How the Blockchain is Changing for Real Estate Investing
Millennials now outnumber older investors, and they’re bringing tech-savvy trends to the table. They’re particularly bullish on alternative investment vehicles, with 2 out of 3 millennials interested in crypto and the blockchain technology that powers it. In fact, they are the primary demographic that is driving the blockchain market right now, which is set to reach $69 billion by 2027. In large part, this is because most young investors prefer to do their own research rather than place their trust in traditional investment vehicles like stocks.
However, cryptocurrency is just one of the many use cases of the blockchain, with countless industries leveraging it for faster, safer, and more accessible transactions. Most notably, the blockchain is opening up a whole world of possibilities in real estate investment. And here are a few ways the blockchain is changing property investment for the better:
It streamlines various transactions
The blockchain is a public database of transactions distributed across the world’s computer networks. In real estate, it’s commonly used to facilitate smart contracts. Smart contracts detail the terms of the agreement between two or more parties and can uniquely self-execute once certain conditions are met. They also effectively digitize transactions while cutting out middlemen like brokers, banks, lawyers, and underwriters. Other features include automatically inserting self-signatures or sending money to a party once specific phases of the contract are completed. This not only speeds up transactions but also reduces or completely eliminates fees charged by third parties.
It combats fraud
You might be wondering how secure the blockchain is given the prevalence of wire fraud in real estate. In fact, $221 million was lost to such real estate scams in 2019 alone. Fortunately, the blockchain is decentralized, and its records are extremely difficult to tamper with. That’s mainly because a hacker would need to control the majority of the world’s computers to get into the system. Blockchain tools like Safewire even use it to secure transactions from the time they’re sent until they’re processed, so you can be sure your investments will stay safe until it’s time to collect your returns.
It lowers barriers to entry
Real estate investing can be competitive, especially if you’re bidding against someone with more financial firepower. Fortunately, the blockchain is lowering barriers to entry into property investment through fractional ownership. Cryptocurrency coins that are popular with developers, like Ethereum, are being used to create and facilitate several projects on the blockchain. One such project is the “tokenization” of real estate properties, which transforms properties into digital assets like NFTs — unique and non-interchangeable units of data. Much like smart contracts, they can be used to represent ownership. Multiple NFTs can then be created to sell partial ownership of a property, which is great for more expensive investments like condominiums and plots of land.
By sharing the title of a property among a group of investors you can split costs and profits. It also keeps a record of all the transactions made within a group of owners and updates them with the latest briefings on their assets when necessary.
Ultimately, blockchain’s breakthroughs in real estate are helping increase liquidity in one of the world’s most illiquid asset classes. This is opening the doors for smaller-scale investors, so even those under 30 who don’t have much capital can reap all the benefits real estate investment has to offer, including a steady income, tax advantages, and overall financial freedom.