#69 Supercharging Your ROI: How Tokenized Property Investments Compare to Traditional Real Estate

Today, we present a comparison between tokenization and traditional investment.

Why Did We Write This Article?

At ScanSan, we have received numerous requests to tokenise various buildings, land, properties, and more. While this is promising, it also highlights an internal economic issue that entrepreneurs face: where can they find investors?

Although the ScanSan platform facilitates the process of connecting global property investors with landlords, what ScanSan doesn’t do is sell users! We don’t sell a list of buyers just because someone needs money.

Some of the requests we receive could easily be fulfilled with traditional finance: simply lending money and receiving a certain ROI (capital + interest).

Now, let’s look at the differences.

One thing is for sure: one of the most exciting developments in our innovative IT market is the rise of tokenized property investments (alongside the tokenization of other assets). This new approach leverages blockchain technology to create digital tokens that represent ownership of real estate assets. While traditional real estate investments have established a strong presence in wealth creation, tokenized property investments are proving to be a game-changer.

Understanding Traditional Real Estate Investments

Traditional real estate investments involve purchasing physical property (be it residential, commercial, or industrial) with the intent of generating income through rent or appreciation over time. Investors typically rely on:

• Property Appreciation: The value of the property increases over time, allowing for capital gains upon sale.
• Rental Income: Regular cash flow from renting the property to tenants.
• Tax Benefits: Certain deductions and incentives reduce the investor’s tax liability at the end of the year.

However, traditional real estate investment also comes with its challenges:

• High Entry Barriers: Significant capital is required to purchase properties, making it difficult for many investors to enter the market.
• Liquidity Issues: Real estate is notoriously illiquid, meaning it can take months or even years to sell a property and realise gains (have you ever heard the saying, "Asset Rich, Cashflow Poor?").
• Management Headaches: Property management, insurance, tenant issues, and maintenance can be time-consuming and costly (oh yes, indeed it is, so do not underestimate it).

Tokenization of Properties

Tokenized property investment is a modern alternative that addresses many of the limitations of traditional real estate. Here’s how it works:

• Blockchain Technology: Real estate assets are divided into digital tokens on a blockchain. Each token represents a fraction of ownership of the property (different share ownership).
• Fractional Ownership: Investors can purchase tokens representing small portions of a property, lowering the entry barrier.
• Increased Liquidity: Unlike traditional real estate, tokenized assets can be traded on secondary markets, allowing investors to buy or sell tokens with ease, often in a matter of minutes (with KYC & AML processes applied).

Key Benefits of Tokenized Property Investments

• Accessibility: With tokenization, investors no longer need vast sums of money to invest in high-value properties. This democratises real estate investment, allowing more people to participate and diversify their portfolios.
• Liquidity: Tokenized properties offer enhanced liquidity compared to traditional real estate. Investors can quickly exit their investments by selling their tokens on the secondary market, providing flexibility and faster access to cash.
• Transparency and Security: Blockchain technology ensures that all transactions are recorded on an immutable ledger, enhancing transparency and reducing the risk of fraud. Smart contracts automate processes like rental income distribution, making investments more secure and efficient.
• Global Reach: Tokenized property investments break down geographical barriers, allowing investors to access real estate markets worldwide without the need to physically manage properties or deal with local regulations.
• Cost Efficiency: By removing intermediaries and automating processes, tokenization reduces transaction costs, making investments more profitable.

Comparing ROI: Tokenized Property Investments vs. Traditional Real Estate

The ROI and liquidity are the real game-changers here:

• Higher Returns: Lower entry barriers and transaction costs, combined with increased liquidity, can potentially lead to higher returns, especially for small and medium-sized investors.
• Faster Access to Gains: The ability to trade tokens quickly means investors can capitalise on market movements without waiting for months or years to sell a property.
• Diversification: With easier access to fractional ownership, investors can diversify across multiple properties and markets, reducing risk and increasing the likelihood of stable returns (we love this one).

As you can see, this was a very brief description of the pros and cons. When ScanSan goes through the partnership process, we first identify the reason why the company wants to pursue tokenization. It’s easier for us to determine if tokenization is the right solution or if they simply need an off-the-shelf solution that typically aligns well with traditional finance. It’s important to note that tokenized property investments are still relatively new, and like any investment, they come with risks, including market volatility and regulatory uncertainty.

That said, we at ScanSan have embraced this solution because we believe we can help create generational wealth for other families. Tokenized property investments represent a revolutionary shift in the real estate market, and we are glad to be part of it, offering a more accessible, liquid, and potentially lucrative alternative to traditional real estate investment. By leveraging blockchain technology, investors can diversify their portfolios, reduce costs, and enjoy greater flexibility; all of which can supercharge their ROI. While traditional real estate remains a solid investment option, those looking to maximise returns and embrace innovation may find tokenized property investments to be a valuable addition to their investment strategy.

As always, everyone should conduct thorough research and consider their risk tolerance before diving into any investment opportunity. But for those ready to embrace the future, tokenized real estate is a promising frontier, and we look forward to welcoming you to our platform.

?Pre-register today here.