud measures are among the most important of these use cases.
Fraud prevention is a leading driver of AI adoption in banks, as AI can detect fraudulent activity faster than conventional methods, thanks to its pattern recognition. The same feature can flag potential investment fraud by monitoring transactions on both the investor’s and the property seller’s sides.
Similarly, AI security tools can keep investors’ money safe during and after the initial transaction. Real-time monitoring can catch and contain potential breaches before they affect data like the bank information or names of all involved in a crowdfunding investment. AI also makes it easier to spot phishing or ransomware attempts that may jeopardize a crowdfunding platform’s security.
Expanding the Real Estate Crowdfunding Market
These AI-driven improvements make the overall real estate crowdfunding market more accessible. Additional investors can comfortably profit from it as it becomes more secure and personalized.
Crowdfunding already democratizes real estate investments to an extent. It lowers the upfront costs of investing in a property by splitting it between investors, but its relatively high risks and requirement for extensive due diligence may keep people away. AI offers more accurate risk assessments and can tailor investment advice, so it assuages those concerns.
Lowering the bar for entry makes real estate crowdfunding safer for lower-income investors who stand to gain more from the lower upfront payments. In that way, AI is essential for investment crowdfunding to meet its ultimate goal. More people will be able to capitalize on this $10.7 billion market and diversify their portfolios for stronger long-term performance.
AI Can Supercharge Real Estate Crowdfunding
Crowdfunding promises to make real estate investment a more democratic and accessible field, but conventional methods are too risky and complex to meet those aspirations. AI offers the necessary change.
While AI in this field is still relatively new, it’s already seeing impressive adoption. As more real estate crowdfunding platforms embrace this technology, it could reshape the industry for the better.
