Top Ways Blockchain is Affecting Real Estate Investing
There are very few recognized, reliable investments that you can feel confident will continue to value and money flow for decades to come. Property is one of them.
Real estate is a finite commodity with both inherent and psychological value. It’s something that people want for shelter, business, entertainment, and recreation. And no matter what the markets do in the short-term, it is always going to be an intelligent long-term purchase.
Nevertheless, the actual estate investing game as we know it is on the brink of getting some important and sizeable changes. Most importantly, blockchain technology is revolutionizing how the business works from the inside out.
The Pain Points of Conventional Real Estate Purchasing
Real estate investing experienced a significant shakeup right around the start of the 21st century as the net came into the film and digitized formerly manual/paper processes. And while many technologies have come and gone over the last 15 or 20 years, it’s remained relatively unchanged by a 30,000-foot view. Over this time, some annoying and annoying pain points have emerged or been exacerbated. The biggest ones include:
Exclusivity. Virtually speaking, real estate investing is only available to wealthy people. While exceptional financing options make it to where members of this middle class can get some skin from the game, the barriers to entry are costly and high for those who don’t have the essential cash or connections. Between attorney fees, taxes, transport fees, exchange fees, and other closing expenses and transaction expenses, investors frequently wind up paying much more for an investment property when they initially expected. Stocks can be bought and sold in a matter of minutes. Bonds, mutual funds, precious metals, precious metals, and other physical assets can also be cashed in relatively quickly and unceremoniously. The exact same cannot be said for the property, which is a highly illiquid investment. Not only do you need to find a buyer — which may take days, weeks, or months — but third parties become involved. This leads to weeks or months of due diligence. (And even then, it is likely that the deal falls apart).
Slow trade rates. Property investing moves at a snail’s pace. It’s a gradual, deliberate, protracted process with lots of layers, complexities, and back-and-forth discussions. Getting a deal over the finish line can easily take six months to a year (and that is for easy trades ). Lots will change over that time!
Input blockchain: The very disruptive technology to change the real estate industry since the advent of the internet.
While originally created as a method for securely recording and managing cryptocurrency transactions, blockchain and cryptocurrencies such as Bitcoin are totally separate concepts. Blockchain has hundreds of potential uses, the majority of which don’t have anything to do with virtual money. Real estate is 1 example.
However, before we dig into the 10 ways blockchain is changing property investing, let us make sure we are all clear on precisely what blockchain is.
In the simplest terms, blockchain is a decentralized public digital ledger that’s used to document transactions in real-time across multiple computers in order that the document cannot be retroactively changed without changing other blocks along with the entirety of their network.
If you are a visual chip, you may want to consider it like that:
One party requests a trade.
The transaction is then broadcast out to a peer-to-peer network which consists of nodes.
The trade is subsequently verified by the other party.
After the transaction is verified, it is combined with other trades to make a new”block” of data, which is added to the ledger.
This new block is added to the existing blockchain, effectively attaching itself into other blocks. This makes it to where the trade can’t be altered without impacting all the other blocks it’s attached to. (Quite simply, it’s not happening.)
The transaction is complete.
Blockchain is a highly complicated and complex technology that simplifies and secures a variety of trades — property being among these. And though it’s hard for most to see at the moment, these changes are coming faster than we realize.
How Blockchain Changes Real Estate Purchasing
Now that we’re all on the exact same page regarding the challenges that now exist in the actual estate investing area and the way blockchain acts as technology, let’s carefully research some of the particular ways in which the latter is really helping to smooth over the former.
Historically speaking, those that are already wealthy have the very best chance of acquiring lucrative property assets and obtaining even more wealth. It’s one of those scenarios where you need money to make money.
Blockchain has the capability to become a great equalizer.
Blockchain is able to tokenize the ownership of assets — property or otherwise — which finally democratizes ownership and makes it into where anyone with any amount of money can find a skin in the game.
As the name suggests, tokenization essentially splits real estate assets up into tokens that can then be kept on the blockchain. Thus it will become possible for individuals to buy”shares” in bigger property investments they would not have the ability to obtain on their own.
What else tokenization does? It makes real estate investments a lot more liquid. Instead of waiting for months and years to sell a property and complete a transaction, investors may exchange some or all the property for instant cash. This frees up cash to invest in other properties (or reach any other personal or professional goal).
The real estate transaction process is lengthy and hard. And it’s made even harder by the involvement of lawyers, brokers, banks, appraisers, and a host of other third parties that insert themselves into the circumstance.
The fantastic news is that blockchain gets the capability to automate procedures, dis-intermediate individuals, and streamline the process without compromising the security or integrity of this offer. This will lead to more investors working together with companies like Estate Investing, LLC, which place investors in direct contact with motivated sellers.
Error-Free Land Titles
Did you know that as many as 25% of all title reports include errors?
Land registration can be managed in an offline capacity by overworked and understaffed departments. This commonly leads to errors, fraud, and even misinformation. (That’s why the $15 billion title insurance industry exists.)
With blockchain, all title documentation could be moved to a secure ledger. This will reduce the need to conduct complex title searches and will remove fraud entirely. The outcome is error-free land names that are less expensive and more reliable.
Smart contracts are automated contracts that self-execute with very specific instructions that are written in code and saved in the blockchain. They’re written in a”solidity” programming language, which uses”if-this-then-that” language. This has the ability to automate rent obligations and the rest of the financial aspects of real estate associations.
Concerning rental real estate, one of the biggest perks of smart contracts is the fact that it’s virtually impossible to get a renter to avoid paying rent. And if they do this, it may only mean one thing: They don’t have enough money. This generates less frustration involving investors/landlords and renters. Either rent is paid, also it is not. And if it is not, the flooding process can begin.
When intermediaries are cut out and contractual processes are streamlined, this results in lower costs for both buyers and sellers of investment real estate. Some or all the following may be eliminated or reduced in the very close to future: loan fees, review expenses, registration fees, transfer fees, taxes, commissions, and underwriting expenses.
We’re all looking for new opportunities. Blockchain has the potential to remove so a number of barriers to entry that retains middle-class individuals from their investing game. This could be among the major driving factors in narrowing the harrowing wealth inequality gap in this country (so long as the ideal informational processes and resources are set in place to educate new investors).
New Courses of Investments
Together with tokenization, fractional ownership, and smart contracts, it’s possible that entirely new classes of property investments will emerge. From homeowners selling garage space to mobile home park investors assisting tenants to become property owners, there is potential for a serious shakeup within this sleepy space.
When it is all said and done, blockchain eliminates a lot of the friction that traders experience within their day-to-day interactions. When friction is reduced, there is more time in order to add value, create new investments, and infuse additional capital into the market. This benefits everybody.
Real estate will have a high degree of human participation and emotion. However, any time processes can be streamlined and more chances can be produced, there are positives to be obtained. This is a big year to get a blockchain, so let’s keep an eye on the technology and continue to study the way that it impacts real estate investing going ahead.