As virtually all aspects of modern life – especially financial investments – make a clear shift to the digital arena, it is no surprise that the tokenization of real estate has grown in popularity.
By now, you’ve probably heard a little about NFT bonds and how they can help unlock the value of real estate. Meanwhile, headlines like the record $66m blockchain deal have shown the possibilities of fractional real estate for developers, investors, and sellers alike.
However, some confusion still surrounds the topic of using an end to end platform for real estate transactions and equity tokens, not least from first time investors. And with confusion comes insecurity – after all, how can you trust something that you don’t fully understand?
In this article, we demystify real estate NFT and explain why it’s not only safe, but indeed the safest option for buying and selling real estate.
When tokenizing real estate assets into NFTs, the owner is issued a token (an NFT) that represents his property – a DAO (decentralized autonomous organization). The owner is then able to sell a small fraction of the DAO by issuing fungible tokens (FT) against the issued NFT (which gets locked into a smart contract). This is because real estate investments must be managed by an authority that holds a record of owners rather than a list of crypto wallet addresses.
So, the digital transactions share some characteristics with more traditional joint property ownership. Yet, rather than earning 10% or 50% of the real estate, a token can be for a tiny percentage – even for a single inch of the property. For example, if the owner is issued 1,000 FT, each representing 0.1% of the DAO), an investor can buy 100 of those FT and thus 10% of the house. Furthermore, the FT become tradeable in the open market and hence value discovery happens.
From an investor’s perspective, purchasing NFT bonds allows you to buy a diverse portfolio of real estate opportunities. Meanwhile, property owners looking to sell can tokenize their assets to unlock the value of real estate. Selling fractional real estate bumps up the overall cost of the property while it also affords the chance to retain some equity tokens for mental insurance.
Furthermore, holding security tokens and NFTs for a small percentage of the property or portfolio means that sales can occur very quickly too. Any investors wanting a fluid approach to their investments can look to democratize real estate ownership for exceptional results.
When coupled with the impenetrable nature of blockchain tech, holding NFT bonds is one of the safest solutions and is set to be the future of real estate. Unlike trusting central custodians (such as banks), self-custodianship through crypto-based assets ensures that you stay in control of your own capital in the safest way possible – by storing it in a crypto wallets that are completely tamper-proof and guarded by a private key that is known only to the wallet owner.
When it comes to Real Estate NFTs, house owners and investors keep their tokens (which represent their shares in the DAO, and by extension, their shares in the property) in their own wallets, guarded by their own private keys.
At Reitcircles, we’re taking this a step further and working on a commercial vault, for added security, that will be able to store the tokens and provide insurance for the assets held within. (If you’ve ever heard of the unlucky millionaires that have been locked out of their Bitcoin wallets because they lost their private keys, the vault will guard against this by sharing access among multiple people).
The only drawback to NFTs for real estate is that it’s not yet well understood by the mainstream, making it seem needlessly intimidating. This is true of any new technology, however. While the Internet revolution began in 1993, it wasn’t until the early 2000s that mass adoption occurred. Bitcoin followed a similar path, launching in 2009 but not really taking off until 2016.
NFTs are in the very early phase of adoption, but the spread of knowledge through mass communication channels is helping to drive this forward. Don’t get left behind as Real Estate NFTs take off. Find out more about buying NFTs for real estate or the tokenization of property portfolios by getting in touch today.