How Real Estate Tech & Proptech Can Expand Geographically

As a real estate tech or proptech founder, one way to grow your business is to break into new geographic markets. Whether your business facilitates home sales (real estate tech) or the management of large housing portfolios (proptech), you may be able to team up with established industry players to expand into new areas.

Benefits of geographic expansion

Geographic expansion can help diversify your business, protecting it from downturns in any single market. For example, operating across California and Texas leaves you less exposed to market fluctuations in either. If home sales start falling in one, you can shift more business to the other (recently, many Californians have moved to Texas).

Similarly, geographic dispersion can bring potential cost benefits. If you started your business in a high-cost area where labor is relatively expensive (e.g. New York or Miami), entering a lower-cost region with lower expected salaries (e.g. the Midwest) can widen your profit margins.

Finally, operating across geographic markets shows that your product is based on more than local relationships. It’s based on real value. This is more likely to attract the interest of those seeking to invest in scalable businesses.

Breaking into new geographic markets via M&A

One way to expand your geographic reach is to get acquired by a big industry player. For example, many established proptech companies will expand internationally by buying a dominant regional player with local know-how because it’s more efficient than competing their way in.

This is what happened when U.S.-based CoStar—owner of LoopNet, Homes.com, and twelve other proptech brands—recently acquired OnTheMarket, the second most-visited property portal in the U.K.

"We believe the acquisition of OnTheMarket represents an attractive and efficient entry point into the £8 trillion United Kingdom residential property market," Andy Florance, founder and CEO of CoStar, said in the announcement.

Proptech businesses seeking M&A opportunities may want to follow suit by becoming a dominant regional player.

Leveraging relationships to expand nationally

Another way to move into new geographies is to leverage business relationships. This is especially true in real estate tech, which mainly services home brokerages and mortgage bankers.

Typically, a real estate tech vendor will start by selling its software to regional offices. From there, geographic expansion usually occurs in one of two ways: Either the vendor sells to a regional office of a national brand (e.g. Sotheby or Wells Fargo), which then chooses to roll out the software to its other offices because it’s performed well, or the vendor hires seasoned salespeople with existing relationships with top brands to win their business that way.

Expanding with a unique point solution

Sometimes, proptech or real estate tech companies have a point solution or software module that is truly differentiated. In this case, investing in traditional marketing and sales may help you reach a national or even international presence. This could then create more opportunities to upsell your other products.

For example, home tour scheduling software ShowingTime started in Chicago in 1999 and has since sold its products and services to over 1 million agents across the U.S. and Canada, according to its website. More recently, the company was acquired by top U.S. property portal Zillow.

Challenges of breaking into new real estate markets

Of course, expanding into new geographic markets isn’t always easy. When seeking M&A opportunities, for example, you must demonstrate that your product is scalable. If your business is predicated mostly on local business relationships, that may deter potential investors.

Differences in local real estate regulations can also impede geographic expansion. If your product is built for a particular market’s rules, it may not be compatible with others.

Similarly, your product may be purpose-built for a specific market dynamic, e.g. where homes tend to sell in a certain price range or number of days. If you try to expand to a metro with different housing dynamics, you may face a product mismatch. Furthermore, entering a market with higher labor costs could squeeze your profit margins.

What to consider when seeking M&A opportunities in real estate

If expansion into new geographic markets without M&A is in sight, you may want to wait to seek investment. If that’s not possible, focus on good business hygiene and improving your core SaaS KPIs. Running a profitable business is one of the best ways to attract investor interest.

Another way is to wait until your business is on the upswing. For instance, consider selling individual software modules instead of your whole platform, which may create upsell potential. This provides an attractive story to tell investors—that you can turn your existing book of business into a bigger one in the near future.

Finally, consider selling into a declining interest rate environment. As mortgage rates fall, demand for housing—and proptech and real estate tech by extension—tends to rise. This could help make your business more attractive to potential investors. As of 9 May 2024, the average 30-year fixed-rate mortgage fell from 7.22% to 7.09%.

Most importantly, geographic expansion requires performing well across key investment metrics, such as revenue, profit, and customer retention. Once your business is progressing along these measures, opportunities to expand your reach via M&A may be more likely to present themselves.

This material and the opinions contained herein are for general information only and are not intended to provide specific advice or recommendations for any individual or entity.

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