Emerging Trend In Crypto Real Estate InvestingLAST UPDATED: August 23, 2023 | By Conrad Golly
Crypto real estate investing has emerged as a new trend that allows investors to diversify their portfolios by investing in tokenized real estate assets. Tokenization is the process of breaking down real estate assets into digital tokens that represent ownership of a fraction of the underlying property.
This method offers investors increased access to the real estate market, allowing them to invest in properties that were previously unavailable to them.
Tokenized real estate investing offers several advantages over traditional real estate investments. It allows investors to invest in fractional ownership of real estate assets, making it easier to invest in a diverse range of properties across the globe. Additionally, tokenization provides greater transparency and security, as all transactions are recorded on a blockchain network.
This method also allows for low fees and offers investors increased liquidity, as tokens can be easily traded on alternative trading systems. However, there are several legal and regulatory challenges that must be addressed, and securities laws and regulations must be followed.
- Tokenized real estate investing allows investors to diversify their portfolios by investing in fractional ownership of real estate assets.
- Tokenization provides greater transparency and security, and allows for low fees and increased liquidity.
- Despite the many benefits of a tokenized asset offering for real estate investing, there are several legal and regulatory challenges that must be addressed.
Real Estate Investing
Real estate investing has long been a popular way for investors to diversify their portfolios and generate passive income.
With the emergence of blockchain technology and tokenization, real estate investing has become more accessible and transparent than ever before.
Traditional Real Estate Investments
Traditional real estate investments involve purchasing physical properties, such as houses, apartments, and commercial buildings, and earning rental income or capital gains from the sale of the property.
While this type of investment can be lucrative, it also requires significant capital, time, and effort to manage the property.
Crypto Real Estate Investing
Crypto real estate investing involves using cryptocurrency to invest in real estate assets.
Tokenization allows investors to own fractional shares of a property, which can be bought and sold on blockchain networks.
This method of investing provides greater liquidity, lower fees, and increased transparency compared to traditional real estate investments.
Investors can own part of a property anywhere in the world without a large financial commitment and with near-instant settlement.
The value of the property is divided into digital tokens that represent the owner’s stake in that property. All of the tokens for that property are stored on the blockchain, the same technology that underlies cryptocurrencies like Bitcoin.
Investing in real estate with crypto is as simple as purchasing and holding the real estate token in your crypto wallet. The token serves as proof of fractional ownership of a specific property.
RealT is an example of a platform that offers crypto real estate investments. For instance, a property worth $582,200 can be split into 4,000 tokens, each token representing fractional ownership of the entire asset.
With 4,000 tokens, the price per token can be calculated as the property value divided by the number of tokens. Investors can also see the exact amount of rent one token will generate.
Let’s look an example!
The property above is currently available on RealT as a crypto real estate investment.
As you can see, the asset price is $582,200 and the token price is $145.56. This is because the property as been split into 4,000 tokens, each token representing fractional ownership of the entire asset.
With 4,000 token the price per token can simply be calculated like this:
Property value / number of tokens = Token value
If we then have a look at the details of the listing page, we’ll also see the exact amount of rent one token will generate.
Again, this is simply the total rent divided by the number of tokens.
Real Estate Investment Trusts (REITs)
Real Estate Investment Trusts (REITs) are companies that own and operate income-generating real estate assets, such as apartment buildings, office buildings, and shopping centers.
Investors can buy shares in a REIT, which provides exposure to the real estate market without the need for direct property ownership. REITs offer diversification, liquidity, and potentially higher returns than traditional real estate investments.
Real Estate Tokenization
What is Real Estate Tokenization?
Real estate tokenization is the process of converting ownership of a real property asset into digital tokens that represent the underlying property with all its rights.
This allows for fractional ownership of real estate projects, which means that investors can own a fraction of a property without having to purchase the entire asset.
The tokens are stored on a decentralized database or blockchain network, allowing investors to purchase fractional ownership of the property.
