Tokenized Real Estate: An introduction to fractional real estate investment
The fractional real estate market opens up a lot of possibilities for new investors. It doesn’t require a large cash investment and it can offer the potential to generate more income than traditional investments.
Tokenization in Real Estate is a system where geographically desirable assets are distributed to investors through a token. This tokenization system divides ownership into small chunks, which can be traded on exchanges and has the capacity to reach more people than traditional real estate ownership models could. The fractional nature of this asset means that any one investor can own a share that cannot exceed 1% of the total number of tokens in circulation at any given time.
How does real estate tokenization work?
The process of real estate tokenization can be broken down into 3 important steps:
- The underlying real estate is purchased and the holder of this property maintains the ownership rights
- The tokens are then issued from those rights and made available to investors on the blockchain platform
- Shareholders use the tokens for voting and dividend purposes, which can be used for decision-making on how to manage the investment.
Tokenization in real estate makes it possible for an investor to participate in a physical asset with a small amount of capital in a way that was not previously possible. Real estate investing typically requires a large initial investment, but this is not required when owning fractionalized tokens from an asset. An investor with as little as $100 can purchase tokens, which can then be used for voting and dividend purposes.
It is important to note that the method of investment differs from traditional real estate investing in a significant way. With traditional investing, substantial upfront capital is necessary to make an investment. This isn’t the case with tokenized real estate since individual investors can purchase small portions of physical assets. Fractional real estate ownership also allows for a greater number of investors to participate in this market, which was previously limited only to individuals who had access and means to meet the large financial requirements that are generally associated with investments in this market.
How can tokenized real estate be used?
Tokenized real estate can be used in a variety of ways, but most commonly it is used to make ownership transferable as well as to facilitate issue and transfer of dividends and voting rights. The potential uses are limited only by the imagination of individual investors and how they choose to invest their tokens. Real estate investment funds (REITs) have become very popular in the United States and other countries that have a booming real estate industry.
How does Blockchain in Real Estate work?
Blockchain in real estate works by using a network of computers to track and record information about the ownership and transfer of real estate. It is a key technology in blockchain, which has been used for other commercial purposes such as healthcare, financial services, and supply chain management.
Blockchain also offers increased transparency, trustworthiness, and security by recording all transactions on a public ledger that cannot be changed or manipulated by any single person or computer. All parties involved in the transaction have access to this transaction history which creates an accessible evidence trail with accountability for all actors involved. This not only means more trust between buyers/sellers but it also lends new potential opportunities for property owners who want to offer their properties on the market through digital wallets like BitPay
Real estate assets are digitized and registered on the blockchain following a smart contract. Essentially, the whole process of tokenization is recorded in a block chain. The blockchain platform is publicly available and it records all transactions that are made between parties, ensuring the security of these deals. Real estate tokens can be used to vote and receive dividends from the real estate asset that they represent.
Tokenizing real estate assets has been made possible through innovations in technology that have given us systems such as Bitcoin and Ethereum. Digital platforms for trading multiple types of assets have been created, which means that traditional methods of investing in real estate have become obsolete.
Block chain real estate development and it’s significance
Blockchain real estate development has been touted as a game changer in the industry. One of the main reasons it is such an important innovation is due to the security that it provides against intruders and fraudsters. As real estate is digitized, these transactions are recorded on a public ledger, which is completely transparent and can be accessed by anyone who has access to this platform. The lack of human interaction that would otherwise be required makes this development very appealing to investors and developers alike.
There are many advantages associated with block chain technology when speaking of tokenizing real estate assets. The digitization process takes place instantaneously and with no human interaction. This makes it possible to update real estate ownership records within a matter of seconds, removing the possibility of fraud by intruders. The blockchain is also entirely transparent, meaning that other token holders can monitor transactions in real time, ensuring the security of these transactions.
One important advantage that is often overlooked when discussing block chain technology is its ability to provide the majority of investors with a way to participate in an asset that was previously beyond their financial means. Tokenization allows investors to purchase fractions of each asset and provide them with a share in their property at an affordable price that was not previously possible.
Tokenized real estate is a safe and secure way to take an interest in physical assets. The transparent nature of the blockchain technology ensures that investors are protected against fraud and abuse. As an investor, you also have the ability to participate in a wide range of assets that were previously out of reach.