Investing in Real Estate via Blockchain.

Realty and investments in Real estate has been my passion and a subject of interest to study for a long time.

I am a firm believer that real estate is the only asset in an investor’s portfolio that generates wealth. This is the only Asset in someone’s portfolio that is very complex, time consuming and unfortunately available for only very few chosen investors. Frankly speaking, till now, it was considered that real estate was only meant for wealthy individuals.

Real estate investing process is very slow and moves at a snail’s pace. Lots of paperwork, due diligence, complexities and negotiations. Sometimes dragging on more than six months to one year. All the Realty Assets in my portfolio took almost over six months to reach the finish line. It’s not only the deal between two parties, the buyer and seller, but several third parties involved in the process. From Lawyer to the Valuer to the Financial Institution and the Registrar to register and transfer the deed.

It is the same or even worst at the time of sale. Being an illiquid asset, it takes several months or years to find a buyer. And if you happen to find the one involving third parties and closing the deal leads to weeks or months of due diligence. It takes a lot of time to close the deal. That’s the reason, real estate has been beyond the reach of middle level investors and only the privileged ones could hold these Assets in their portfolio. Those who have holding power and have other substantial liquid cash assets.

Whenever I attempted to invest into the property that I had found interesting, the financing was always a major hurdle. During my tenure in the Middle East, the unique financing options made it very difficult to apply for the mortgages and finance was available for few members who were with high earning brackets or for those who had the right connections with the banks. Those who had cash in hand could buy the apartments or the villas within a short period of time. But that process involved a lot of paperwork and there was always a fear of fraud and atmosphere of mistrust.

To add to it, there was the involvement of middle man, the property agent and the notaries et all. The costs of acquisition increased over 10% of the purchase value draining the ROI to negative figures. They would always mismatch with my initial expectations. Costs involved were, attorney fees, maintenance, transfer fees, exchange fees, and other closing and transaction expenses. The only advantage with these deals was the appreciation of the assets in the long run. All that will change in the future with the introduction of blockchain technology.

The effects of Blockchain in the Real Estate Sector.

Investment in real estate has been this traditional way for centuries. However, with the evolution of Blockchain and introduction of smart contracts to automate this laborious manual process has opened up a totally new and vast space for the realty and the investors who seek to invest in this asset. Blockchain technology has revolutionised the industry from inside out.

What’s Blockchain?

By now we all are familiar with the words “Bitcoin”, “crypto currency” and “Blockchain”. However, I will start with the Blockchain. Because this technology has changed the traditional investment dealings in the real estate sector.

There are several definitions found online describing what it means. Entrepreneurs have their own definition, financial institutions have their own and other industries choose their own depending upon how it serves their purpose. However, in the simplest words, it is a decentralised public digital ledger that’s used to record the entries in real time across multiple computers. In other words, think of it as a train with multiple wagons containing several boxes. One wagon chained to the other. Similarly, the records are stored in the form of blocks and these blocks are transmitted to several computers. Once the information is recorded, it is verified and combined with other transactions to create a new block of data that is added to the ledger. This new block of data is added to the existing blockchain forming like a multiple chain of wagons. Once it is attached to the other blocks, the data inside cannot be altered, without interfering with the other blocks; those that are earlier attached to it. Each transaction is protected by a digital signature that is verified and authenticated.

Blockchain was originally developed as a method for securely recording and managing cryptocurrency transactions. As such it is a highly sophisticated and complex technology that simplifies and secures a variety of transactions

This blockchain technology has changed the centuries old method and system of working with real estates. The entry of blockchain in the real estate sector has opened the doors for the small investors to invest in the realty in any part of the world by a click of a button. Similar to buying your favourite items from Amazon.

Entry of Tokenization in the Real Estate Sector.

The evolution of Blockchain has given birth to tokenize the ownership of Real estate assets. In this system the investor can own the part of the real estate even by acquiring one token.

What’s a Tokenization? What’s a Token?

