When you hear blockchain, what do you think of?
If you’re like most people, you probably think of cryptocurrencies like bitcoin.
Bitcoin is a cryptocurrency that utilizes blockchain as its technology to operate.
However, blockchain itself is an innovative technology that’s positioned to change numerous industries, including real estate.
In this blog, we’ll touch on some of those changes and what you should be aware of if you’re looking to invest in the market.
1. What is blockchain?
Blockchain is a digitized ledger that decentralizes access and increases trust by being a single unalterable source of truth for information.
Blockchain allows the tracking of transactions and records across a distributed network of computers.
It’s often mislabeled as “cryptocurrency” or “Bitcoin” because blockchain is used to operate both.
Here’s how the blockchain process work:
A transaction or record is requested
This request is broadcast to a network of computers (nodes)
Using algorithms, the nodes process the request
The request, which can be a currency, a record, a legal contract, or other information, is verified by the nodes
Once the information is verified, the ledger is updated with a new block of data
This block of data is added to the blockchain and cannot be deleted or altered
This process is not only simple but it can be applied to numerous different applications in dozens of industries.
In real estate, it applies to legal contracts, financing, buying and selling property, and so many more.
It’s relevant because it adds trust in a real estate business activity for transactions and leasing.
By applying algorithms and technology to the legacy real estate process, you reduce a significant amount of friction and speed up the processes of buying, selling, leasing, and financing this asset class.
2. What’s the difference between Bitcoin, cryptocurrency, and blockchain?
You’ve probably heard the general buzz around all of these terms.
What’s the difference between them?
Bitcoin = type of cryptocurrency
Cryptocurrency = a digital currency used to facilitate transactions
Blockchains = digitized ledger that makes it possible for cryptocurrencies to exist
Blockchain does three things that enable cryptocurrencies.
First, it verifies value.
Second, it manages and records transactions.
Third, it facilities the value conversions (i.e., USD to bitcoin rate).
3. How does blockchain tokenize real estate?
In residential or commercial real estate blockchain, tokens represent an ownership stake in various classes.
This may be equity, debt, or cash flow.
It often helps to think of these “tokens” as a store of value.
So, for example, if a 100-unit apartment building is owned by 50 different investors secured on the blockchain, then each of those investors could own tokens to reflect their ownership in the equity of that asset.
The blockchain platform is used to document, store, and verify these ownership tokens that are easy to trade, sell, and liquidate.
With that, the real value of blockchain is not just trust and efficiency but also liquidity.
Traditionally, real estate is an illiquid asset.
The sale takes too long, and it’s incredibly process-heavy.
If real estate tokenization is issued using blockchain, then it becomes much easier to buy, sell, and trade under this platform.
Another benefit is that it democratizes real estate investing.
If the same 100-unit apartment building is worth $20 million, then a lead investor could buy it through a blockchain transaction.
They could break this cost into 20 million tokens or shares.
These tokens can be sold to main street investors for $1 each.
This gives the lead investor access to a broader range of buyers and creates a marketplace to buy and sell tokens of this particular asset.
4. How is blockchain technology changing real estate?
As noted above, blockchain technology can be applied to various aspects of the real estate industry.
Here are some uses you may see as you begin to delve into the industry.
Smart contracts
Smart contracts are enabled by blockchain to expedite the leasing process and save on costs.
It can also improve due diligence.
Additionally, blockchain can verify identities and incomes as well as reduce the likelihood of fraud.
Transactions
Did you know the entire real estate transaction process can be held on the blockchain?
This includes the submission of an offer, the verification of that offer, the due diligence process, the financing, and closing can all be verified and codified within a digital ledger.
Because all the information can be held and processed on the blockchain, its integration into the real estate industry has significant implications on real estate agent and broker jobs.
Financing
Financing information like credit checks, income and identity verification, debt to income ratios, and more can be held on and verified by blockchain.
