To Build or to Buy Commercial Real Estate Software

To build or not to build, that is the question — well, it is in the tech world. For some pain points that we experience as commercial real estate professionals, it’s easy to see how technology can help; we’ve been using software to run prepay calculations, to create financial reports, etc. For others, it’s hard to imagine a tech solution because the technology simply doesn’t exist… yet. 

Just a few years ago, LoanBoss was just an idea floated around between a few interest rate professionals about how technology could be used to solve a lot of the problems that come with managing a debt portfolio by hand. Could we really take, what was at that point, an artisan approach and turn it into something streamlined and easy to manage?

There wasn’t a good debt management solution out there. We needed to build a platform that could centralize and automate all the data and processes around debt transactions and put them under a single umbrella. We thought we should be able to automate this. So we did.

You might be thinking the same thing. Here are a few lessons we learned along the way.

• Time — Building software takes time, and a lot of it. This is probably the number one thing people estimate. I can throw a pretty detailed loan cash flow model together in Excel in just a couple of hours, it can’t be that much harder to do it in software right? Right?! According to the Project Management Institute (PMI), 49% of software projects are delivered late. Software applications, especially those that codify CRE workflows, are incredibly complex products that take the combined expertise of multiple skilled people to get up and running. Problems arise that weren’t predicted, and decisions must be made on the fly that will have lasting impacts on future functionality.
• Cost — Building software is expensive. The cost to design, develop, and maintain software is much higher than most people would expect. Add the ongoing costs of the personnel needed to keep the project up and running once it’s finished, and more often than not, unless you have a very specific use case that can’t be addressed by existing solutions, it’s much cheaper to buy rather than build. If you choose to build, make sure to plan for unexpected problems and costs. Just like with a real estate transaction, things come up that you can’t predict, and you need to have those situations budgeted in. Sometimes, even with that expectation, it’s not enough. The PMI estimates that 43% of projects go over their initial budgets. Expect to be part of that group if you’ve never built an application before.
• Developer Resources — This might be the most challenging to overcome. The pandemic pushed many industries to adopt digital solutions faster than what they would have otherwise done, putting a massive demand on the job market for software developers. This made an already competitive market very difficult to navigate, resulting in a shortage of talent. Even if you plan and budget perfectly, finding the right talent to put that plan into action can be challenging. You need data analysts, data scientists, data engineers, as well as project managers, cloud architects, programmers, and more! All for ongoing maintenance and potential advancements; you'll need people to clean up any bugs and you'll need people to engineer new features. After it's built, you'll want to retain a good portion of that newly hired talent to help you maintain and continuously improve your new process. 
• Security — The last big area to navigate is security. Depending on what kind of data you plan on working with in your application, and who that data belongs to, security will become a big concern. Building your own application means taking on the risk of managing your own security measures to protect your data and infrastructure. Depending on your situation, this could be a pro or a con towards deciding to build your own app.

So is it better to build or to buy?

There’s no straight answer, it depends entirely on your situation. You need to carefully evaluate your needs and then decide if the cost to build is going to provide the value you need to justify the investment or if it makes more sense to buy an off-the-shelf product.

For some, it makes more sense to buy due to restrictions or simply because you don't want to go through with the DIY hassle.  

According to a Mckinsey study, most IT projects cost (on average) 45% more than budgeted, take 7% more time than scheduled, and ultimately under deliver by 56% to address the challenges that the project originally set out to solve. While most companies can withstand these unseen expenses, 17% of projects fail so badly they put the company's existence on the line; these are typically with projects that go well over budget. But other reasons the project might fail includes not having the necessary talent, support, or culture.