In this article, we are going to present to you what the benefits of real estate tokenization are and explain a little more about it if you are still not sure what it is about. Well, in reality, in recent times, the use of technology in the real estate sector has revolutionized the functioning of this industry. Blockchain technology and real estate tokenization have a bright future in this space, even though automated homes and virtual reality have already made a big difference.
What is real estate tokenization?
Simply put, real estate tokenization is a way of providing a fractional share of a property to an investor through blockchain technology. In fact, this technology divides a property or an asset into digital tokens. Which are smaller representative units of a property, each with a tangible value.
Likewise, an investor can buy these assets in whole numbers. Therefore, he will get that fractional share of the property. So, it is clear that from residential to commercial real estate, they can make use of this technology for all types of investments.
How does real estate tokenization work?
To comprehend the advantages of tokenized real estate or digital or blockchain tokens, you must be aware that tokens are issued through initial coin offerings, or ICOs. Which are similar to what we know as an initial public offering. Furthermore, these tokens represent an asset that, in our case, will be real estate assets. And once they have been issued, these tokens will be traded on a secondary market.
Likewise, by eliminating several steps and making assets easily accessible, tokenization, or the use of distributed ledger technology, fractionates real estate assets. This will also increase liquidity and address key concerns related to titling.
Key benefits of real estate tokenization
Now that we have explained a little more about what it is and how it works, we will continue to explain some of the key benefits of real estate tokenization. This way, you will get a much more efficient perspective than any other previous investment form you know.
1. Increase liquidity
With real estate tokenization, investors get easier entry. The reason for this is that the assets are fractionated, increasing the liquidity of the tokens. Therefore, real estate can become much more than just buying houses and emerge as one of the leading income-generating industries. What's more, you will also see that this is one of the benefits of real estate tokenization that will simplify the buying and selling of properties.
Real estate has always been a low-liquidity form of investment or an illiquid asset. Mainly because it takes away the tedious paperwork and there is a significant capital requirement. With it, you will also find more private players compared to public companies. And it also bypasses the middleman by allowing ownership to be transferred directly from investor to investor.
2. More market access
Another benefit of real estate tokenization is that you will have more access to the market. What can be considered a game of elites. However, real estate tokenization changes this mentality and expands the pool of investors. Therefore, anyone with sufficient capital and a good Internet connection will be able to sell, buy or hold real estate assets from anywhere in the world.
And this can only be possible since the tokens or assets are fractionated. Therefore, they will not even have to sell the token as a complete unit.
3. Less expensive transactions
All transaction data is programmed into a secure digital token. From the contract clauses, the details of the transaction, to the details of your preference and interest due dates,. As such, there is total openness between the seller and the investor. What's more, something important is that with fewer intermediaries and less administrative work, the entire process of buying and selling homes becomes less expensive.
4. Greater transparency
One of the benefits that you will see in real estate tokenization will be the transparency of each transaction. Well, there is a distributed ledger in which the tokens are stored. Which not only helps mitigate the problem with undeniable proof of ownership, but also helps improve transparency in the real estate market.
That way, you can be sure to get complete security when digitizing your asset. And actually, you should remember that tokenization is supported by blockchain technology. So there is no question about security, as blockchain is a proven technology regarding security.
5. Property Management
The benefits of real estate tokenization include delayed monthly rental payments or the renewal of lease contracts. This, as they often represent a challenge for both tenants and owners. Well, tokens or smart contracts based on blockchain can speed up this process.
And all of this will be possible through the tokenization of real estate. They can register documents in a database in order to obtain timely rentals from tenants. As well as syndicate loans and accelerate the due diligence process.
6. Open a new entry for small investors
Finally, one of the great benefits of real estate tokenization is that the traditional system would not handle the volumes that small investors would bring. Therefore, marginal costs are sometimes higher than marginal revenues, resulting in economic loss.
However, tokenization has reduced the entry barrier for smaller investors by dividing assets into smaller portions and facilitating transactions in a virtual setting. So, it is more than proven that real estate tokenization allows investors to invest in real estate without the headache of a daunting legal process of transferring ownership.