Not long ago, my partner and I were standing outside our soon-to-be home. Oh yeah, and there were about 20 other people there too. We were at an auction.
Beforehand, we had agreed we were ready to buy the apartment. It stood out from every other place we had seen before. It was close to public transport, schools, a shopping centre, and not too far from the city. A nice bonus was that the inside was completely renovated.
The bidding started at $280,000. But many potential buyers dropped out. It quickly became obvious the bidding war would be between us and another woman. The price went up to $309,000, with no more bids.
The woman started bidding in lots of $500. I remember thinking, ‘Are you kidding me?’ We followed her up all the way to $320,000. Once she started bidding in lots of $250, the real estate agent no longer took her seriously.
Going once, twice …three times — and the place was ours!
But the story of how we bought our first home — and what we can do with it as owners — is set to change. In fact, it already is changing…fast.
I’m talking about the technological changes happening around you every day. And none is more disruptive to the property market than the peer-to-peer (P2P) business model.
P2P financing, buying, selling and renting
Four months on, my partner and I are considering ‘rentvesting’.
If you’ve never heard of it, rentvesting refers to renting out your primary place of living while you live and rent somewhere else. The idea is that you can rent out your home for more than it would cost you to rent yourself.
And the P2P business model is making rentvesting much easier for homeowners. I’m sure you’ve heard of Airbnb before. It’s an alternative for people who want to find cheap accommodation.
Airbnb is redefining the way we seek accommodation. And it’s extremely successful at what it does.
According to HVS Consulting & Valuation, Airbnb dinted New York City hotel revenues by US$450 million from 2014 to 2015. And that’s just in one city!
The creators of Airbnb and other P2P businesses likely had no idea how big they would become. But as long as Airbnb is cheaper than the alternatives, it will likely flourish in the future.
When it comes to your home, the P2P business model already caters to more than just renting out a room. It could completely change the way we buy homes in the future.
Instead of getting a loan from the bank, people may opt for P2P lenders instead. Borrowing regulations could become tighter in the future. But with P2P lenders, first home buyers will have a sea of alternative lenders to choose from — the public.
P2P companies like SocietyOne and Marketlend already match people who need loans with those who have surplus capital. I believe only more P2P lenders will come on to the scene over the next few years.
Once finances are sorted, homebuyers can then buy a home direct from the seller.
Companies like Purplebricks Group [LON:PURP] and Buymyplace.com.au Ltd [ASX:BMP] already allow you to bypass real estate agents. For a flat fee of $4,500 (PURP) and $695 (BMP) respectively, homeowners can sell their home. But, in saying that, you won’t be left all by yourself, either.
Both companies will still help you list your property on the web and forward all online queries to your inbox. For the more expensive services, both will also provide professional negotiations and conduct open inspections.
But their most expensive packages — $5,325 (PURP) and $1,795 (BMP) — beat a real estate agent’s commission. While a real estate agent handles everything for you, their fees can add up to $10,000 or $15,000 for a $500,000 house.
Now, let’s say you want to rent your property out. Well, I already mentioned Airbnb as an option. But there are already many more P2P businesses trying to move in on Airbnb’s turf.
The P2P revolution doesn’t stop here. Thanks to home battery storage, you could soon be buying electricity from your neighbour…or selling it back to them.
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Perth start-up, Power Ledger, is introducing another P2P market into our homes. Instead of buying electricity from the grid, Power Ledger is an early pioneer in P2P electricity.
In short, Power Ledger has made energy a commodity for homeowners, not just utility suppliers.
According to the Australian Financial Review, homeowners can ‘…sell surplus power at a higher rate than they can sell it to the grid, peer-to-peer energy trading offers extra backup to the power grid as intermittent wind and solar energy expand at the expense of reliable but dirty coal generation.’
P2P energy could eventually challenge big retailers like AGL Energy [ASX:AGL] and Origin Energy [ASX:ORG].
In 2013, the P2P economy was only US$15 billion in size. But according to PriceWaterhouseCoopers, the market could reach US$335 billion by 2025. Only nine years away, and this market may be 2,133% bigger!
I believe we are still a few years from seeing P2P disrupting the energy market. But when it comes to real estate, P2P businesses are already stealing market share from banks and agents.
Companies like Airbnb have done a great job of getting homeowners familiar with the P2P platforms. In five to 10 years, the traditional job of a real estate agent could be completely phased out. It might be hard to envision now, but it’s a real possibility as P2P platforms are widely adopted.
Contributing Editor, The Daily Reckoning
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