Gimme a Brick · Apr 27, 2022 · 5 min read
Have you ever thought about investing in real estate but weren’t sure how to start? Have you ever wanted to invest in a property but could not afford to do so? You have probably heard people say that real estate is one of the best investments you could make. One reason why is because real estate investors make money through things like rental income, appreciation, and profits from business activities involving the property. Even though all of that sounds ideal, you can imagine why it might be an impossible venture for most. Fortunately, we now have the option of tokenization and it has become a real game changer for the real estate industry and for those who want to invest.
Traditionally, investing in real estate is a very complicated and expensive endeavour. Traditional real estate is an incredibly illiquid and nontransparent market because of high investment costs, inefficient processes, expensive middlemen and unpredictable market conditions. These days, however, we are in the midst of a digital revolution. Technology has taken over everything and seems to have no limit as to what it can influence and improve. What makes things even more exciting is how the digital sphere is transforming the real estate industry. No longer is real estate investment only for the elite or only open to an exclusive group from a certain class. Technology has opened up the doors for investment to all types of people from all around the world… as long as you have access to the internet, that is.
Low entry barriers encourage more people to invest
Although traditional real estate investing boasts passive income, stable cash flow, diversification, and leverage, tokenization takes it a step further with advantages like reduced market barriers, increased liquidity, improved transparency and quick, efficient transactions. Before we dive into more benefits of tokenization, it might be helpful to first understand how tokenization and the technology behind it works. Real estate tokenization is only possible with the use of blockchain. If you are unfamiliar with how blockchain works, go ahead and click here for a quick brush up!
The first major reason to consider real estate tokenization is fractionalized property. I will only touch upon this subject briefly since we have an article all about it right here. Fractionalized property is when the overall cost of a property is split up among a group of people. This process breaks down the investment into smaller, more affordable chunks, reducing the financial burden typically placed on an individual investor. Low entry barriers encourage more people to invest because of decreased costs and increased accessibility.
The second reason to consider tokenization as a way to invest in real estate is for the higher liquidity. In traditional real estate investment, there is a requirement to lock in capital for an extended period and typically, various parties are involved in the legal transfer of assets. With tokenization, digital tokens can be securely and effortlessly transferred on a blockchain network. Tokenization increases liquidity by making trading faster and easier. Because blockchain technology automates processes and cuts out middlemen, tokenization is also cheaper and more efficient.
This benefit actually brings us to our third major reason for why tokenization is the way forward: efficiency! Traditional real estate investing involves lots of people, steps, money and time. Tokenization significantly simplifies the process of buying and selling properties. Through the use of blockchain technology, tokenization doesn’t deal with any middlemen (or “middle-humans” if you will) and allows ownership to be transferred directly from investor to investor. Furthermore, smart contracts (more on those later) used within the blockchain system drive down fees and costs.
Blockchain helps to improve the overall transparency and security in the real estate market
The fourth reason why tokenization should be considered is because of transparency & security. By using blockchain, there is a system of recording data that makes it difficult to change or cheat the network. It makes the data available to everyone at any time so that all transactions are transparent. Because blockchains operate like public ledgers, the system records every transaction involving the token and helps mitigate the issue with undeniable proof of ownership. Blockchain helps to improve the overall transparency and security in the real estate market unlike traditional real estate where it is more difficult to obtain records of every transaction.
The final major reason why you should consider tokenization is because of decentralization. In blockchain, decentralization refers to the transfer of control and decision-making from a centralized entity, which could be an individual, organization, or group, to a distributed network. DeFi or “decentralized finance” is a system of using blockchains and cryptocurrencies to allow bank-like functions without involving intermediaries. DeFi uses automated workflows to make financial decisions and there isn’t any one person or entity at the head or in charge. Instead, smart contracts run the system and allow for the tokenization of assets. Compared to traditional, centralized banking systems, DeFi helps to increase efficiency, flexibility and transparency for property owners, managers, and residents.
With all things considered, we suspect that real estate tokenization will only continue to gain traction and popularity. Although it is still a relatively new concept that not many have engaged with yet, some believe it will be the new normal one day. At one point in time, the world couldn’t fathom the idea of the internet and how it was even possible. Some even called it a fad. Fast forward to today and we can’t seem to do anything without it! Blockchain, cryptocurrency, NFTs and real estate tokenization might seem like very abstract concepts right now but we predict that these terms will soon be commonly understood and used. We believe they are the future for business and finance. Don’t get left behind as the world is transitioning into this exciting new digital world! Follow us to learn more and keep updated.
Author: Lorraine Tashjian