Tokenization creates a more efficient and transparent market, allowing investors to participate in real estate investments with lower transaction costs and increased liquidity.
How Does Real Estate Tokenization Work?
The process of real estate tokenization involves several steps. First, a legal entity that owns the real estate asset issues security tokens that represent fractional ownership of the real property ownership.
These tokens are then sold directly to investors, who become token holders and have the same rights as traditional real estate investors.
Tokenization is made possible by blockchain technology, which allows for the creation of digital tokens that represent real property assets.
The use of smart contracts ensures that the ownership rights of token holders are enforced automatically.
Real estate tokenization offers several benefits to investors, including increased access to assets, lower transaction costs, and greater transparency.
Tokenization also allows for fractional ownership, which means that investors can own a fraction of a property without having to purchase the entire asset.
This allows for greater diversification of investment portfolios and provides investors with more investment opportunities.
Real Estate Tokenization Example
One example of real estate tokenization is the Regis Aspen Resort, which was tokenized in 2018.
The resort was tokenized using a security token offering (STO), which allowed for fractional ownership of the property.
The tokens were sold to accredited investors, who became token holders and had the same rights as traditional real estate investors.
The tokenization process allowed for increased liquidity and lower transaction costs, making it easier for investors to participate in the investment opportunity.
Real estate tokenization is an emerging trend in the real estate industry that offers new investment opportunities and increased access to assets.
The use of blockchain technology and smart contracts ensures greater transparency and efficiency in the market.
As the real estate industry continues to evolve, real estate tokenization is likely to become more common, offering investors new investment opportunities and greater flexibility in their investment portfolios.
In conclusion, real estate tokenization with cryptocurrency is an innovative way to invest in real estate assets.
It allows for fractional ownership, increased liquidity, and lower transaction costs, making it easier for investors to participate in real estate investments.
As the industry continues to evolve, tokenized real estate investing is expected to become more common, offering investors new investment opportunities and greater flexibility in their investment portfolios.
Benefits of Real Estate Tokenization
Real estate tokenization is a process in which real estate assets are converted into digital tokens stored on a blockchain, allowing for fractional ownership and increased access to real estate investments.
This innovative approach to real estate investing offers a range of benefits for investors, including:
Increased Access to Real Estate Assets
Real estate tokenization allows for greater access to real estate assets for a wider range of investors.
Traditional real estate investments often require significant capital, making them inaccessible to many retail investors.
By dividing a property into smaller parts, investors can purchase a fraction of the asset, which can be traded on a digital platform.
This opens up investment opportunities to a broader range of investors, including those who may not have the resources to invest in traditional real estate assets.
Fractional ownership is a key benefit of real estate tokenization.
By purchasing a fraction of a property, investors can gain exposure to the real estate market without having to purchase an entire asset.
This allows for greater liquidity and flexibility, as investors can buy and sell their tokens more easily than traditional real estate assets.
Fractional ownership also allows for greater diversification, as investors can invest in multiple properties rather than being limited to a single asset.
Real estate tokenization can help prevent money laundering by providing greater transparency and traceability.
Tokenization involves the use of blockchain technology, which allows for secure and transparent record-keeping.
This makes it easier to track the ownership and transfer of real estate assets, making it more difficult for illicit funds to be laundered through real estate transactions.
Real estate tokenization provides greater transparency for investors by providing access to real-time data on the underlying asset.
This includes information on the property’s value, occupancy rates, and rental income, among other things.
This level of transparency can help investors make more informed decisions and can also help to build trust in the real estate investment market.
Real estate tokenization offers simplicity and ease-of-use for investors.
Buying or selling a crypto token does not require any contracts, lawyers, or regulators, making it simple to invest in real estate assets.
Additionally, there are no complications when receiving rent distributions from the investment since the returns are transferred directly to the investor’s wallet.
