How Tokenization is Transforming Real Estate on the Blockchain
Real Estate is all around us and is full of untapped potential. The Duplex you live in or that apartment complex you drive by everyday on your way to work. Ever wondered ‘I wonder who owns that complex, they must be rich.’ Now imagine for a moment that those everyday properties, like that apartment complex could be tokenized into a digital asset that you could buy and become a partial owner of.
Maybe it’s difficult for you to see yourself as an owner of that complex. Maybe you think it’s impossible because of personal financial restrictions, lack of real estate experience, or legal expenses. What if I told you that all of these misconceptions and that you can start your own real estate portfolio quickly and easily with Tokenized real estate offerings.
What is Tokenization?
Tokenization is a radical new blockchain mechanism that allows the underlying value of real world assets, like real estate, to be converted into digital tokens on the blockchain. Let’s take a cookie as an example because, many of us like cookies. Let’s pretend a cookie is a valuable and expensive asset that has the potential to grow in value over time. If there are 10 people, and only one cookie left, what do you do? Since everyone can’t afford to have the entire cookie we divide the cookie up into pieces; that way each person can own a piece of the cookie. The cookie is then Tokenized into “Cookie Coins”, a digital representation of the cookie’s ownership using blochchain technology. Each person who holds a Cookie Coin owns a piece of that cookie. Imagine for a moment that the local cookie factory crumbles a few years later and cookie prices skyrocket; anyone holding a Cookie Coin may sell their Cookie Coin on a security token exchange for a profit.
Tokenization for real estate works the same way. It essentially breaks down real world asset, in this a cookie, into individual pieces represented by digital tokens tradable on security token exchanges.
How does Tokenization work for real estate?
It was just announced a few days ago that the First Ever Security Token Offering (STO) for a Real Estate Property was completed for $18 million dollars! The STO was for a 20% ownership stake in the historic, cash flow positive St. Regis Aspen Resort in Colorado. The resort’s ownership was broken down into fragmented shares which were Tokenized into digital security tokens called “Aspen Coins”. Each Aspen Coin represent an actual ownership percentage in the resort, and any profits from the resorts operations are disseminated down to the Aspen Coin holders. Accredited investors from across the country were able to purchase Aspen Coins on a crowdfunding platform without needing to leave the comfort of their home.
RealtyReturns works in a very similar way, tokenizing cash flow positive properties into ‘Returns Tokens’ security tokens. Each Returns Token represents a fractional ownership percentage in a specific investment property. Investors can look through the list of investment properties for sale and easily become a partial owner, all through the RealtyReturns Marketplace. Each Returns Token is tied to a specific investment property and any cash flows generated by that specific property are distributed directly to the investors who hold a corresponding Returns Token. If an investor decides they wish to sell their ownership in the property, they are able to list their token on a security token exchange for liquidity.
Furthermore, platforms like RealtyReturns offer passive investments, meaning there is no work inlved in the asset. No property maintanence,
What are the benefits of Tokenized real estate?
Real estate is widely known as fundamental asset in any successful investor’s portfolio because of the security, consistent returns and value appreciation real estate offers. “You’re actually talking about a real asset that people are paying hundreds of dollars or thousands of dollars every night to stay in, and this already makes tons of revenue.” said Slava Ruben, founder of Indiegogo. Unfortunately, many potential investors are turned away from real estate and forced into other investment types because of real estates inefficiencies and high-barriers to entry like; lack of access to quality opportunities, cross-border investment difficulties, high investment minimums, property management / maintenance responsibilities and notorious investment illiquidity.
Real estate is perfect for tokenization because it provides all the upsides of real estate ownership while minimizing the downsides (mentioned above).
How do online Real Estate Marketplaces like RealtyReturns Benefit Investors?
Real estate is known for the financial stability, security and consistency if provides investors. However, real estate investing is also known as being highly inefficient and illiquid. Blockchain technology and security tokens leverage these upsides of real estate investing and mitigates the downside inefficiencies that turns away would be investors such as: high costs, inaccessibility and illiquidity. “It (real estate tokenization) fragments the asset. If you wanted to buy the St. Regis Aspen before fragmentation, you would have had to write a check for $250 to $300 Million. That limits the number of people that can actually have exposure to the asset.”- Slava Ruben, founder of Indiegogo.
Real estate is one of the strongest investment assets in the world yet so many potential investors are turned away because of cross-border investing difficulties, high investment costs, lack of access to quality investment properties, management responsibilities and lack of investment liquidity. Real Estate Tokenization Marketplaces like RealtyReturns address these issues; allowing investors to easily co-own quality investment properties without worrying about cross-border investment problems, high net-worth individual income requirements* and providing potential investment liquidity through token exchanges. Real Estate Tokenization allows everyday people to build a successful real estate portfolio without all the inefficiencies.
Rexford is a serial entrepreneur, real estate investor and public speaker. Rexford previously co-founded DreamFunded with, San Francisco’s first registered equity crowdfunding platform; helping raise money for promising startups. His latest venture, security token real estate marketplace RealtyReturns is preparing for its’ upcoming ICO on October 23rd. He is an experienced real estate investor and developer; working alongside his father Robert E. Hibbs to manage the Hibbs Family Office.