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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 “tokenized” part refers to the way 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

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, of course, several benefits to tokenized real estate investing, but there are also some facts you should understand. Let’s take an objective look at everything to do with tokenized real estate, including how it works, examples of investment, and what companies are already providing opportunities for tokenized real estate investment.

Traditional Real Estate Vs. Tokenized Real Estate

By its very nature, tokenized real estate investment brings several new characteristics that make it quite different from the conventional real estate investing market. Here’s a quick breakdown of those differences.

Traditional Real EstateTokenized Real Estate
Buyer purchases the entire propertyBuyer can purchase as few or as many fractions of the property as desired
The market is open to anyone in the worldMarket is open to anyone in the world
The buyer usually holds a mortgage with a centralized bankThe buyer does not need to deal with a centralized bank
Less liquid — i.e. harder to purchase and sellMore liquid — i.e. easier to purchase and sell
The title for the property is held with the local governmentThe 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 processNear instant ownership transfer process

How Does Real Estate Tokenization Work?

Tokenization is used across many industries and simply refers to producing digital securities (tokens) that represent fractional ownership of an asset, in this case, real estate.

This tokenization is done on a blockchain, which is a public, distributed ledger system. This means that when a real estate asset is tokenized, all ownership records are stored securely and permanently on the blockchain.

The tokenization process involves three key steps:

1. The creation of digital tokens representing fractional ownership in the property

2. Issuance of the tokens on a digital ledger

3. Trading digital tokens on an exchange or platform developed for tokenized assets

How Does The Blockchain Real Estate Market Work?

The tokenized real estate market is predominately led and facilitated by specialized tokenized real estate companies and platforms.

  1. A tokenized real estate company will work with local real estate operators to source desirable real estate investment opportunities.
  2. The tokenized real estate company will create a special purpose vehicle (SPV) for the property, a legal entity created to protect its investors, such as a limited liability company (LLC).
  3. That LLC is then fractionalized into digital security tokens.
  4. A smart contract is created on the blockchain to ensure and exhibit ownership, security law compliance, etc.
  5. Fungible security tokens are minted and issued to investors, reflecting their fractional investment in the piece of real estate.

Tokenized Real Estate Platforms And Companies

As mentioned earlier, the tokenized real estate market is facilitated by specialized tokenized real estate companies and platforms. Here are some examples of those companies and platforms that are currently operating:

  • Roofstock: Best for a quick purchase
  • HoneyBricks: Best for commercial real estate
  • RealTBest for property management
  • SolidBlock: Best for sellers
  • VaveBest for people low on cash
  • DigiSharesBest for investing in energy infrastructure
  • Arrived: Best for vacation rentals

Here’s a quick breakdown of the services offered by each provider:

ProviderBuyer- Or Seller-FocusedBrowse Online Real Estate ListingsBuy & Sell With CryptoMinimum InvestmentPurchasing Finance
RoofstockBuyerYesYesNot specifiedYes, up to 80%
RealTBothYesYesUS$50Yes, third party

To Sum It Up

Tokenized real estate ownership promises to change the way everyday investors can invest in property. By splitting a property’s ownership into smaller pieces (represented by digital tokens), tokenized investment “democratizes” access to wealth-building opportunities, allowing smaller investors to own a piece of property for a fraction of the cost.

Tokenized real estate investing offers a number of advantages, including increased access, low entry cost, and higher liquidity. However, it is important to understand the potential disadvantages as well, such as fees, regulatory complexity, and security risks.

Today, more and more specialized tokenized real estate investment companies are helping consumers invest in real estate by sourcing properties, performing due diligence, and offering secure platforms for the investment process. As these companies continue to enter the market, tokenized real estate investing will become increasingly accessible and popular among everyday investors.

For investors looking to expand their portfolio with real estate, tokenization could be an interesting way to do so. With its advantages and potential returns, it is certainly worth considering. If you’d like to find out more, click on the company links above to see what they have to offer and then determine if tokenized real estate investing is right for you.

By Asif Raza

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