Real estate is typically considered one of the least liquid asset classes on the market. With tokenized real estate, however, investors have greater liquidity and flexibility.
Most crypto syndicators offer to buy back the token at no extra cost, and investors can also sell their tokens on the open market.
This allows for easier buying and selling of real estate assets, making it a more attractive option for investors.
Another huge benefit is the complete transparency of transactions and ownership. Since all transactions on the Ethererum blockchain are completely visible to the public you can check every transaction detail on Etherscan:
Not only will you be able to view all transactions related to a specific token, but you’ll also see who (= which wallet) owns how much of each property. As a result, property ownership becomes much more transparent.
The single biggest advantage for retail investors is that crypto real estate assets allow for fractional ownership. That in itself is not surprising since traditional real estate syndications have made use of this concept as well. However, the level of entry has never been that low.
With most real estate syndication (= direct ownership of a property) you needed to invest a minimum of somewhere around $20,000 and upwards.
With fractional ownership in crypto real estate, the minimum investment simply is the price of one token which can be as low as $50.
Real estate is generally considered one of the least liquid asset classes on the market. If you invest in an individual property through syndication, you could expect to have your funds locked up anywhere from 3-10 years. Additionally, it is entirely in the syndicator’s power when to sell or refinance the property and return capital to the investors.
With tokenized real estate things are very different! Not only do most crypto syndicators offer to buy back the token at no extra cost, but you’ll also be able to sell your token on the open market.
As you’re reading this, crypto real estate tokens are being sold, bought, and swapped on decentralized exchanges like Uniswap.
Digital Securities Market
The digital securities market is an emerging trend in the real estate industry that allows investors to buy and sell fractional interests in real property assets. This market is made possible by the process of tokenization, which involves breaking down real-world assets into smaller units by issuing tokens on a blockchain network.
Security tokens are digital tokens that represent a financial interest in an underlying asset, such as real estate.
These tokens are regulated by securities laws and are subject to the same rules and regulations as traditional securities. Security tokens offer investors increased access to the real estate asset class, allowing them to invest in entire portfolios of properties with low fees and greater transparency.
Tokenized Security Offering
A tokenized security offering (TSO) is a fundraising mechanism that allows real estate developers to raise capital by issuing security tokens.
TSOs offer several advantages over traditional fundraising methods, including lower costs, faster execution times, and the ability to reach a broader investor base.
TSOs are typically conducted using smart contracts, which automate the process of issuing and distributing tokens to investors.
Smart contract or contracts are self-executing contracts that are programmed to automatically execute when certain conditions are met.
In the context of real estate tokenization, smart contracts are used to automate the process of issuing and distributing tokens to investors, as well as to enforce the terms of the investment agreement.
Smart contracts offer several advantages over traditional contracts, including greater efficiency, transparency, and security.
Real Estate Operators and Developers
Real estate operators and developers are increasingly turning to tokenization as a way to raise capital and increase liquidity. Tokenization allows these companies to fractionalize real estate assets, making it possible to sell off smaller portions of a property to a larger pool of investors.
This can help to reduce the barriers to entry for smaller investors and provide more opportunities for investment in the real estate market.
Residential Real Estate
Residential real estate is one area where tokenization is gaining traction. Tokenization can help to make it easier for investors to access the residential real estate market, particularly in high-demand areas where property prices can be prohibitive.
Tokenization can also help to reduce the costs associated with property management, making it more attractive for investors to participate in residential real estate investments.
Commercial Real Estate
Tokenization is also being used in the commercial real estate sector. Tokenization can provide greater liquidity for commercial real estate assets, making it easier for investors to buy and sell shares in these properties.
This can help to reduce the risks associated with commercial real estate investments and provide investors with greater flexibility when it comes to managing their portfolios.
Property management is another area where tokenization is having an impact. Tokenization can help to streamline the property management process, making it easier for investors to track and manage their investments.