It is relatively a new term used to describe a cryptocurrency in which investors exchange their fiat (actual) or crypto (digital) currency for “tokens”. As the name suggests, tokenization essentially splits real estate assets into several tokens that can then be stored on the blockchain. It is a system of securitizing real assets by dividing into tokens similar to equity shares that are called security tokens. These tokens can then be sold in the open market by trading through the exchanges, similar to stock exchanges. Any investor can buy these tokens and acquire the partial ownership of the real estate, which was otherwise impossible for them without huge capital investments.

Tokenization of the Real Estate Assets creates liquidity. The owner can liquidate his assets by selling his tokens immediately, unlike in the traditional way, where he had to wait for months and years to find a buyer and get the right price for his property.

How does it work?

The process starts with the Introduction of Smart Contracts.

What’s a Smart Contract?

It can be explained as the basic functions and applications built on Ethereum blockchain’s decentralized platform, that facilitates the exchange of money, shares, property and other assets. All the terms and conditions of the agreement are inscribed into code and stored in the blockchain. The process is automated with the specific instructions. As and when the predefined coded conditions are met, they get executed automatically. No manual interference is required.

The traditional ways of Land registration are manual and laborious. They are prone to errors and fraud. In some occasions, it is altered, overwritten leading to misinformation. It takes several days and weeks to obtain the title search report of any given property. Adopting the blockchain technology, the sales deed of the property along with other documentation is noted on the secure ledger. Once it is put into the block, it cannot be altered. This secure process will eliminate the fraud and the retrieval of the data. It will immediately produce all the past and present records pertaining to that particular real estate. The title deed of the concerned property could be obtained within a short time that will be hundred percent error free and speed the process to seal the deal.

Traditionally, the investment in real estate used to be you save and then buy. Or sometimes the need and the necessity forced upon you to acquire it. In my case, the first acquisition of a small parcel of land was just in front of my ancestral house. Me and my wife had to pounce upon our savings and her Jewellery to arrange the initial amount to pay the signing amount. That forced us to save and pay the balance amount. However, in later years the value of that piece of land increased. This initial investment triggered the spark in me for the interest in realty or real estate.

It was almost difficult to own a studio or a parcel of small land to build your home. Very few people could achieve it. Even the financial institutions were not supportive. If somehow one could get it through good bank official connections, the rate of interest was abnormal. So to say, very few could invest in real estate or own their place of residence. With the introduction of blockchain, smart contracts and tokens, it is now possible for you to invest in real estate. Several companies have started introducing this concept and put up their products online for sale.

The first one of them is RealT.co headquartered in LA. I came across this who are the pioneers and first company to tokenize real estate. They offer the tokens of different properties. Primarily Multifamily units for sale online. All of them are generating rental income and the return on investment is above 10%. You can access this website and invest in the tokens offered for the enlisted property.

The details of the financial transactions of each property are listed and dealings are clear and transparent detailing the market base price, acquisition cost, repairs and maintenance as well as the rentals, occupancy and expected returns.

The process of buying the token online is very simple and straightforward. However, one gets slightly confused and apprehensive at the beginning. But once the KYC form is filled and your account is opened, you are ready to go. The initial cryptocurrency required is provided by RealT.co and one gets confused and gets stuck with creating the wallet. You need to create a wallet to assign it to them to receive the rental proceeds. RealT.co will deposit the monthly rental pro rata to your tokens into chosen cryptocurrency. Preferably XDAI.

RealT needs to review this step and make it easier and user friendly, as several neo cryptocurrency users or investors are not conversant with the wallets and find it cumbersome. At the same time, for simplicity and ease, if the investor wants to sell his tokens and convert the proceeds to fiat currency, it should be available on the same window with a single click of a button, rather than diverting them to various other windows for conversion from xDAI to USDC and crossing the bridges.

Any investor can buy these tokens and build his real estate portfolio. If you are more inquisitive and curious to find out more or want to invest in real estate in the United States of America, by sitting at home, you can get more information here.

The only restrictions so far is that the USA residents cannot invest in these tokens, whereas any other nationals can buy these tokens online.

Click here to invest through our referral.

For more reading on why I believe and invest in real estate, click on the following.

Real estate is still the best investment you can make today, millionaires say — here’s why