Real estate investing is quickly moving to the blockchain with innovative technology that’s positioned to change a number of different industries, including real estate. Blockchain is a digitized ledger that decentralizes access and increases trust by being a single unalterable source of truth for information. Often mislabeled as a cryptocurrency, blockchain has the ability to upend the real estate industry in a number of critical ways.
Here’s how the blockchain process works:
– A transaction or record is requested.
– This request is broadcast to a network of computers (nodes).
– Using algorithms, the nodes process the request.
– The request, which can be a currency, a record, or a legal contract, or other information is verified by the nodes
– Once verified, the ledger is updated with a new block of data.
– This block of data is added to the blockchain and cannot be deleted or altered.
As you can see, this process can have a number of real estate applications, such as legal contracts, financing, buying and selling a property, and so on. Blockchain can add an additional level of trust in a real estate business activity, such as transactions and leasing.
The application of algorithms and technology to legacy real estate processes will reduce a significant amount of friction and speed up the processes of buying, selling, leasing, and financing this asset class.
Blockchain can “tokenize” real estate:
Think of tokens as a store of value. In a residential or commercial real estate blockchain, tokens represent an ownership stake in various classes such as equity, debt, or cash flow. For instance, if a 100-unit apartment building is owned by 50 different investors secured on the blockchain, each of those investors could own tokens to reflect their ownership in the equity of that asset.
In this example, the real estate blockchain platform is used to document, store, and verify these ownership tokens. The tokens can then be more easily traded, sold, and liquidated. The real value of blockchain is not just trust and efficiency but liquidity as well.
Blockchain has the ability to create, authenticate and audit contracts in real-time, across the world and without intervention from a middle man and have instructions rooted in the transaction so that payment can only be taken as long as the instructions are fulfilled, providing complete transparency to all parties and reducing the likelihood of payment disputes.”
Smart real estate contracts enabled by blockchain will not only speed up the leasing process and save on costs, but it can also improve due diligence. Blockchain would have the ability to verify identities and incomes, and reduce the likelihood of fraud.
The entire real estate transaction process can be held on the blockchain. The submission of an offer, verification of title, the acceptance and verification of that offer, the due diligence process, the financing, and closing can all be verified and codified within a digital ledger. The use of blockchain for real estate transactions has significant implications for real estate agent and broker jobs.
Credit checks, income and identity verification, debt to income ratios, and so much more can be held on and verified using blockchain. The mortgage financing process is fraught with friction and frustration. If all your critical documents are held on blockchain, no longer do you need to scramble to get dozens of different documents to your bank or broker.
Identity verification and contracting signing can be facilitated and held on a blockchain. Whether it’s income verification of the tenant, employer checks, or other references, this can all be facilitated and held on a digital ledger.
If an asset becomes tokenized to 1,000 investors instead of 10, you automatically increase the liquidity of that real estate investment. If buyers and sellers of tokens are more easily able to sell and buy shares in a particular asset, then exit strategies and liquidity problems drop significantly.
A real estate blockchain can be used as a single source of truth to verify ownership of assets. This includes fractional ownership through a token, and all the owners of those tokens will be publicly available.
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