Blockchain real estate tokenization is another use of blockchain technology that is swiftly changing how an industry works.
Customarily, to enter the real estate market you need to commit a large amount of capital over a long period.
Then, when you wish to cash in your investment you are confronted with a long drawn out process. This, plus the illiquidity of the market leaves investors open to price spikes. Especially, between deciding to sell and closing the contract.
Well, the tokenization of real estate, using blockchain technology is changing all of that.
What is blockchain real estate tokenization
To start, we need to define tokenization. For a simple explanation I shall quote a recent report by a group of Hong Kong based global companies. They state tokenization is ” the process of moving traditional non-digital securities to a digital form using blockchain technology.”
With real estate, the property’s value is converted to digital tokens. The tokens are then offered to prospective investors. Each token is a part share in the property.
One way for a seller to divide up the tokens is through square footage. With each token representing one square foot.
How to tokenize real estate
The seller can tokenize the property on a real estate tokenization platform.
On most platforms tokenization is a 5 step process
- Choose the properties you wish to digitize.
- Specify the all legalities.
- Determine the shareholder rights.
- Set up tech part including blockchain, KYC/AML, type of token and the marketplace.
- Last, create the tokens and put them up sale.
How to buy tokenized real estate
The process of buying tokenized real estate is not difficult
- To begin with, you need to set up an Ethereum wallet. You can find a list of 20 Ethereum approved wallets here on the Ethereum website.
- After that, you have to sign up to a real estate token platform, where you can send funds in the currency required. I myself have invested in fractional ownership on Realt.
- Next, you browse the available properties to choose which is suitable for you. Don’t forget to DYOR on the property. Earlier this week I bought some shares in a property in Florida. I copied the address and the property was listed. One site showed statistics such as crime, possibility of flooding, etc. On a side note the price on RealT was $4000 dollars cheaper.
- Then, when you have done the appropriate research you buy the amount of tokens you wish to invest.
- Finally, you need to transfer your tokens to your Ethereum wallet.
- You are now on your way to being a mini real estate tycoon.
Benefits of blockchain Real Estate tokenization
Up until now, investors in fractional ownership of a property has been limited to a percentage stake in a real estate portfolio. The investor usually does this through Real Estate Investment Trusts.
Then investors hold on to the investment for years to see dividends, in an illiquid market.
However, blockchain real estate tokenization is changing the whole dynamics of the market.
To begin with, the inherent qualities of blockchain make it ideal for real estate.
The first is security, that is almost impossible to crack. Once the two parties agree the contract the transaction is recorded on a distributed ledger. After that, the ledger cannot be altered in any way.
Next, blockchain technology allows super-fast transactions that are inexpensive. Instead of going through a lot of intermediaries, contracts are between seller and buyer.
Furthermore, digitization allows for automation. This cuts out a lot of expensive time wasting, such as brokers, escrow, compliance, document verification, etc. Once the parties close the contract, payment is almost instantaneous.
As well as the above, tokenizing real estate assets allows for fractional ownership. Small investors therefore have the chance to enter the market because of the lower threshold to entry.
With tokenization comes fractional ownership. This is probably the biggest advantage to the market.
Among the advantages that fractional ownership brings are the opening up to a larger pool of investors because of the lower threshold of entry.
Another is the global participation that gives sellers a larger pool of potential investors.
On top of this, liquidity is added to the real estate market through secondary trading. This is where fractional investors sell their tokens. Liquid assets are usually at a premium in markets. So, the secondary trading to fractional ownership should add to the underlying value of the property.
Although these are early days of blockchain real estate tokenization, there is huge potential in this market.
The list of advantages to tokenization of property is large. These include liquidity, automation, security, transparency and fractional ownership.
Why not start your journey to becoming a mini real estate tycoon.
Do some research and take the plunge.
N.B. Tokenization is not only for real estate. There are many industries where tokenization is occurring. You can check out article on how tokenization is changing the art world here.