Benefits of Real Estate Tokenization

Efe Dickson
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Aug 01, 2022

What real estate is to the current world, digital real estate is to the metaverse. You may imagine it as purchasing property on a planet where the laws of Earth no longer hold. There is still a finite number of plots available on each platform, similar to purchasing land on the moon, which fosters scarcity and aids in stabilizing value.

The characteristics of the land you acquire might vary depending on the site where you buy virtual real estate. This is often constrained on more realistic platforms by the size of the lot and a special place that can be located on the global map. It could also have extra characteristics like natural resources that can be collected and sold on platforms that are more gaming-focused.

Real estate tokenization is an emerging approach that combines blockchain technology with real estate investing. Tokenization allows investors unparalleled access to private real estate assets, transparency, and liquidity while also assisting asset or fund owners in raising funds more effectively.

We will define tokenization, discuss the advantages for owners and investors, and describe the tokenization process in this post.

What Does It Mean to "Tokenize" an Asset in Real Estate?

A relatively new term, "tokenization," is used to describe a cryptocurrency fundraising process in which investors trade cash or cryptocurrency for "tokens."

To summarize, one method of securitizing actual assets is tokenization.

By securitizing an asset, you may turn it into shares you can offer to investors. Similarly, "tokenizing" an asset entails dividing it into shares, or "tokens," each of which stands for a specific portion of the underlying asset, commonly referred to as "security tokens."

Using cryptocurrency exchanges or other trading systems, these tokens may be traded and are safeguarded by the immutability of blockchain technology (ATS).

By making real estate investing more accessible and affordable, tokenization has the potential to attract new investors to the market.

When you invest in a tokenized property, you will frequently get daily or weekly rental income payments that are a percentage of your initial investment. Stablecoins or the platform's currency are frequently used for this.

What Tokenized Ownership Has to Offer

1. An affordably priced investment

Tokenized ownership has a few advantages, particularly when real estate is used as an asset. The most obvious advantage is that the investor does not have to acquire the entire property; the investment amount is fully flexible.

2. The equity release is simpler.

Additionally, some platforms let you tokenize your assets to raise money. You may use this to increase your portfolio, release equity, and raise money to buy more real estate.

3. Income from Passive Sources

One common gripe among real estate investors is that when they buy a property, they must also restore and maintain it, locate tenants, and collect rent. Often, investors just pay a property manager 30 percent of the property's revenue.

This is a significant amount of money, and tokenized ownership allows investors to obtain the same upside without having to find affordable property managers or deal with a physical asset; the burden is moved to the platform. The passive nature of real estate revenue has greatly increased.

Enhancing Transparency through Tokenization

With blockchain technology monitoring the market sentiment, financial fronts, social environment, and operations, real estate's bankability significantly increases. The multidimensional technology used in the process makes future trend prediction more accurate. The investor's requirement for time-consuming and expensive previous due diligence is almost entirely removed.

1. Tokenization Opens Doors for New Capital Sources

Tokenization broadens investor access, particularly for micro investors. Smaller portions of huge estates are more reasonably priced and give the retail investor new options for ownership. Additionally, tokenization via blockchain liberates investors from national boundaries.

2. Decreased Counterparty Risk Due to Tokenization

The chain may be weaker the longer it is. Tokenized real estate investments employ smart contracts to cut out the middleman and only permit peer-to-peer transactions. This considerably reduces counter-party risk and increases small-scale investors' confidence.

3. Efficiency Is Enhanced by Tokenization

The burden on the investor is lessened by process digitization, increased automation, smart contracts, and the absence of third parties. Transactions take no more than three days and require no documentation. There are no breaks during the procedure because crypto exchanges operate continuously.

Conclusion

The value of the world's real estate market is 228 trillion dollars. Before real estate was tokenized, the most intriguing projects were only accessible to accredited and institutional investors. However, asset owners and developers may now advertise their projects to both institutional and ordinary investors on a worldwide scale.

Additionally, tokenization adds much-needed liquidity and transparency to a hitherto opaque sector of the economy. Real estate developments might become more ambitious and distinctive if shares of real property could be exchanged in real-time, similar to how shares of publicly traded firms are traded on stock exchanges.

Real estate investment trusts (REITs) are currently available to investors, but they sometimes require substantial minimum investments and represent a broad range of businesses rather than a single entity.

Real estate investment trusts (REITs) are already available to investors, but they sometimes have high minimum commitments and represent a vast portfolio of businesses rather than a single building or new construction.

Real estate is becoming tokenized, providing both owners and investors with the flexibility to raise and deploy cash however they see fit. Other illiquid asset sectors, such as private equity and venture capital, will also be impacted by tokenization.