If you work in finance or any other business, you’ve almost certainly heard the phrase “blockchain” circulate in recent years. While the term may appear perplexing, it is simply an open-source ledger technology that ensures complete transparency within an economic system. And it is now having a significant impact on real estate transactions.
For ages, real estate has been rife with fraud – from individuals selling houses they do not own to bankers making dubious loans. As a result, blockchain-verified real estate transactions have emerged as an innovative necessity.
This article will discuss how blockchain technology and smart contracts can be used to revolutionize the real estate sector.
Table of Contents
More platforms, more opportunities
Every sector, including real estate, is in the business of matching current supply and demand. The number of retail and blockchain investors has risen in recent years, owing to the introduction of trading platforms such as Robinhood, WeBull, and Coinbase that simplify the process of purchasing assets.
Historically, these lower capital retail investors would have been unable to invest in real estate, but by tokenizing a property, they can effectively crowdfund their acquisitions by using their aggregate purchasing power.
Get your desired liquidity more quickly
The same tokenization technique can be utilized to provide liquidity to an owner or seller. For example, I’m selling my $5 million Los Angeles property. It may take several years for a buyer to develop an interest in the home sufficient to make that type of capital investment, but by generating fractional ownership through property tokenization, I could sell off one million $5 shares much more rapidly and get the liquidity I seek.
Reduce unnecessary third-party costs
Cryptocurrency and blockchain technologies enable the incorporation of smart contracts into the assets themselves. This is a significant benefit because smart contracts save both the seller and buyer money on attorney fees. Additionally, the open-source ledger at the basis of blockchain technology enables the buyer to authenticate the seller’s ownership, obviating the buyer’s need to pay a title firm. The seller can use the same ledger to verify the buyer’s funds, obviating the requirement for an escrow account. In aggregate, each transaction might be tens of thousands of dollars cheaper due to the elimination of unneeded intermediaries.
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Take advantage of fractional ownership
Fractional ownership is one of the most interesting frontiers in real estate that blockchain technology is ready to disrupt. The fractional ownership created by tokenizing a property is one of the most equitable innovations blockchain has introduced; it fundamentally changes the game for the one person who wants to invest in real estate but can’t find five friends with $10,000 to pool for a downpayment and renovations on a duplex.
Now, demand for these forms of tokenized real estate assets is pre-aggregated via internet marketplaces and cryptocurrency exchanges, allowing small-scale participants to pool their resources more effectively. Smart contracts can therefore further simplify long-term ownership by collecting rent and distributing proportionate shares directly to property owners’ wallets.
Shifting capital expenditures and costs
Numerous elements contribute to the multitude of costs that comprise a real estate purchase’s capital expenditure. We’ve already discussed how eliminating needless intermediaries might save costs in some ways, but with more innovation in the blockchain area, banks may also be eliminated, since loans can be made directly through cryptocurrency lending pools. Then, the capital expenditures involved with the purchase can be invested in the property’s refurbishment and appreciation for the new owner or owners’ asset.
Accelerate the timeline
Normally, with so many intermediaries and legal formalities, a real-estate transaction can take weeks or months to complete. While the buyer’s funds are held in escrow and the seller awaits the transfer, both parties lose access to that capital. Smart contracts governing these transactions can speed up closings and boost the economy’s overall cash flow. Contractors will be paid sooner for renovations, which will result in quicker purchases of supplies, which will result in lumber yards ordering more inventory, and so on.
The bottom line is that idle capital in an escrow account costs everyone, even those who are just peripherally involved, additional hard-earned money that they could be creating through the deployment of their new influx of capital.