Blockchain in real estate has the potential to revolutionize the industry. Historically, real estate transactions could not occur using purely digital means. Overwhelmingly, real estate transactions take place face-to-face between buyers, sellers, and various intermediaries, but blockchain has the potential to change real estate investing as we know it.
An unknown person or group of persons named Satoshi Nakamoto invented blockchain in 2008. The technology is a digital database that computer network nodes share. The database stores information digitally.
A blockchain collects information into groups called "blocks" that hold the data. Once data fills the block, it is closed and linked to the previously used block. This information is recorded and distributed and is uneditable or immutable.
Since it is secure, blockchain works well as the foundation of ledgers with records that are permanently unable to be altered, deleted, or destroyed.
Here are four ways blockchain in real estate may unlock new potential.
When you invest in real estate, you have to engage with real estate agents, lawyers, and mortgage underwriters, each playing their part in the process. But, the emergence of blockchain in real estate may make those players obsolete.
Blockchain platforms can automatize each of their roles by handling real estate listings, legal documents, and payments. Reducing the role of 3rd party intermediaries means buyers and sellers saving money on intermediaries' fees, thus keeping cash in their pocket.
An added benefit of eliminating the need for 3rd parties is that the closing process will go much quicker. The presence of blockchain streamlines the transaction by removing the need for discussion between the middlemen, buyers, and sellers.
Blockchain in real estate saves money through:
Blockchain's status as a decentralized technology gives it trust and security. Everyone in the network has access to the information on the blockchain. That information is transparent and unchangeable.
The fact that the system is decentralized means creates trust within the system. The information is available to everyone on the network. Thus buyers and sellers are confident in their transactions. In addition, everyone having access to the data reduces the chance for fraud.
Transparency in the system cuts down on costs of conducting real estate transactions in other ways too. Blockchain in real estate can automate inspection costs, registration fees, loan fees, and taxes. As a result, those fees can be reduced or eliminated.
Blockchain enables novel ways of trading real estate via multiple platforms and marketplaces. For instance, Overstock's tZero sold a security token representing fractional ownership in a Coloradoan luxury resort.
In addition, tZero and real estate crowdfunding company NYCE joined together to tokenize $18 million worth of property. Tokenizing real estate makes it like a stock, where buyers purchase "shares" of the property.
Then, investors buy, sell, or exchange real estate assets in online markets similar to stock exchanges.
These platforms counter one of real estate investing's drawbacks, the lack of liquidity in real estate investments.
Real estate transactions typically take time for the sale to conclude, thus making them lack liquidity. Theoretically, blockchain in real estate makes the process faster because:
Tokenization, or fractional ownership, makes real estate investing flexible by reducing:
In general, real estate investments require a large amount of upfront capital to purchase the property. More expensive and larger purchases required multiple investors to pool their money.
With blockchain in real estate, investors only need access to a marketplace (usually via an app) to buy and sell the tokenized property.
Also, owners of tokenized real estate do not have to manage the property alone, which means the collective owners deal with maintenance and leasing issues.
It remains uncertain what significant impact the emergence of blockchain in real estate will have on investors. If we watch the finance industry, history tells us that change is imminent and may occur at a dizzying pace. For instance, last year, 13% of Americans invested in cryptocurrency and earned $4 billion.
Whether blockchain and cryptocurrency continue to grow at this meteoric pace, we can assume that the technology is here to stay. That is why it is more critical than ever to ensure that your assets are protected and that you are in a position to take advantage of the potential.
Finally, we recently held a Royal Investing Group Mentoring meeting on this very topic. Listen to the replay on our Royal Investing Wistia Channel.
We encourage readers to take a closer look at other articles we have posted on this topic, such as:
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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