This is ideal in the mortgage financing process as all your important documents will be held on the blockchain, and you won’t need to worry about getting dozens of different documents to your bank or broker.
Land titles
Land titles are normally kept offline, and blockchain technology allows them to be stored and verified.
These are critical legal real estate documents that allow you to verify title ownership of any plot of land in your area.
Leasing
Identity verification and contracting signing can be facilitated and held on a blockchain.
This is helpful during the leasing process when you need to verify a tenant’s income, check their employer, or get in touch with their references.
It can all be done using the digital ledger.
Liquidity
If/when an asset becomes tokenized, you’ll automatically increase the liquidity of that real estate investment.
If buyers and sellers of tokens can more easily sell and buy shares in a particular asset, then both exit strategies and liquidity issues will decrease drastically.
Ownership
Blockchain can be used as a single source of truth to verify ownership of assets in real estate.
This includes fractional ownership through a token, and these owners will be publicly available.
5. What companies should you know?
Blockchain is quickly being adopted by the growing property-sharing sector.
Here are a few companies that are working in the blockchain real estate sector.
Republic
This company allows people to invest in opportunities that contribute toward a better future for themselves and others.
If you choose Republic, you can invest in highly vetted startup opportunities, real estate, video games, or crypto investment options.
As an investor with Republic, you help build new projects, places, and currencies and then reap the rewards later.
Vairt
This is a platform that’s designed to help users earn secondary income by building and diversifying a global real estate network.
Vairt offers resources and tools to provide the best possible outcome when investing in fractional real estate.
These resources and tools include market overviews, neighborhood insights, property analysis, and long-term support.
All of these operate on a blockchain network for supreme security.
RealT
This is a fractional real estate investment platform that allows investors around the world to invest in the U.S. real estate market through a fully compliant, token-based blockchain network.
Investors are able to buy into tokenized properties with permissionless Ethereum and then maintain access to cash flows.
This gives them low maintenance ownership via RealTokens and allows owners to access rent payments weekly through US-Dollar stable coin, XDai, or Ethereum.
PropertyClub
This is a real estate platform using blockchain to refine the way people market, search, buy, sell, and invest in properties.
The company uses smart contracts to conduct digital real estate transactions using cryptocurrencies like Bitcoin or its own PropertyClub Coin (PCC).
ManageGo
This company leverages blockchain for rental property owners.
The ledger-backed software allows property managers and owners to process payments thoroughly, complete credit background checks, and manage maintenance ticketing.
DLT also helps owners get a more transparent and thorough view of payment history and renter backgrounds.
RealBlocks
RealBlocks utilizes blockchain to create new opportunities for real estate investing.
The platform allows investors to buy fractional interest instead of entire portfolios or assets.
Using tokenization that’s applied using blockchain technology, RealBlock helps reduce fees, speed up processes, and provide liquidity options.
Meridio
This company helps commercial property owners sell digital shares of their real estate.
The platform connects individuals and corporate investors with property owners who are looking to liquidate portions of their ownership.
SMARTRealty
SMARTRealty uses real estate contracts to enact and maintain property purchase and rental agreements.
This includes paying rent, establishing mortgages, and purchasing homes.
The company’s smart contracts help to establish protocols for the parties to use.
If they’re not met, then they immediately dissolve the contract.
Propy
This real estate marketplace uses smart contracts to enact international property transactions.
Propy’s platform enables buyers, sellers, and agents to use a series of smart contracts that help expedite the real estate process, and deal with international legality issues.
Slice
If you’re a smaller investor, Slice will provide opportunities in the commercial real estate scene.
It’s similar to Meridio in the sense that real estate owners can gain access to a large pool of international investors through the company’s ledger technology.
Harbor
This is a compliance platform for tokenizing assets, including real estate.
The company is tokenizing real estate assets such as funds, private REITs, building ownership, land, etc. to increase liquidity and transparency of the market.
