Investing in Real Estate is one of the most popular ways to grow your money as long term investors look to options in the property market for building their wealth. Not only does it generate rental income which is an additional revenue stream, the value of the property is also expected to appreciate over time resulting in greater returns on investment.
The demand for, and scarcity of, real estate has made this industry the single most valuable industry in the world: $162 Trillion; roughly 30% of the total world’s wealth (Quoted from RealT’s whitepaper)
However, this strategy is tied to putting down a significant sum upfront and determining the right location to invest in the property which plays a crucial role in contributing to the growth of property value. There are many factors to take into consideration — expenses incurred from renovation & maintenance, paying property tax & insurance, the difficulties of dealing with uncooperative tenants, etc. Hence, these commitments would seem daunting to the average joe without even touching on affordability.
A low-cost alternative without all the above hassles would be through Real Estate Investment Trusts. REITs own commercial real estate properties which lease space to collect rent. They use funds from investors to manage these properties and in return, the income produced is distributed as dividends to shareholders. A downside of REITs is that investors have no ownership of the properties and therefore do not benefit from the appreciation of property value.
This brings us to the next question — Is it possible for people who is starting out with LITTLE capital to ACTUALLY OWN the real estate they are investing in while being able to enjoy the steady passive income stream without troubling themselves with immense paperwork and proper management of asset?
Welcome to RealT
RealT is the first frictionless fully compliant platform that aims to provide easy access to investors around the globe interested to purchase real estate in the United States through asset tokenization, powered by Ethereum. Residential properties are represented by a token where information of the asset are transferred onto the blockchain and ownership rights can be transmitted and traded digitally.
How it works
The properties in various cities across the United States listed on the marketplace are handpicked by the real estate team after their evaluation.
To still be able to keep the legal rights and protections that are granted by property ownership after tokenization, RealToken LLC was established. It is a series LLC where it is divided into independent series which is treated as a separate entity. Each series of the RealToken LLC are used to purchase and own a single property asset. The ownership is then tokenized into unique ERC20 tokens on the Ethereum blockchain, RealTokens and split equally. Owning a RealToken equates to owning a share of the property owned by a particular series. This translates into effective ownership of the property held by the series for individuals holding RealTokens.
For homeowners who are interested in tokenizing their property and making a sale through the platform, they will have to submit a form which covers their property details and will be contacted by a sales representative. If chosen after a fair assessment, their property will be tokenized and listed on the marketplace to be made available for purchase.
The process of owning and managing property has never been made easier! Know Your Customer (KYC) procedures are in place for identify verification and ensure payments does not come from illegal sources. Simply browse through the marketplace and if any of the listed properties catch your eye, purchase your desired amount of RealTokens available. Once the payment is successful and the required documents are electronically signed, the tokens will be sent to the buyer’s Ethereum wallet. Congrats, you are now an owner of the property!
For management wise, the idea is to have little to no engagement from the token holders — just sit back and enjoy the rental income paid out daily. The maintenance will be outsourced to a property management company where they will manage all landlord responsibilities.
Based on the illustration of the process above, the rent will be collected by the management in USD and exchanged for DAI, a decentralized stablecoin pegged to the US dollar. The DAI will be sent to the RealToken smart contract associated with the property. From there, the rent contract will automatically distribute the DAI to the Ethereum wallets of token holders based on their share of the property on a daily basis.
Shaking up the real estate market
- Real estate investments or owning a property are no longer exclusive to the rich as RealT introduces fractional ownership of its listed properties which greatly reduces the price entry barrier for each individual, expanding the pool of potential buyers and adding onto liquidity
- The high transaction costs and slow settlement process can be revamped with blockchain technology — this process can take place on-chain within a few seconds just by transferring of tokens and the only fees incurred would be the price of gas used in the transaction
- Illiquidity of real estate market stems from being restricted to a small pool of buyers locally as there are many regulatory hurdles in purchasing properties abroad. With RealT, market outreach for the US real estate market is maximized as international investors can easily own US property by purchasing through the platform that is compliant with the US legal system.
Since the platform is recently launched, it has only one residential property up for sale which is located in Detroit, the largest and most populous city in Michigan. Each token of the property costs $63.75. Detroit is chosen by the team as the first city to offer tokenized property investment due to its great development prospects which you can read more about their reasoning here. There are plans to branch out to other cities in the US that has huge potential in the real estate market.
I like the way how important information is presented at a glance.
This property is currently rented out at $850 per month and for each token owned, the holder will receive $0.86 in rental income for the month as there are a total of 1000 tokens. The capitalization rate is calculated based on the net operating income generated by the property compared to its current property value. It is as an important tool in the evaluation of real estate investment. A CAP rate of 13.9% is considered to be good as this reflects the rate of return on investment. Other details include the size of the property, amenities offered and the terms of rental contract.
I like the fact that there are a wide variety of payment methods to choose from and is not just limited to cryptocurrencies as buyers might not be crypto-native or do not any crypto on hand. It is a cumbersome process to wait for fiat to transfer from your bank account into an exchange to purchase crypto.
I have some Bitcoin on an exchange and converted them to Litecoin as it has a faster transaction time and lower withdrawal fees compared to Bitcoin. Therefore, I chose Litecoin as my choice of crypto payment and sent it to the Litecoin address provided.
Tip: I recommend Ethereum or USDC for payment as they have the fastest transaction time out of all the choices and incurs lower gas fees.
After verifying my payment, I completed my KYC verification and was approved after a few minutes. (KYC can be done at any time and is a one-time thing — However, it must be done before you receive your RealTokens) I have electronically signed the documents sent to my email and I am waiting to receive my RealTokens.
Update: I have received my RealTokens in my Ethereum Wallet and have started to receive my payouts in DAI!
Overall, the process of buying a share of the property is very intuitive and efficient except the part where you have to wait for a few days before receiving your Realtokens. It feels great to be able to receive rent on the blockchain daily where it can be verified on-chain (100% transparency) and is transferred immediately into your wallet.
RealT platform has just recently launched and is still in its starting phase — there are concerns that have not been addressed such as how to sell your tokens when you want to exit or more transparency regarding the management of the property. I believe these concerns will be smoothened out with features in the upcoming phases of the platform. I really like the idea of tokenizing assets on Ethereum, hence I wanted to try this out! :)
For crypto investors that are looking to diversify into real estate for their portfolio, this is your go-to place. An opportunity like this arises because assets can be tokenized on the blockchain. Blockchain has continued to prove to be an important tool in enabling financial products to the masses due to its properties (no pun intended) and there are many innovative financial products created to be the solution for their target market. RealT is making use of blockchain technology to better serve real estate investors while solving the issues plaguing the real estate industry. I am excited to see how RealT evolves into a worldwide marketplace for real estate investments.
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