It’s slightly over half a decade since a Miami realtor made news when they listed their penthouse on Redfin Corp, a real estate site, for 33 BTC ($542,000 at the time) and indicated that they would only accept payment in crypto. For context, this was a time when you had to jump over a few hurdles to exchange fiat for BTC or buy Ethereum with a credit card.
Fast forward to today, real estate disruption by blockchain technology goes beyond the use of crypto as a form of payment for property. Blockchains’ decentralized incorruptible nature is a match made in heaven for a real estate sector rife with middlemen, document fraud, and insecure transactions. This piece explores the benefits and ways you can use crypto in real estate.
Exploring the Benefits of Cryptocurrency in Real Estate
More real estate agencies and homeowners are adopting blockchain-backed processes as buying a property with crypto becomes more profitable and convenient. Here are a few benefits leading the rise of digital real estate:
Accelerating Deals for Buyers and Sellers
Real estate transactions can be tedious due to the number of middlemen involved. Blockchain technology has ushered in a shift in the roles of all intermediaries involved in the real estate ecosystem. Crypto in real estate allows buyers and sellers to access and record transactions instantly on a secure network through smart contracts. That reduces the time and paperwork needed to complete a purchase.
For instance, a single platform may handle listings, payments, and legal documentation, helping buyers and sellers save on commissions and fees typically going to intermediaries.
Without the back and forth between your bank, escrow companies, lawyer, and other parties, buyers and sellers can complete transactions quickly and securely.
Facilitating Direct International Real Estate Investment
Beyond cutting out middlemen and other traditional methods, cryptocurrency creates new property investment opportunities. For instance, cross-border real estate transactions can open the real estate sector to international buyers and sellers.
With crypto in real estate, you don’t need international wire transfers or traditional overseas buying methods. For instance, one of Bitcoin’s use cases allows instant cross-border transactions, which helps you avoid tedious banking transfers that take more than three days to complete. With all transactions recorded on a blockchain ledger, buyers can promptly verify and ensure the legitimacy of a property’s ownership history.
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Safeguarding Transactions With Immutable Records
Real estate fraud is a constant menace for buyers and sellers. More so, a recent CertifID report shows an increase in seller impersonation fraud and vacant land scams, two of the most common real estate fraud tactics. Integrating real estate with blockchain technology will guarantee the integrity of the buying process, hence protecting both buyers and sellers.
With blockchain’s immutable ledger, a property’s history of ownership is well recorded in a tamper-proof network accessible to all participants involved in the transaction. Besides, legally binding smart contracts ensure transparency between buyers and sellers, reducing the likelihood of impersonation fraud.
3 Ways to Use Crypto in the Real Estate Market
There are various ways you can leverage crypto for real estate. Here are three of them:
1. Tokenization and Fractional Ownership
Tokenization involves representing parts of real estate assets as digital tokens on a blockchain. Investors can then buy the tokenized equity for part of the real estate. It gives potential investors fractional ownership of the real estate.
Tokenization offers flexibility, enabling investment in an asset you couldn’t buy outright. As a result, this kind of ownership increases liquidity within the real estate market. Besides, since parts of real estate are now buyable, even smaller investors can participate in lucrative ventures by acquiring fractional ownership of assets.
Moreover, since the digital tokens enter into circulation, their value can drop or rise, increasing or decreasing the asset’s cost. The tokens can also be traded for other crypto on exchange platforms, increasing real estate market liquidity. Tokenization and fractional ownership allow global accessibility for international investors looking to participate in real estate ventures they could only dream of.
2. Decentralized Finance (DeFi)
Decentralized finance has been a net positive in the financial system — providing cutting-edge improvements and increased investment opportunities. In real estate, it allows for decentralized lending and borrowing while increasing liquidity in the sector.
Transformative advancements associated with DeFi, such as peer-to-peer transactions and asset tokenization, have made the real estate market more liquid. For instance, recent reports indicate that over $2.7 billion of the real estate sector is tokenized. This number is projected to hit $18 billion by 2032.
Early signs show that tokenization will help resolve ownership ambiguities associated with real estate transactions while enhancing crowdfunding within the sector. Unsurprisingly, major banking ventures such as UBS and JPMorgan have all invested in real asset tokenization.
Asset tokenization can also be used for loans and mortgages. It allows property owners to use fractional shares of their property as collateral for mortgages. Traditionally, once you had locked your property as collateral, you wouldn’t be able to cash in on an increase in the property’s value. With DeFi mortgages, you can sell off fractions of the property — if there is an increase in value — to help you pay off your mortgage sooner.
3. Automating Transactions
Introducing smart contracts and programable financial instruments — the basic foundations of DeFi — in real estate transactions has revolutionized the sector. For instance, self-executing smart contracts can now automatically uphold property maintenance and rent payments. That increases efficiency while reducing overhead administration costs and eliminating intermediaries.
Smart contracts ensure that buyer-seller interactions are transparent, making for more trustworthy transactions. Smart contracts run on a consensus-driven blockchain, which makes it difficult for anyone to manipulate them.
Crypto technology also streamlines real estate property and title transfers. With records on a blockchain difficult to modify or lose, investors can easily verify a property’s title, tax, insurance info, and maintenance records before committing to buying. It streamlines the acquisition process, hence lowering costs.
Conclusion
Crypto has transformed real estate from a risky high entry barrier sector plagued by fraud and redundant intermediaries to one with enhanced security, reduced costs, and global accessibility open to even small-scale investors. It can only get better as Web 3.0 evolves and developers discover more blockchain use cases.
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