Real estate investing is generally more risky, capital-intensive, and heavily regulated than other asset classes. Yet, the everyday investor is missing out on a source of returns due to these obstacles. Farshad Yousefi and Masoud Jalali are democratizing the real estate asset class for the everyday investor through Fintor. Fintor is “a platform to buy and sell fractional shares in real estate.” The San Francisco-based startup has raised $2.5m from investors.
Frederick Daso: We both know that high real estate prices keep younger generations out of the real estate market. How does the illiquidity of real estate investments and the complex legal process act as barriers for Millennials and Gen-Zs to invest in them?
Farshad Yousefi: The younger generation is used to a dynamic and fast-paced lifestyle. Given how quickly life conditions can change today, the illiquidity of real estate makes the younger generation hesitant to invest. They don’t want their investments to be locked up for a long period.
Buying an investment property is daunting. You deal with many stakeholders (agents, attorneys, inspectors, title checks, escrow, lenders, etc.), and it’s a very complex legal process. Our target users feel that they can’t easily move forward with any real estate investment without extensive research about their decision. And rightfully so. It’s a large sum of money.
The same process needs to happen when they sell a property too. In many cases, the barrier to adoption is mental and emotional obstacles. We have to shift the mindset. Real estate investing needs to be straightforward and transparent to all parties. We created Fintor so users can buy fractional shares of real estate properties with a few taps in a mobile app for as little as $5. We give them all the relevant information needed to make an investment decision and evaluate properties against one another.
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Daso: What has driven your choice to target your initial beachhead market covering the top cities throughout the United States?
Yousefi: My cofounder and I both have encountered the problem with investing in real estate. We’re both Iranian-American immigrants and have seen how much this country offers in benefits in all sorts of categories. Unfortunately, access to real estate has been something that has traditionally not been available to everyone. We understand the pain point given that we are in the age group of our beachhead market.
Through extensive market research, we also noticed that Millennials and Gen Zers are frustrated with not accessing the largest asset class. Like how they can invest in stocks and crypto in their early 20s, they want to do the same with real estate. Our mission is to democratize real estate investing for all. We want the next generation to access real estate investing without all sorts of barriers to entry.
We decided to provide access to invest in up-and-coming cities in the United States and top neighborhoods with strong investment performance. Most of our users have limited options to invest in real estate in their own regions, and they do not have any practical way to find, invest, and manage properties in high-growth neighborhoods.
Think about it. You might live in San Francisco or New York but be unable to afford anything nearby. We are automating this whole process for our target audience to invest in real estate across the most attractive cities.
Daso: How is a fractional share of real estate defined for investment investors?
Yousefi: When we purchase a house, we divide it into 10,000-20,000 shares, and we let our potential users invest as few as one share. This enables users to not have to be locked into investing in one home, but they could diversify their capital across multiple properties without risking large upfront capital. Traditionally, real estate investors needed hundreds of thousands of dollars to get started, which automatically closes the door for 95% of Americans who don’t have that capital. We believe real estate investors should have the option to start investing with low capital requirements and no lock-up periods.
Think of how the stock market works. Companies have outstanding shares that they let users buy. We are creating a similar process so that our users can start investing in this new category that was traditionally not available to them. If you have $50 today, you have no access to real estate. With Fintor, you could own and hold shares in a half dozen properties with that same amount of money.
Daso: How are conflicts resolved between fractional shareowners on Fintor?
Yousefi: On Fintor, our users are shareholders of the property they invest in. We take the responsibility of managing and deciding an exit strategy for the homes. Typically we want to keep the properties for about five years or a clear exit opportunity. Our users do not get in conflict with each other, given that they are shareholders of the properties and not tenants or owners, even though they do get all the benefits of being an owner.
Daso: What steps have you taken to make this new financial instrument available to retail investors in an easy, accessible manner?
Yousefi: We created tradable securities for real estate properties, making the process faster and easier for everyone involved. We had to build extensive legal and technological infrastructure to make this new category of investment vehicles for retail investors. Our partner is an SEC-approved broker-dealer, which enables us to issue and offer securities. We are building the technology needed to meet strict compliance standards while providing a great experience to users who can learn about the properties and invest in those that meet their criteria.
Daso: How will you recognize when it’s time to shift from prioritizing building trust with users and perfecting the product to growing revenues?
Yousefi: Our mission is to democratize access to real estate investing for all. That means the focus is on gaining the trust of our users. At an early-stage startup, there is never a time where you can shift your focus from product to user. We always have to consider both – in other words; we only build products that help our users get closer to their goals. We are proud to have many revenue opportunities that do not detract from the user experience. As a company, we vow to improve our product daily to get closer to what users are asking for.
Daso: What is the greatest strength between you and your cofounder Masoud?
Yousefi: As founders, you need to have a close bond, or else the relationship will end in a disaster. You are pretty much married to your cofounder, and you both have to be comfortable pushing each other every single day. Masoud and I have a lot of trust in one another. If I had to pick one strength, it’s that we are both relentless. Both of us are immigrants. We’ve worked hard for everything we have in our lives. We understand that nothing is handed to you.
When we started to work together, we told each other that we would make a big impact. Yes, we argue and disagree, but it’s healthy. It’s always focused on being productive. We promise each other to be relentless in everything that we do. We understand that as founders, we have no career plan; we’re doing this to make an impact. This is something bigger than us. It’s really to turn Fintor into a generational company that will positively change the financial lives of the next generation.