Guide Inside the Mind of Blockchain Real Estate: A Definitive Guide
Amidst disruption of the blockchain of financial services, as well as the extensive application all over industries. It is a bit complex to look for a segment that has not been touched by the technology. Cryptocurrencies have given a solid impact in terms of foreign exchange, remittances, and more importantly, payments. Initial Coin Offerings (“ICO”) have challenged stock investing, onset loans, and venture capital. And mind you, even the food industry has been touched by blockchain.
Blockchain is regarded as an ingenious and ground-breaking technology that is formed to change several different industries like real estate. It is recognized as a digitalized ledger that can decentralize access and enhances trust by being a sole unalterable source of information and truth. Often regarded wrongly as cryptocurrency, like bitcoin, blockchain possesses the capability to upend the real estate industry in a series of ways.
It is a known fact that real estate has been the sure-fire investment eyeing to build and look for a generation of good wealth for the long-term. We will help you steer this real estate class and supply you with an overview of blockchain in real estate, the use cases when purchasing, and financing real estate property, and whether an investor should eye in utilizing real estate tokenization.
Blockchain in real estate. Blockchain is always confused with cryptocurrencies such as bitcoin. In simpler terms, bitcoin is a cryptocurrency that uses blockchain as its technology to function. Blockchain gives the tracking of records and transactions all over the distributed network of computers. Blockchain enhances trust as it acts as a solid ledger that is distributed across a variety of computers that is not editable and unalterable and easy access to all parties. We have listed the specific process on how the same works:
- Request for a transaction record.
- Said request is broadcast to a node or a network of computers.
- With the use of algorithms, the nodes will take care of the request.
- The request, which can be a record, legal contract, or any type of currency and information is verified by the nodes.
- As soon as it is verified, the ledger is updated with a new block of data.
- This block of data is incorporated into the blockchain and is considered unalterable.
As you will notice, this method has several real estate applications like financing, legal contracts, buying and selling of a property, and the like. Blockchain can incorporate an added trust level in a real estate business process such as transactions, negotiations, and leasing. The utilization of technology and algorithms to legacy real estate processes will lessen a significant amount of speed and friction up the processes of selling, buying, leasing, and financing this class of asset.
Blockchain had made a mark on real estate and its disruption. Before, transacting with high-value assets like real estate exclusively through digital channels has not been the tradition. Real estate transactions involve engagements in person with several parties. The emergence of smart contracts in blockchain platforms now gives assets like real estate to be tokenized like bitcoin and eth.
Blockchain can “tokenize” real estate. You have to think of tokens as a store of value. In a commercial or residential real estate blockchain, tokens signify and embody an ownership stake in several classes like debt, equity, or cash flow. For instance, a 100-unit multifamily apartment is owned by say fifty (50) different investors contained on a blockchain, each of those investors could own a token to reflect their ownership in the asset equity.
In this case, the real estate blockchain platform is utilized to record, verify, and store these ownership tokens. The said tokens can be easily traded, liquidated, and sold. The true value of blockchain is not just efficiency and trust, but more importantly, liquidity.
The real estate industry is naturally an illiquid type of asset as the sale of the same is process-heavy, tedious, and long. If real estate tokenization is given using a blockchain, it becomes a lot easier to purchase or sell and trade your investment in any real estate asses with the use of a blockchain as a platform by which the transaction manifests and is verified. It also gives more freedom for real estate investing.
Again, that very same one hundred (100) unit apartment building stated above is worth twenty (20) million dollars. Instead of REIT or accredited or wealthy investors buying this, a lead investor purchases through a blockchain transaction. The lead investor divides the cost into twenty (20) million shares or tokens. These tokens can be sold to main real estate investors for a dollar each. This will give the lead investor access to a wide array of prospective clients and thereby creating a marketplace to buy and sell tokens of this specific asset.
At this point, real estate tokenization is presently emerging. One good example is the Saint Regis Aspen Resort, which utilized “Aspen Coin” tokens to garner eighteen (18) million dollars.
Blockchain technology is altering the real estate realm. This type of platform technology can be applied to several aspects of the real estate business. We have listed some of the aspects so that everyone will have an idea:
- Smart Contract. Project Manager of JLL, United Kingdom Nick Clare, states that blockchain can audit, authenticate and draft contracts in real-time, all over the globe and without intervention from any individuals or the so-called middle-man, have instructions emanated in the transactions for the payment to be taken as long as instructions are fulfilled. Thereby supplying transparency to all parties and lessening the probability of disputes in payment. Smart real estate contracts give blockchain freedom that will not only speed up the leasing process and save a significant amount of money on costs but can also enhance due diligence. Blockchain would have the capability to verify identities and incomes and eradicate the probability of fraud.
- Intermediaries are eradicated in the picture. Lawyers, real estate brokers, and banks have long been part of the real estate ecosystem. But blockchain may surely shift in different participation and tasking in a transaction. Novel platforms can assume functions like payments, listings, and documentation about legal matters. Taking the intermediaries out of the picture will result in the main parties getting their much-deserved money as they save on fees, charges, and commissions by these so-called intermediaries. This will also streamline the process faster as the thread between these intermediaries gets cut out.
