Real Estate Tokens Are Coming to an Investment Near You

Open the Door and Let Me In! Investing in real estate, whether it be single-family, multi-family, commercial, or industrial can be a viable option for creating wealth and producing a consistent source of cash-flow. Many wealthy families in America have made their fortunes through real estate investments. The problem for the majority is we don't have a few hundred thousand or millions of dollars at our disposal to enter the real estate investment market. As they say in Sri Lanka, "what to do?" For the first time, there may be a viable solution to the entry problem--fractionalized real estate.

What is Fractionalized Real Estate Ownership--Can I Buy it By the Slice? The process of real estate tokenization involves?converting a real estate asset into a "digital token" on a blockchain and putting it for sale. Essentially, fractional ownership is an investment approach. It works like this: the cost of an asset is split between individual shareholders and all shareholders divide the benefits in proportion to their ownership percentage, including sharing the income produced by the property. In other words, when we buy a fraction of a real estate asset we are not buying the entire property merely a portion. Think of it as buying pizza by the slice rather than the entire pizza. By the way, you can also create tokens for properties under construction to raise capital for investment development.

Real Estate Tokenization--Accept this Token as a Token of Affection (Ownership). Fractional ownership in real estate is done via tokenization, specifically non-fungible tokens (NFTs). What is tokenization? Tokenization, in the real estate context, is a process whereby a virtual token, a digital token, is minted. The token represents partial ownership, an equity interest, or any other form of ownership in a particular real estate asset. It is tied to a specific physical asset. For instance, let's assume the owners of the Empire State Building fractionalized ownership of the property into 1,000,000,000 tokens (1B). The 1B tokens are sold and each token would represent ownership of 1/1,000,000,000. Of course the value of the token would fluctuate based on the performance (net operating income) of the property.

Give Me Five Reasons to Tokenize Real Estate and I Will Say Yes--As You Wish, Get Ready to Say Yes!

Liquidity: Real estate is generally not a liquid asset. Under most circumstances, it takes a great deal of time to sell a real estate asset and countless parties are involved. Tokenization could cut out intermediaries and allow ownership (or at least fractions thereof) to be transferred directly from investor to investor.

New Type of Investors: Tokenization can expand the pool of investors, and therefore increase liquidity. No longer are you limited to whales and institutional investors; the retail market becomes available. Tokenization gives small investors access to the most valuable asset class in the world, real estate, and an asset backed by collateral and revenue streams. Tokenization opens the market segment that wants exposure. to real estate but are on the. sidelines due to liquidity concerns.

Belongs to Me, Not Yours: Traditional real estate investors encounter issues with proof of ownership; hence the need for title insurance, etc. Tokenization utilizes blockchain technology. With blockchain a distributed ledger is produced that is consensually shared and synchronized with all participants. No need to dispute if, when, how or with whom the transaction took place. It is all right there for all to see. Title companies be aware you may not be needed. Transparency!

Middle Man Be Gone! Tokenization of real estate comes with the use of blockchain technology; a technology that disrupts the status quo. In the case of real estate, tokenization allows investors to buy and sell directly without incurring traditional closing costs. Instead transactions are executed on the blockchain via smart contracts. In other words, rather than mountains of legal documents to transfer ownership a smart contract is executed on the blockchain. Banks too could be cut-out. For example, loans can come directly from crypto-currency loan pools thus reducing the costs of construction. As mentioned above, title companies what value will you bring?

Eureka, I Found it! Real estate markets are local. Therefore, searching for a suitable real estate investment is time consuming. Tokenization of real estate assets changes the dynamic. If real estate assets were tokenized one or more centralized exchanges could list availability. When this happens sellers and buyers will have a more robust geographic market to select from as well as a wider array of property types.

Going From Crock Pot to Microwave Cooking: It takes a loooooooong time to complete a real estate transaction. Did I mention it takes a loooooooooong time? Well it does and all the while the buyer's money is tied up in escrow as dead capital and the seller's life is on hold while she waits for the middle men to lumber across. With tokens and blockchain technology we can put the crock pot away; we now have a microwave.

Of course, there will be issues to clarify and resolve during the transition. But I say Go West Young Man to the New Frontier!