This can help to reduce the costs associated with property management, making it more attractive for investors to participate in real estate investments.
Tokenization is an emerging trend in the real estate industry that is providing investors with greater access to investment opportunities and greater transparency in real estate transactions.
While there are still some legal and regulatory hurdles to overcome, the use of blockchain technology and smart contracts is helping to pave the way for a more efficient and effective real estate investment market.
Regulations and Legal Considerations
Tokenization of real estate assets falls under securities laws, and therefore, it is important to comply with the regulations. In the United States, the Securities and Exchange Commission (SEC) regulates securities offerings.
Tokenized real estate offerings must comply with the SEC’s registration requirements, unless they qualify for an exemption. The SEC has issued guidelines on the use of blockchain technology in securities offerings, and it is important to consult with legal experts to ensure compliance with these guidelines.
Tokenized real estate offerings are typically available to accredited investors. Accredited investors are individuals or entities that meet certain financial criteria, such as having a net worth of at least $1 million or an annual income of at least $200,000.
This requirement is in place to protect investors from investing in risky assets that they may not be able to afford. Tokenized real estate offerings must verify that investors meet the accreditation requirements.
Tokenized Assets and Security Tokens
Tokenized real estate assets are represented by security tokens. Security token represents: tokens are digital tokens that represent ownership in a real-world asset, such as real estate. Security tokens must comply with securities laws, and they are subject to the same regulations as traditional securities.
Tokenized real estate assets must be registered with the SEC or qualify for an exemption. Security tokens provide a way for investors to invest in real estate assets with greater liquidity and lower fees than traditional real estate investments.
Tokenized real estate assets are an emerging trend in the real estate industry, and they offer investors increased access to real estate assets with greater transparency. However, it is important to comply with securities laws and regulations to ensure that investors rights are protected.
Tokenization of real estate assets provides a way for investors to invest in fractional interests in real estate assets, allowing for greater diversification of portfolios.
Emerging Trends and Investment Opportunities
The real estate industry has traditionally been dominated by large institutional investors and high net worth individuals. However, with the emergence of real estate tokenization, the market is now open to a wider range of investors.
This includes retail investors, who can now invest in real estate assets with smaller amounts of capital. In addition, real estate operators can now raise capital more efficiently and at a lower cost, while investors can gain access to a wider range of investment opportunities.
One of the key benefits of real estate tokenization is fractional ownership. Tokenization allows investors to purchase fractional ownership of a real estate asset, which means they can invest in a portion of the asset rather than the entire property.
This makes real estate investing more accessible to a wider range of investors, as they can invest in real estate with smaller amounts of capital. In addition, fractional ownership can also provide investors with greater liquidity, as they can sell their tokens on a secondary market.
Another benefit of real estate tokenization is the ability to tokenize entire portfolios of real estate assets. This allows investors to gain exposure to a diversified portfolio of real estate assets, which can help to mitigate risk.
Tokenized portfolios can also provide investors with greater liquidity, as they can buy and sell tokens representing the entire portfolio on a secondary market.
Real estate tokenization represents an emerging trend that is transforming the real estate industry. It is providing investors with increased access to real estate assets, while also providing real estate operators with a more efficient way to raise capital.
As the market for tokenized real estate assets continues to grow, investors can expect to see more investment opportunities and greater transparency in the real estate investment market.
How to invest in real estate with crypto
There are several ways to invest in real estate with the cryptocurrency of your choice. Most of them involve purchasing a token that represents fractional ownership of a property.
These tokens can be usually purchased with other digital assets such as Bitcoin, Ether, or various stablecoins.
Once the token is purchased it will appear in your crypto wallet.
This token serves as proof of ownership and thanks to the smart contract you signed when purchasing the token, you will have rent payments distributed directly to your wallet.
Crypto real estate investment projects
In this section, I’ll go through a few crypto real estate projects that I have personally tried out. Keep in mind that this entire industry is still fairly young, so there are some technical and legal hickups to be expected along the way.
