Technology changed the landscape of various industries, including the real estate. Real estate professionals rely on big data to help them in their decision making. Now, blockchain technology is changing real estate transactions. Although it is quite new in real estate, it is making monumental changes in the industry.
This technology only came about a decade ago. To understand the technology, it makes sense to begin understanding bitcoin because it was the first popular cryptocurrency. As it uses peer-to-peer electronic cash system, payments are made online without the use of financial institution that plays an intermediary.
In that case, blockchain technology replaces the intermediary who would handle financial transactions. With blockchain, all transactions are recorded on a decentralized ledger. Each transaction is part of a block and it is added to the chain of blocks. If you have access to the technology, you could see the changes, thereby, limiting any fraud. In other words, it protects any financial transactions.
1. Funding escrow
Making a distribution is necessary when making a real estate investment. In here, funds are transferred from the property’s bank account to the investor bank account to the investor. Another option for distribution is to create a virtual account for every investor within a certain time. There are terms in the distribution and they are outlined in the Limited Partnership Agreement. Unfortunately, setting up a virtual account can be expensive. The funds are owned by the investor and not by the firm. In this way, if the firm is out of business, an investor won’t lose access to the funds.
With blockchain technology, however, the method is different. It registers the distributions and locks its value using a token, which is fixed to US dollar. This method alleviates any guesswork when sending distributions. It also eliminates the necessity to set up a bank account.
2. Introduce new ways to trade in the real estate
Blockchain technology offers new ways for people to trade in the real estate industry. The technology allows the trading platforms to support comprehensive real estate transactions. Some companies in one of the best cities for blockchain startups 2018 developed a platform that utilizes blockchain technology to help in the real estate transactions. It tokenizes real property allowing assets to be traded in a way that you trade stocks. And the transactions can be done over the Internet. The tokenized assets are handled the same way as you handle a stock sale. Then, use a token sale to liquidate the asset.
3. Get rid of intermediaries
Banks and brokers are intermediaries in the real estate ecosystem. With the introduction of blockchain technology, the roles of these intermediaries will be reduced. Various blockchain based systems can function as payments processors, lawyers, and listings services. In other words, they can cut out intermediaries. As a result, buyers and sellers will receive more of their money because they no longer have to pay commissions and fees that the intermediaries charged them. It also makes the entire process a lot quicker.
4. Make illiquid investments into liquid investments
Most investment properties are considered liquid investments because you can’t sell them overnight. Blockchain technology can convert your illiquid investments to liquid investments by allowing you to sell them through token technology. With this in mind, they now work like stock investing.
5. Provide better security during real estate transactions and assets
In real estate, blockchain technology allows full transparency because it is decentralized. Real estate buyer and seller can access all information on the blockchain. With that in mind, it brings trust and security between the buyer and the seller. It also allows real estate investors to transact with confidence as full transparency reduces fraud.
6. Enable fractional ownership
When investing in real estate, you need a significant amount of money upfront. Investment brokers may pool money from individual investors to purchase bigger properties. However, with the use of blockchain, investors could buy and sell fractions of their property with tokens anytime. This method of ownership would help you avoid complicated financial mechanisms.
With all these benefits, blockchain technology allows a brighter future for real estate investment. It makes it easier to invest in the industry. Because of that, it enables people to use it even further. You should join in or you will get left behind. However, before you even invest in it, make sure that you fully understand how it works. The good thing is that there are tons of information out there that can help you comprehend the value of blockchain technology in the real estate industry.