How can crypto tokens be used to invest in Real Estate?
Many of us know the benefits of a diversified portfolio. If you own different types of assets, such as stocks, cryptocurrencies, bonds and real estate, the total value of all your assets combined is less prone to volatile movements in a single asset class.
While it is relatively easy to invest in stocks, cryptocurrencies or bonds, I find it rather difficult to invest in real estate. Especially if you don’t have an endless supply of cash. So, until recently, real estate was not part of my portfolio.
Benefits and drawbacks of investing into real estate
The advantage of owning real estate is that you can generate income both by paying rent and by increasing the value of the property.
So imagine that you are buying a house. Not to live, but to add to your portfolio. Over time, the property can increase in value and you can sell it for a profit. However, while waiting for the price increase, you can also rent the property and collect the rent.
Rent collection is also a great way to “mitigate” the effects of a bear market. Because rent payments don’t usually go down when the market crashes. After all, all tenants are bound by a contract and the monthly rents are fixed.
However, this approach has some drawbacks. The purchase of real estate is initially very expensive. So if you don’t want to take out a loan and want to invest most of your portfolio in real estate, it’s better to have some cash on hand.
There are also costs associated with running a property that very few people think about before making this investment. I don’t want to go into details here, especially since investing in one (or more) property is not an option for me.
Investing into real estate without committing too much of my portfolio
So I want to invest in real estate, but not in the classic way of buying a house or an apartment and then renting it out. There are simply too many costs and risks involved. What are my options then?
Many of you are familiar with REITs. REIT stands for Real Estate Investment Trust. Basically, you invest your money in a company, which then invests it in real estate.
The advantage of this approach is that you are actually investing a small amount in a portfolio of many real estate properties, which greatly diversifies your real estate portfolio.
REITs are also required by law to pay the majority of their profits to their clients. So you don’t even have to worry about losing your profits because the payout is too low.
How to invest in shares of a property
With REITs, you have to do a lot of research into the type of properties the company is investing in. And even if you like the portfolio, you might not like everything. But overall, REITs are a great way to invest in real estate without investing too much of your money.
What I was looking for when I started investing in real estate was a way to actually invest in specific homes and collect rent from tenants. It would be great if instead of investing in shares of a portfolio, you invest in shares of a single asset. Like buying only a fraction of bitcoin because you can’t afford to own a whole coin.
This is where crypto comes in. Creating a crypto token is not hard at all. And not all tokens have to be used for payments.
Crypto tokens can be linked to real-world assets, making it easier than ever to trade and share these assets. Take the idea of tokenized stocks. Of course, you can invest in ETFs, which give you access to a portfolio of stocks for a very small amount of money. But with tokenized stocks, you can actually buy fractions of a single stock. Imagine buying just 0.1 of a Tesla stock..
Shouldn’t this also be possible for real estate?
Apparently there are regulatory hurdles. And in my opinion, it took longer than expected, but solutions to this are popping up everywhere. And I’m not talking about Metaverse real estate. “Real Life Real Estate”.
Investing in tokenized properties and collecting rent
One company which has made it work is RealT. They provide you with a variety of properties which you can then choose to invest in. The price to buy at least one token is usually around $50. The yield you can expect from rent is set to around 8–12%.
With RealT I am investing in the American housing market. The rent is paid out every Monday.
So how this works is easy:
- You purchase a token, which acts as a share of the property.
- The token you receive in your wallet proves your ownership (thank you, blockchain!)
- Every Monday rent is being paid to every token holder, directly to your wallet. (Again, thank you!).
What information do I get before buying?
Of course you want to know what it is that you are buying and what costs will be associated with managing the building. The management is taken over by RealT. But before you buy you can always see what exactly you are going to earn.
You also get information about the property it self. Like what type of heating is installed? When was it last renovated?
See the example excerpt below:
Compounding with RealT
Another great way to earn with RealT is to use their “reinvestment” service. Here, instead of receiving rent weekly you can automatically invest into new properties. This makes it possible to buy shares with less then $50. Of course, you can always opt-in and out of reinvesting.
Collateralization?
Think about it. You own a property and have successfully repaid it. If you now wish to take out a loan from a bank, this property may be suitable as collateral. With real estate, you can actually borrow money to use elsewhere.
Would it be possible with RealT tokens? I’m afraid your local bank won’t accept them as collateral. Unfortunately. However, DeFi comes to the rescue. Banks may not have noticed this yet, but we don’t really need them anymore. Maybe for traditional assets, but with companies like RealT, even that purpose seems to be fading.
RealT have built a platform where you can put in your property tokens and borrow stable coins against it. I am going to have to admit, that is impressive. It gives us one of the first real options to invest in real estate using cryptocurrencies. Their tool is called RMM.
To me, this shows one more time that crypto is here to stay. It is just unfortunate that many people do not yet realized the many applications cryptocurrencies, crypto tokens and blockchain are going to have in the future.
Is RealT serious?
Of course, you can never be certain. But here is the deal. The reason I decided to trust them are the following:
- There is a very strong KYC implementation. So they comply with regulatory requirements.
- They have an active community.
- When buying a property, they make you sign-off on a purchase agreement where it is specifically stated what you are investing in, what costs are involved and how they plan to manage the property in the future.
Try it for yourself here: RealT.
Summary
RealT provides a great way to invest properties directly by using blockchain technology. If you invest in a property it is possible to generate income / portfolio appreciation in 3 different ways:
- Price appreciation of the property
- Income through rental payments
- Borrowing against your property shares and performing something like APY arbitrage.
Disclaimer
Please be reminded that this is not financial advice. You have to do your own research. Only invest what you can AND feel comfortable with.
If you use my affiliate link https://realt.co/ref/oldschripp/ it will earn a 2% commission on every share that you buy.
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