- Marketplaces and platforms. Real estate technology has originally focused on listing as well as linking both parties. But, blockchain gives novel methods to trade real estate. They have the power to enable trading platforms and internet marketplaces to aid real estate transactions in their entirety. Some real estate companies have developed a platform that utilizes blockchain technology to facilitate rental property and real estate transactions. By tokenizing a real property, assets can be traded akin to stocks and all transactions can be performed online. These firms give freedom for the sellers to tokenize their assets, fundamentally handling them like a stock sale, and liquidating such assets with a token sale with the use of the platform. The garnered tokens can be traded for fiat currency, with purchasers owning a percentage of such property.
- Transactions. The comprehensive real estate transaction process can be executed on the blockchain. The submission of an offer, verification, and acceptance of such an offer, the process of due diligence, financing scheme, and closing can all be codified inside a digital ledger. The utilization of blockchain for real estate transactions possesses significant implications destined for jobs as agents and brokers.
- Financing. Credit checks, identity and income, debt-to-income ratio, and a lot more can be held on and confirmed through blockchain. The mortgage financing method is fraught with frustration and friction. If all your crucial and pertinent documents are stored on the blockchain, you need not look for it to obtain dozens of different papers from your broker or bank.
The transparency related to a decentralized network can also lessen costs relative to real estate dealings. Beyond the savings made by eradicating intermediaries, commissions, and professional fees, there are other costs like registration fees, taxes, inspection costs, and charges relative to real estate. These costs change depending on the place that has jurisdiction. Such as intermediaries, can be lessened or eradicated from the transaction as platforms automate these procedures and make them part of the system.
Worldwide real estate is worth a lot of money but is dominated by rich players and huge corporations. With the use of blockchain technology, more individuals will probably have the freedom to access the market where transactions are showcased transparent, equitable, and secured. Real Estate transactions may become person-to-person (“p2p”) transactions with blockchain-powered platforms performing the majority of the work.
- Land Titles and Deeds. Titles are commonly maintained offline, but the technology of blockchain can verify and store these real estate deeds and contracts, documents, and the like Imagine if you can be able to log into blockchain land registry to verify the ownership of the title of any parcel of land in your area.
- Leasing. Specify contract signing and verification can be facilitated and held on a blockchain. Whether it is the tenant’s income verification, other references, or employer checks, this can all be served and held on a digital ledger.
- Liquidity. Real estate has been regarded as an illiquid asset because it takes time for the entire process to conclude. This is not the story with cryptocurrencies and tokens because, in theory, they can be readily traded with fiat currencies using exchanges. But, as tokens, real estate can be traded any time of the day. A seller does not have to wait for a purchaser who will buy the entire property to be able to obtain some value out of it.
If an asset becomes tokenized to a thousand investors instead of ten, you can increase the liquidity automatically of that said investment. If purchasers and sellers of tokens are a lot easily able to sell and purchase a share in a specific asset. Then, it will follow that liquidity issues and exit strategies drop significantly.
- Decentralization. Blockchain pushes security and trust as decentralized technology. Information embedded on the blockchain is accessible to all parties included in the network. This will characterize the data as immutable and transparent. One only has to reminisce the housing bubble crash in 2008 to witness how lack of transparency and greed on the part of institutions can have disastrous consequences. A decentralized exchange has trust embedded inside. Since information can be verifiable to people, purchasers and sellers can have more confidence in executing transactions.
- Fractional Ownership. A real estate blockchain can be utilized s a sole source of truth to verify ownership of assets. This also comprises fractional ownership with the use of a token, and all the owners of those tokens will be available to the public.
By heeding to fractional ownership, blockchain also lessens the hedge to real estate investing. Generally, investments would need significant money upfront to be able to obtain property. Optionally, real estate investors could also pool their money to obtain bigger tokenized properties. With the use of blockchain, investors would simply have to access a trading app to purchase and sell even part of it. To add, fractional ownership would also aid them to stay away from property management like leasing and maintenance.
There is a new level of future in real estate with blockchain. It has significant implications for the realm of real estate. It could eradicate the need for more parties involved in a transaction, enhance trust among parties, act as a record keeper, expedite all leases, contracts, and transactions. Enhance liquidity, lessening fraud, and unwanted costs and charges. This is a main disruption, but much of this innovation is theoretical.
Even though some real-world examples of blockchain are prominent, we are this close to executing on a full-blown promise of blockchain in the realm of real estate. Real estate investors should consider the parameters and begin thinking about schemes to expose themselves to these upcoming technological advancements in the realm of real estate.
Blockchain technology has made an impact in the real estate industry in an array of ways, such as offering new means for sellers and purchasers to link with one another. It can be utilized to cut intermediaries out of the real estate transaction procedure, hence, lessening the costs. This technology will help in its codification of fractional ownership of the real estate.
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