Blockchain Technology Is Revolutionizing Real Estate. Are You Ready to Cash In?
Real-estate transactions verified by the blockchain have emerged as an innovative necessity.
Whether you’re in finance or any other industry, you’ve likely heard the term “blockchain” circulating over the last few years. It might sound confusing, but it’s essentially an open-source ledger technology that creates total transparency within an economic system. And now it’s having major implications for transactions in the world of real estate.
Real estate has been rampant with fraud for centuries — from people selling properties they don’t actually own to bankers giving out shady loans. As a result, real-estate transactions verified by the blockchain have emerged as an innovative necessity.
Here’s how blockchain technology and smart contracts can help reshape the real-estate industry.
More platforms mean more opportunities
Every industry, real estate included, is in the business of connecting the existing supply with the existing demand. In the last few years, the number of retail and blockchain investors has exploded with the introduction of trading platforms such as Robinhood, WeBull and Coinbase that make the purchase of assets so simple.
Traditionally, these smaller capital retail investors wouldn’t have the resources to get into real estate, but with the tokenization of a property, they can essentially crowdfund their purchases by leveraging their collective purchasing power.
Get your desired liquidity more quickly
This same tokenization concept can be used to provide an owner or seller with liquidity. For instance, I’m selling my $5 million home in Los Angeles. It might take several years for a buyer to like the home enough to make that sort of capital commitment, but by creating fractional ownership through tokenization of the property, I could sell off one million $5 shares and create the liquidity I desire much more quickly.
Cut back on unnecessary third-party costs
With cryptocurrency and blockchain technology, smart contracts are programmed into the assets themselves. It’s a major benefit because these smart contracts allow the seller and buyer to save costs on attorney fees. The open-source ledger at the heart of blockchain technology also allows the buyer to verify the seller’s ownership and removes the need for the buyer to pay a title company. That same ledger allows the seller to verify the buyer’s funds and negates the need for the creation of an escrow account. All in all, each transaction could be tens of thousands of dollars cheaper after the removal of unnecessary intermediaries from the process.
Take advantage of fractional ownership
Fractional ownership is one of the most exciting frontiers that blockchain technology is poised to innovate within the real-estate industry. The fractional ownership created by tokenizing a property is one of the most equitable innovations blockchain has introduced; it changes the game for that one person who wants to get into real estate but can’t find five friends who also have $10,000 to pool for a down payment and renovations on a duplex.
Now, through online marketplaces and cryptocurrency exchanges, the demand for these types of tokenized real-estate assets is pre-aggregated so small-time players can more effectively pool their resources. Smart contracts can then further simplify the long-term ownership by taking in rent payments and disbursing proportionate shares directly to the wallets of the property owners.
Shifting capital expenditures and costs
Many factors go into the array of costs that make up the capital expenditure for any real-estate purchase. We’ve already covered how cutting out unnecessary intermediaries can cut costs in some ways, but with further innovation in the blockchain space, we’ll also see banks being cut out, as loans can come directly from cryptocurrency loan pools. Then, the capital expenditures that were previously associated with the purchase itself can be invested into the renovation of the property and the appreciation of the new owner or owners’ asset.
Accelerate the timeline
Normally, with so many intermediaries and legal niceties, it can take weeks or months to complete a real-estate transaction. While the buyer’s money sits in escrow and the seller awaits the transfer, that capital is dead for both parties. Smart contracts governing these transactions can expedite closings and increase the overall cash flow for the economy as a whole. Contractors will start getting paid sooner to renovate, and in turn, they will purchase supplies more quickly, those lumber yards will order more inventory and the list goes on.
The bottom line is that dead capital in an escrow account costs everyone, even those peripherally involved, more hard-earned money they could be generating by deploying their new influx of capital.
Source: Entrepreneur
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