Real Estate Tokens: What They Are and How to Invest

Stacks of coins with miniature houses on top.

Franklin Roosevelt once said:

“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.” 

Of course, it’s not always easy to get into the real estate market. Buying houses, apartments, and condos requires substantial money, something not everyone has. Enter real estate tokens, a new and more affordable way to invest.

What Is a Real Estate Token?

As we move further into the world of blockchain, if an item can be tokenized, it will be tokenized. This process can now be seen with the tokenization of real estate as many Security Token Offerings (STOs) have become available already in 2019.

Put simply, a real estate token is a virtual asset used to represent ownership of land, apartments, homes, and various other real properties. The intent is to eliminate antiquated and outdated methods of dealing with real estate. Instead, buyers and sellers complete transactions with digital tokens.

While this might sound futuristic on the surface, real estate tokens are already a part of our reality. They’re being developed for purposes that include:

  • Timeshares
  • Shares in funds that pertain to real estate
  • Tokenized Real Estate Investment Trusts (REITs)
  • Investment opportunities with developing projects

Tokenization Advantages

Real estate tokens could cause significant disruption in the industry. There are many distinct advantages of tokenization for investors and issuers. Here are a few of the high-level advantages those in the real estate market can experience:

Liquidity

Hand cupping under water.

Perhaps the biggest advantage that tokenized real estate holds is liquidity. This is the ease through which an asset can be purchased or sold. In its current state, real estate is considered illiquid, which is arguably the single biggest drawback to real estate investing.

Tokenization makes this market much more liquid as it creates an easier method to buy and sell real estate investments. It also helps to capture additional value which was previously lost due to the negative perception that real estate is an illiquid market.

Fractional Ownership

With real estate tokens, a single token does not need to be purchased as a whole unit. That means each token has the ability to be divided, which means the seller can sell fractions of tokens at lower prices. It also creates a lower cost of entry as the amount of sufficient capital decreases, opening the market to those might otherwise not be able to participate.

Global Investors

A third advantage tokenization in real estate offers is the expansion of the investor pool. Instead of limiting the opportunity to only local or regional investors, anyone with enough money and an internet connection can participate. As a result, potential buyers and sellers can come from literally anywhere in the world.

Blockchain Benefits

Tokenizing real estate assets also comes with all the benefits inherent to the blockchain. These include transparency, immutability, security, and decentralization. While you might find some of those advantages already in certain areas of the real estate market, the blockchain has them all under one roof.

Users know exactly where their money went and precisely what it was used to purchase. Additionally, with decentralization, no single person or entity has complete control over the network. That means changes or adjustments to the blockchain require a majority agreement, making it much less likely that any changes will occur.

How to Invest in Real Estate Tokens

City skyline with river.Real estate tokens are not yet mainstream, but that doesn’t mean there aren’t ways to invest right now. Currently, it can be a challenge to find the right place to invest in real estate tokens; however, there are a few platforms that can get you started.

Harbor

The Harbor platform provides users with a way to trade real estate on a blockchain network. Assets available on Harbor include private REITs, real estate funds, building ownership, and land. Using blockchain technology means Harbor provides transparency, efficiency, fractional ownership, and, of course, liquidity.

Harbor’s site says that its protocol “makes it easy for issuers to tokenize real estate assets while enforcing the rules and regulations governing private securities and real estate assets.”

Slice

Another option for tokenized real estate investing is Slice. This platform boasts that it’s “real estate investing for the 21st century,” and it’s hard to argue with them. Investors have granular control over their real estate assets and receive tokens which represent their investments.

Additionally, Slice gives users the ability to hold, trade, or liquidate their tokens with its built-in security exchange platforms. The platform is available to anyone who has $10,000 he or she is willing to invest.

City street with tall white buildings.

A Chelsea NYC, NY sample from the Slice portfolio (Courtesy of Slice)

Meridio

Meridio is a platform that gives its users the ability to invest in shares of real estate on the blockchain. Through Meridio, properties are split into digital shares, which gives investors and owners a way to interact with one another seamlessly.

Additionally, Meridio assures its users that the platform and its tokens are compliant with all regulations. This is evident through the KYC, AML, and thorough verification process both investors and owners must complete to participate on the site.

Conclusion

The tokenization of real estate is a potential game changer for those that invest in properties around the world. However, seeing that potential come to fruition will take a significant amount of planning and integration by professionals in the real estate and blockchain industries.

Moving real estate into the world of digital assets isn’t as simple as it seems. There are regulations, rules, and compliance issues that must first be addressed. A misstep in any or all of these areas could be the differentiator between failure and success.

Tokenizing real estate on the blockchain offers plenty of real-world opportunities and benefits. We’re excited about the future of this market and will follow it closely as it continues to mature and develop.  Subscribe to the Bitcoin Market Journal newsletter to follow along with us.

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