You’ve probably heard about cryptocurrency, bitcoin, and blockchain. It’s been in the news many times over the past few years. Perhaps, you’ve even joined and participated in these innovations. Blockchain, in particular, is one innovation that many real estate experts are keeping track of due to its potential to revolutionize the way real estate transactions are carried out.
While the majority of that potential is currently theoretical, forward-thinking investors should learn about blockchain’s affordances and start thinking about how you could make it useful for yourself. Let’s look at blockchain more closely. Let’s define what it is and see why people are calling it a game-changer for Boerne real estate investors,
Blockchain Defined
To put it simply, a blockchain is a digitized ledger or shared database. What gives this an edge over other databases is that it is built on decentralized access. This means that the data is available on multiple computers and is accessible to all, but it cannot be altered. This is its main feature. Because it cannot be changed, blockchain data is considered to be very trustworthy. Although often confused with bitcoin or cryptocurrency, blockchain is a secure system for recording and distributing digital information.
How It Works
The blockchain process is initiated when there’s a request for a record or transaction. This request is sent out to nodes or computers connected to a network. Using algorithms, the nodes process the request. After processing, the request is then verified. Once this happens, the ledger is updated with a new block of data added to the blockchain and closed. Once closed, the data is locked in and cannot be deleted or altered.
Implications for Real Estate Investing
The greatest aspect of blockchain for real estate investors is that it reduces the need for trust between a buyer and a seller. Using unalterable information, a buyer could easily prove how much available funds they have. A seller could also instantly prove that they own the property.
Without the need for additional verification, blockchain holds the potential to eliminate some of the most time-consuming and expensive parts of buying properties, from the title company to your real estate attorney. It could also make investing in real estate a lot easier and your holdings more liquid. This could be made through the use of smart contracts and tokenization:
- Smart Contracts. Smart contracts are lines of code that are recorded on a blockchain. When specified terms and conditions are met, they automatically execute a transaction. For example, if your financial profile was stored on a blockchain, your mortgage lender could have immediate access to everything they needed to make a decision about your loan application. Then, a smart contract could be issued. This contract would wait for the funds to be released, and when that happens, it would automatically transfer property ownership. This contract would be shared with all the relevant people. And they can simply check the status of the process or be alerted if the status changes. Smart contracts could also be used for leasing Boerne rental property, potentially eradicating the need for background checks, security deposits, and more.
- Tokenization. In real estate, tokens can be viewed as digital certificates of an ownership interest. Tokenization happens when the ownership of a property is divided between 2 or more people. For instance, when a property owner decides to raise funds by offering ownership shares. Although similar to a real estate investment trust (REIT), tokenized real estate is more direct and flexible. This way, people can purchase an interest in a property for an amount that is less than the cost of the entire property. Then, if they need to, easily sell their token for cash. This makes tokenization a good deal more liquid than other types of real estate investments.
As we’ve seen, blockchain, smart contracts, and tokenizations could change the future of real estate for the better. It could potentially improve how we buy, sell, and own real estate in the future. Not only would it be an amazing way of keeping unalterable records of all transactions– which would reduce fraud– but it would also speed up the contract and lease processes too. Blockchain would help in all these things, which would mean a significant decrease in the cost of investing in and leasing rental property.
Still, it would take a few years before blockchain would be fully implemented in our industry. But smart investors should, at least, think about ways to use this developing technology in future investing activities.
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