Blockchain technology has existed for several years now and has transformed technology in numerous ways. However, Experts claim that blockchain-based solutions can significantly affect various areas throughout the economy. These areas include financial institutions, logistics, companies, and the real estate field.
Many investors say that real estate is among the safest investment types on the market. It is also among the few investment types to ensure great returns. Many people also tell you the best form of capital protection is to purchase a house or apartment. The only downside to real estate is that it requires significant capital.
Luckily, blockchain and tokenized real estate assets can overcome this problem.
A Brief Guide on Real Estate Tokenization
Real estate tokenization requires a user to create tokens on the Blockchain and assign each token to an existing real estate property. The user can also assign the tokens to real estate projects under construction, but the tokens must link to physical property. Tokens here represent an interest in real estate and can help in raising capital for investment development. This process allows a wide range of investors and developers to participate in the real estate industry actively.
The process shares some similarities to crowdfunding but uses tokens on the Blockchain to raise capital.
The primary objective of real estate tokenization is to make funding accessible to a broader audience. Tokens here act similar to stocks without relying on expensive intermediaries. The versatility of tokens in Blockchain led many to believe that tokens might replace the stock exchange due to the latter’s expensive fees and complexity.
The token can work as a loan, the share of a development company, or a certificate of ownership of a specific property.
Types of Real Estate Tokens
There are two real estate token types on the market.
- The first type helps you become a joint owner of a piece of real estate
- The second is a debt asset. This token digitizes a property’s rent and automates the process of gather and exchanging the rental receipts
How to Tokenize Real Estate?
Imagine you own a property and are learning about tokenizing your real estate property. Tokenizing your real estate property (or turning it into an STO), a company requires the necessary permits in place. These permits include documents like building inspection reports, ownership rights, and financial requirements.
Following this step, the company releases security tokens corresponding to ownership of a section of the premises. Think of it like this: one security token released by the company equals one square meter of real estate. Investors buying these security tokens own a section of these premises.
Aside from assigning property rights, tokens can also serve several other functions. They can also function as a currency or as a loyalty program. Imagine a development company specializing in building huts in mountain ranges. This company can monetize tokens to live in these huts and purchase additional services or infrastructure.
Benefits of tokenizing your real estate
Anyone can invest a specific amount and become the partial owner of a property. These users also benefit from the profits of investing in that property. In addition to this, token issuers can sell the tokens on secondary markets. Property owners can sell part of their assets by issuing tokens. Also, tokens work like stocks and their value changes depending on the property’s price. Therefore, tokenization is a better option for crowdfunding as it gives owners immediate digital ownership. This feature helps the user sell their tokens when required.
Access to a Broad Audience
Tokenizing real estate assets or any tokenization removes any limits related to location. Nothing is keeping you from buying a property outside the country. The user can join in, participate and profit from resort buildings, housing estates or rentals.
Investment Speed and Ease
The best way to optimize any activity is to limit needless expenditure. This process is achieved by acting within the legal framework. Blockchain technology removes limitations like notary and bank fees. This method results in increasing investor returns and makes it easy for the property owner to raise capital. Tokenizing your real estate can streamline multiple processes.
Investments made through tokens come with reduced costs and provide greater freedom. This is because a user can buy a share in real estate and profit from it at any time. The process is fully automated and does not require the user to follow pointless formalities. The user obtains the rights to the property through a token, which does not require changes to the mortgage or real estate records also.
Tokenization does not require the user to purchase the whole property. They can buy a small section of the property, or the property owner can divide it into smaller tokens. The user can participate by purchasing a single token. However, Users can also join in distributed investing, which is a smaller shareholding structure. Now, users do not require large sums of money to invest in real estate also.
The low entry barrier enables users to diversify their investment strategies and assets. Rather than investing in a single property, and also the user can invest in multiple properties. This approach helps them diversify their investment wallet and provide additional revenue sources.
Lack of Intermediaries
STOs liquidate the secondary real estate market. This process ensures there is no requirement for any third-party involvement. Tokenizing real estate assets removes middlemen like lawyers and agents, reduces the deposit fee, and also operates daily. Also, there is no limit to the token amount the user can trade with.
Tokenization purports itself as the future of investing as it makes the investing process accessible to a broader audience. There will always be a requirement for physical buildings; Therefore real estate is always a promising investment avenue. It is vital to embrace real estate investment and capitalize on the possibilities digitization provides.
Tokenizing real estate assets can be a mechanism beneficial to investors and developers. Promoters of this new investment can gain new investment opportunities. Meanwhile, after that real estate developers do not have to issue large bonds, and also build a stock exchange and run ongoing projects also.