That said, the three projects below are taking innovative approaches to make real estate investing available to all investors.
RealT is probably the biggest and most established player in the space. They offered their first investment property in early 2019 – a single-family home in Detroit.
Since then they have steadily expanded their portfolio to also include multi-family properties in the Detroit area. Although offers are still fairly limited and there is no great diversification in terms of property location, RealT is growing by leaps and bounds.
(Read: RealT Review)
Meridio’s focus is commercial real estate, i.e. office buildings, storage spaces.
They have built their platform and investment structure on the Ethereum blockchain and use tokens to manage ownership and distributions.
In order to view their offerings, you’ll have to register and be approved by their team. But, usually, this will only take about 72h.
Slice is another syndicator solely offering commercial real estate as a crypto investment.
Although their marketplace is currently only available to pre-approved investors, their portfolio looks well diversified with returns far above market average.
Verdict: Crypto Real Estate Investing
Tokenized real estate investing is a relatively new way to invest in property, allowing investors to own fractions of a piece of real estate anywhere in the world.
The tokenization of real estate assets offers a multitude of benefits over traditional property ownership.
Tokens are simple to purchase and sell and can be swapped for other tokens or be held in a crypto wallet and serve as proof of ownership. Smart contracts enable automated distributions to investors and reduce banking fees.
The current value of the tokenized real estate market is approximately US$200 million.
However, given that the present value of the global real estate market is thought to be US$317 trillion, a 0.5% tokenization rate would create a trillion-dollar industry.
There are already some interesting projects competing to offer the most competitive returns on the crypto real estate market, including RealT, Meridio, and Slice.
Combining the inflation-proof returns of real estate with the power of blockchain technology is a game changer. Much like stocks give us fractional ownership of companies, blockchain real estate brings fractional ownership of real property in this new use of blockchain technology. Investors can now own part of a property anywhere in the world without a large financial commitment and with near-instant settlement.
Here are some of the benefits of tokenized real estate investing compared to traditional real estate:
|Traditional Real Estate||Tokenized Real Estate|
|Buyer purchases the entire property||Buyer can purchase as few or as many fractions of the property as desired|
|Market usually only open to local buyers||Market is open to anyone in the world|
|Buyer usually holds a mortgage with a centralized bank||Buyer does not need to deal with a centralized bank|
|Less liquid — i.e. harder to purchase and sell||More liquid — i.e. easier to purchase and sell|
|Title for the property is held with local government||Title for the property is secured and shown on the blockchain|
|Usually must pay with fiat (traditional currency)||Can pay with cryptocurrencies such as Bitcoin or Litecoin|
|Lengthy ownership transfer process||Near instant ownership transfer process|
The tokenization process involves three key steps: the creation of digital tokens representing fractional ownership in the property, issuance of the tokens on a digital ledger, and trading digital tokens on an exchange or platform developed for tokenized assets.
Tokenized real estate companies work with local real estate operators to source desirable real estate investment opportunities.
The tokenized real estate company creates a special purpose vehicle (SPV) for the property, a legal entity created to protect its investors, such as a limited liability company (LLC). That LLC is then fractionalized into digital security tokens.
A smart contract is created on the blockchain to ensure and exhibit ownership, security law compliance, etc. Fungible security tokens are minted and issued to investors, reflecting their fractional investment in the piece of real estate.
Some of the companies and platforms that are currently operating and providing opportunities for tokenized real estate investment include Roofstock, HoneyBricks, RealT, SolidBlock, Vave, DigiShares, and Arrived.
Investors can use tokenization to easily invest in various types of real estate, including single-family housing, multi-family housing, office buildings, industrial buildings, self-storage units, commercial development projects, and undeveloped land.
Personally, I am very excited for the advent of tokenized real estate. Combining the inflation-proof returns of real estate with the power of blockchain technology will be a game changer.
Before you head out: