Real Estate Meets Blockchain – Why The Real Estate Market is Prime for a Crypto Disruption
The debate about which is the best type of investment is as old as investing itself. While no market is “crash-proof,” real estate is traditionally viewed as one of the best and safest (if not the safest) investment options available, for several reasons.
First, investing in real estate also means investing in land, which by its nature is limited in supply, can’t be made more of and is therefore an intrinsically high-value asset. Second, real estate offers numerous avenues for generating positive returns. If you lose a renter, you can sell the property, or even make it your own home – versus if you invest in a stock that loses money, you are left with nothing. Additionally, compared to stocks, the real estate market – though prone to fluctuations – is relatively stable, and tends to appreciate over time.
So why don’t more individuals invest in real estate? The challenge is that real estate investing has traditionally been confined to high net worth individuals with enough cash on hand to purchase properties. And even if you’re wealthy enough to purchase a rental property, real estate transaction costs tend to be very high and require a significant amount of time and energy to close.
The emergence of blockchain and cryptocurrencies have the power to change this paradigm. Many financial insiders continue to view blockchain and cryptocurrencies through a skeptical lens, and it’s true that this market is still nascent and evolving. However, blockchain and cryptocurrencies have the ability to fundamentally alter traditional real estate investing in a variety of positive ways, and likewise, real estate can bring greater stability to cryptocurrencies, making these a safer, more secure investment. Consider this:
Eliminating or Reducing High Transaction Costs
According to Zillow, home buyers typically pay between 2 and 5 percent of a purchased home’s value in closing costs. Closing costs consist of a litany of fees, including applications, appraisals, attorney payments, home inspection – the list goes on. In addition, there’s cost in terms of time and energy needed to complete a close; closing time frames have steadily increased in recent years with the estimated time now approximately 50 days.
Real estate has proven to be a meaty, money generator for various types of professionals –agents and brokers, to lawyers, to appraisers and so on – and it’s not surprising that all this work and fees may dissuade potential investors. Real-estate backed cryptocurrencies, however, would have the ability to change all of this. By their nature, cryptocurrency transactions are highly secure, completely transparent and immediate, even across international borders. If an investor were able to purchase, hold and exchange real estate equity in the form of cryptocurrency, they could realize the benefits of real estate investments without the heavy transaction fees and legwork that’s often involved.
As we’ve noted, real estate investing has traditionally been the domain of high net worth individuals. However, when real estate properties are tied to cryptocurrencies, they become much more liquid than direct real estate investments or classic real estate investment funds. Properties can be valued and managed by an independent team of experts, with shares of properties offered in the form of cryptocurrency. Owners of the cryptocurrency can enjoy the utility and liquidity benefits of these coins, easily trading and converting their currency whenever and wherever they choose and more freely than if they were dealing with actual real estate properties. This gives investors with real estate holdings in their portfolios greater flexibility and opportunities to maximize their broader portfolio worth.
Pooling and distributing shares of real estate investment in this way expands and provides opportunities that mid-range investors may not have otherwise. Real estate investments can include everything from apartments, to office buildings, to commercial holdings. Holders of the cryptocurrency can also benefit from direct visibility into asset management activities – ensuring properties are being managed for maximum return and generating value (for example, through high rental rates).
Real estate-backed cryptocoins offer another important benefit beyond the democratization of real estate investing. This type of cryptocurrency would give more individuals (of all net worth levels) a wider opportunity to incorporate a safe, asset-backed cryptocurrency into their overall cryptocurrency holdings. This is the chance for cryptocurrency diversification that many have been looking for - a vehicle to bring greater stability to overall crypto-holdings which, while demonstrating strong promise for upside, are still prone to high volatility in these early years. Those assets deemed best for backing cryptocurrencies are those that have proven to hold value over time – gold, silver and of course, real estate.
In summary, blockchain and cryptocurrencies are still a relatively nascent market, although they have strong potential to bring dramatic change to long-established financial markets and processes such as real estate investing. Bringing the worlds of blockchain and real estate together can open new opportunities for all types of investors, streamline cumbersome fees and processes and enable more investors to take better advantage of real estate investment opportunities. Real estate asset-backed cryptocoins also give investors looking to dabble in cryptocurrencies the volatility hedge needed to achieve a more equitable risk/reward ratio for this new type of currency. In many ways, real estate and blockchain together are an example of how to marry two investment types in the best possible way.