The real estate industry traces its roots back to the late-19th century, but it has been largely unchanged for centuries. In recent years, the industry has seen tremendous innovation due to digital content and social media.
Now, the next big wave is on the way with the blockchain revolution. Tokenization of real estate, also known as tokenized property ownership, is a new version of a traditional fractionalized property ownership. This solution helps asset or fund owners raise capital more efficiently and gives investors unprecedented access to private real estate investments, transparency, and liquidity.
This solution combines the financial advantages of owning real estate – one of the best ways to hold and grow wealth – with the incredible transactional advantages of blockchain technology.
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What Does It Mean to Tokenize Real Estate?
Tokenization of real estate is converting the physical asset, such as real estate, into digital tokens. When buyers purchase the tokens, they have equity in the asset.
The contractual details of this purchase are defined by smart contracts, or transactional protocols stored on a blockchain that run when the predetermined conditions are met. Smart contracts automatically execute, control, or document legally relevant events and actions according to the terms of the agreement.
For example, a transaction or transfer in the land register can be carried out without human intervention.
Tokenizing real estate works similar to the crowdfunding process, which partitions an asset into small fractions among many parties. Anyone who purchases or owns a token then owns a portion of the real estate, as well as the associated profits and losses.
For example, if you wanted to tokenize a 100,000 square-foot property that’s worth $30 million dollars, the simple approach is to divide the property into shares and offer one share per square foot. So, you would divide the property into 100,000 shares, each representing one square foot of the property with a value of $300.
If you want smaller shares, you could divide the property into square inches, which then makes each token worth $2.08. You may choose this option to make the project more accessible to a range of investors. You could also limit the share offering to a certain percentage of the asset, such as 20%, to retain majority ownership while raising funds for renovations.
This transaction takes place over a decentralized network, ensuring complete transparency for all parties involved.
What Are the Benefits of Tokenization of Real Estate?
There are numerous benefits to tokenization of real estate, including:
Affordability
Tokenizing real estate increases the accessibility of the asset class. Like the example, the tokens can be broken down as needed to make it less cost-prohibitive for a wider range of investors.
Historically, there have been significant barriers that leave real estate investments out of reach for the majority of investors. Often, real estate investments are considered an option for the elite. Real estate tokenization removes these limitations while offering similar advantages to all parties.
Liquidity
In traditional real estate, selling a piece of real estate is challenging and involves a lot of time and resources. Before digital real estate ownership emerged, the liquidity problem impacted the real estate market and caused headaches for investors. Some investors were discouraged from this highly lucrative investment option because of the lack of liquidity.
Tokenization is a solution to liquidity. When real estate is fractionalized through tokenization, it’s liquid. Owners of tokenized shares can sell their tokens quickly for funds, rather than trying to sell the whole property and taking months – or even years – to get their return.
Transparency
With the decentralized structure of blockchains, transactions are immutable and transparent. They’re ideal for real estate, which has a string of stakeholders and complex procedures. Automated smart contracts eliminate any human error or role in conducting transactions, so the entire process is more equitable.
Efficiency
In a blockchain-based system, there isn’t a wait time or a mountain of paperwork before transactions are completed. The transactions are more efficient than the traditional banking system, and there are no specific hours of operation for transactions. The system works 24/7, all with transparency.
Passive Income
One of the limitations of traditional real estate investments is that you not only have to purchase the property, but you have to maintain and manage it. You may need to find tenants or maintenance staff and collect rent, only to walk away with 30% of the property.
Tokenized ownership allows investors to gain the same advantages of a real estate investment without the property management or maintenance aspects, providing passive income.
Looking for Investors for your Real Estate Project?
Crowdcreate can help! We’ve worked with some of the largest companies in the real estate industry to raise investor funds and increase sales.
Top Real Estate Projects That Include Tokenization Features
Wondering about the best real estate tokenization platforms?
- Blocksquare
- RealT
- DigiShares
- ArrivedHomes
- SolidBlock
- HoneyBricks
Blocksquare offers solutions and APIs to digitize the value of real estate properties, launch investment platforms, and connect people to tokenized real estate deals online. With its real estate tokenization protocol entrepreneurs, you can digitize real estate assets for a fraction of the cost – conversions can be broken down into as many as 100,000 tokens.
RealT has been in the industry for a while and has built a successful track record of investment opportunities. Most of the properties on RealT sell out quickly, and they have a large and experienced team to manage all aspects of the tokenization process.
DigiShares are for people that want to tokenize real estate, company equity, or physical assets. This service is more for people with physical assets or real estate to tokenize; you can invest in any property on this platform.
ArrivedHomes is an investment platform that allows users to invest directly in
available properties in exchange for tokens and rental payments. This is a newer platform for the real estate tokenization space, but it offers a unique proposition in the market.
SolidBlock is a platform with tools that unlock the value of an asset’s liquidity and administer the records for the transactions on the blockchain. The real estate tokenization acts as a bridge to the decentralized financial ecosystem and the web3 blockchain economy. In 2022, SolidBlock became the first platform in US history to offer NFTs as a program to boost revenue and occupancy rates with an NFT marketing system for hotels and resorts.
HoneyBricks is a platform that uses security tokens to enable fractional ownership and offers unrivaled levels of real estate investing accessibility and capital efficiency. Each HoneyBricks real estate token represents real ownership in physical real estate that generates passive income and growth.
Frequently Asked Questions About Real Estate Tokenization
Still have questions? We’ve got answers!
How can real estate investors benefit from tokenization?
The primary benefits for investors in real estate tokenization include increased transferability and liquidity on private investments, a streamlined process for analyzing performances, and increased investment opportunities with online access.
How can property owners and fund managers benefit from tokenization?
These parties can improve investor and data management through digital reporting, optimize transactions, and create liquidity by collateralizing digital assets.
Are real estate investments done in cash or cryptocurrency?
Both! Some platforms are cash-based, but others may offer opportunities with cash or crypto. The underlying blockchain technology may be shared with cryptocurrency, but the digital assets are independent of the network and prices governing cryptocurrencies.
Who can invest in tokenized real estate?
The beauty of tokenization is that virtually anyone can become a real estate token investor if their budget allows. There are numerous platforms that support real estate tokenization and investment opportunities, and the whole process is transparent and compliant.
What are the costs associated with tokenization?
The cost of tokenization varies by the asset size and requirements. It’s still a small relative cost to the fees associated with a traditional real estate investment, however.
Looking for Investors for your Real Estate Project?
Crowdcreate can help! We’ve worked with some of the largest companies in the real estate industry to raise investor funds and increase sales.
Advantages of Tokenization of Real Estate
Tokenization of Real Estate Is the Future of the Market
The tokenization of real estate assets is a significant disruptor in the traditional real estate industry. Eliminating the time, paperwork, and expenses involved in selling or investing in real estate, tokenization creates more efficiency and opens this formerly elite market to a wider range of investors.
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