The Bee Token
The Bee Token has a different approach to real estate with its blockchain-based home-sharing platform.
It’s similar to Airbnb in concept but instead allows homeowners to rent out their entire house or individual rooms in exchange for cryptocurrency.
6. Is it safe to use?
When it comes to investing money in real estate, you want to make sure anything you do is “secure.”
When you hear about blockchain being integrated into real estate transactions, you may wonder…is it safe?
The answer is yes.
Blockchain is a decentralized system with no single party in control.
The technology is built to be secure, and administrators do not have the ability to change the information that’s recorded in each chain.
While hackers will attempt to infiltrate the blockchain platform, they’re unlikely to be successful.
This is because of how the blockchain is built, the security protocols, and the multiple authentication techniques.
7. What are the benefits of blockchain in real estate?
Why is there a push for blockchain in the real estate industry?
Here are some of the top benefits.
Lower costs
When more platforms begin to use blockchain to make buying real estate easier, costs will go down overall.
Additionally, fees like inspection costs as well as loan fees and legal costs are reduced using blockchain platforms.
Blockchain helps to lower the barrier of entry for prospective real estate buyers.
It has the potential to make the process more efficient, and it could lower the risk for mortgage lenders and give real estate agents more clients.
Greater access to the real estate market
Tokenization makes real estate investment much easier.
You no longer need to finance the purchase of a whole property, pay to maintain it, market it to renters, etc.
If the property owner has broken up the asset, then all you have to do is pay some money to invest in it.
Blockchain helps to remove any middlemen in this transaction, and the security will always show that you own a piece of the property until you decide to sell it.
Increased transparency of transactions
As noted above, blockchain is a ledger of transactions.
This ledger cannot be altered and helps provide absolute transparency in transactions.
Compared to the traditional real estate market, it’s much simpler.
Instead of having many hands involved in a single transaction, you have your blockchain, which stores all of the information in one place and eliminates tasks for many of the parties (lawyers, underwriters, etc.).
8. What’s holding blockchain back in the real estate industry?
The biggest hurdle for blockchain now is insufficient knowledge.
Until 2019, most real estate investors only knew blockchain as it connects to Bitcoin.
Today, there is an increasing number of companies and institutions that are exploring blockchain’s uses as cryptocurrencies begin to blow up.
Right now, there’s an inability to scale in the industry because of a lack of standardization.
However, the U.S. federal and state regulatory bodies are beginning to pass Blockchain-related legislation with bills addressing concerns around cryptographic signatures, standardization of smart contracts, and record keeping.
In the next few years, we’ll begin to see progress made in this area.
Final thoughts
Blockchain has massive implications for the real estate industry, and its impact is likely only going to grow.
The use of blockchain has all of the following potentials:
To eliminate the need for middlemen in transactions
To improve trust
To act as a record-keeper
To reduce fraud
To expedite contracts, leases, and transactions
To improve liquidity
To reduce costs and fees
Although we’re a little way away from executing its full promise, investors should take all of these into consideration and begin to think about how to expose themselves to innovations in the real estate industry.
Additional Resources
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Disclaimer: we are not lawyers, accountants or financial advisors and the information in this article is for informational purposes only. This article is based on our own research and experience and we do our best to keep it accurate and up-to-date, but it may contain errors. Please be sure to consult a legal or financial professional before making any investment decisions.
Prior to starting Gokce Capital, Erika received a Bachelor of Architecture from the University of Southern California and a graduate degree in Urban Policy from Columbia University. She worked as both an architectural designer and engineer in New York before joining the New York City Department of Housing Preservation and Development.
Erika currently lives in the New York Metropolitan area with her spouse, daughter and cat. She is originally from Chicago and still considers herself a midwesterner at heart.
Erika also loves to read, write and travel (fun fact, she has visited all 50 states and more than 30 countries!). Her new book, Land Investing Mistakes: 11 True Stories You Need To Know Before Buying Land, is now available on Amazon.