How Is Blockchain Used In Real Estate?

A lot of things about cryptocurrency are up for debate. It could be the next big thing in digital payments while also placing better controls on inflation. However, you wouldn’t be alone if you thought this was just the modern version of the tulip craze that overtook Holland in the 1600s. Wherever you stand, there are other implications for the underlying blockchain technology.

In this article, we’ll go over the emerging trend toward buying and selling homes using blockchain real estate practices and some of the benefits of using it. We’ll also touch on how you can get started.

What Is Blockchain?

Blockchain is a database. The difference between blockchain and traditional databases is the fact that it’s decentralized and many different people can hold a copy of the database. When new links are added to the blockchain, these links are verified cryptographically by other users and then those chains are added to the record.

Blockchain as a concept has been around a while, but it is captured the public imagination with the rise of Bitcoin and other cryptocurrencies.

Because of the verification processes inherent in blockchain, it makes it a secure way to not only trade in cryptocurrency like Bitcoin, but also to verify things in industries where accurate record keeping is essential, from financial services to health care. Companies looking to secure medical records are using blockchain. The technology is also being used for supply chain management.

How Do Blockchain And Real Estate Work Together?

Blockchain real estate is changing the way society buys, sells and invests in real estate by providing new ways to cut costs and build virtual connections. It can be used to streamline real estate payments, provide greater liquidity and access to funding and open up new forms of investment opportunity.

Buying And Selling Real Estate

Blockchain has already started to impact the buying and selling of real estate through the use of things like smart contracts for legal documentation. Here are some examples of the way this is changing real estate.

• New companies and platforms for transactions: Blockchain has enabled new ideas and companies to come to the forefront in simplifying real estate transactions. Whether it’s handling the contractual agreements or making the actual trading easier, there’s a lot that can be done. One such company is SMARTRealty. It uses smart contracts for an entirely digital legal agreement.
• Smart contracts: Smart contracts are entirely digital contracts. One of the big differences is that the terms are written entirely into the code and the conditions have to be verified on the blockchain. If one of the conditions isn’t met in a prescribed time frame, it voids the contract. The penalties for voiding the contract are also described and kick in on a breach.
• Cuts out affiliated costs and intermediaries: There is a future here where blockchain handles the process of actually listing a property and taking it off the market. It could also determine when you meet the conditions for loan funding. Therefore, the jobs of banks, brokers and real estate agents may not be completely eliminated, but they’ll have the opportunity to focus on what people are good at vs. what machines are good at. This could cut down on closing costs as well.
• Faster transaction speed: In the current day, a title company has to go through and determine the ownership history of a home to make sure there's a clear title. If transactions of the future are mostly verified through blockchain, this could really speed up the process because you'll know beyond a shadow of a doubt that the previous owner really had the rights to the property.

Investing In Real Estate

Blockchain gives the opportunity to invest in real estate in different ways because of tokenization. If you tokenize a physical asset, you tie it to a digital item, the position of which can be verified at any given time on the blockchain. This makes online property transfer, and really online transfer of anything blockchain has started to touch, that much easier.

Here are a couple of examples of what’s possible with blockchain and modern real estate

• Tokenization of assets: You can use tokenization to divide a large number of real estate assets into parcels that are more easily individually purchased. Instead of worrying about a chain of title, the house would be represented by a token whose ownership can be verified on the blockchain.
• Fractional ownership in real estate investments: Tokenization provides another side benefit, particularly for small investors. Someone selling a property can divide it up any way they like, so instead of selling a house for $350,000, you might sell 100 shares in an investment property at $3,500 apiece, significantly lowering the barrier to entry.

How Is Blockchain Benefitting The Real Estate Market?

Blockchain provides the many benefits for buying and selling houses to real estate investors and professionals alike. Here are several of the major ones.

1. Provides Greater Access To Small Investors

There are a couple of barriers to real estate investing that day and the way of investors who don’t come in with extensive capital. First, there’s the fact that homes and commercial real estate investments both involve large sums of money. Items sold on blockchain can be tokenized, meaning you can pay for a small portion. For example, you may pay a certain amount of cryptocurrency for 1%.

Additionally, the person selling a portion of the property has already scoped out and found the property, so a small, hobbyist investor doesn’t have to do that.

2. Lowers The Cost Of Real Estate Transactions

Smart contracts could allow for lower-cost real estate transactions because there’s not as much work involved. If you don’t have to go through the effort to get a property on an MLS as an agent and then taking it down, that’s a significant time savings. Additionally, title work won’t be as hard if there’s a clear ownership history on the blockchain. This is going to translate into lower costs for everyone involved.

3. Improves Real Estate Liquidity

Because investments are tokenized and can be split into fractions of ownership, this has the potential to increase your liquidity. For example, imagine a future where you wanted to do an addition to your home. You could sell 20 tokens, each worth 1% of your equity to investors to find your project. They would get their portion of the investment when the property was sold under the terms of a smart contract, potentially years down the line. Alternatively, they could trade their token on the open market to cash out early.

4. Expands Transparency

With blockchain, every transaction is written into an ongoing historical database that’s distributed and can be verified by others. Because of this, things like ownership history and any encumbrances, easements and liens could be written into the chain rather than having to have someone look several different places for the information and spending a ton of money on title search.

5. Increases The Speed Of International Deals

International real estate deals typically have a variety of complications that don’t occur when the transaction is between two parties in the same country. For starters, there’s the exchange rate. Then there’s the fact that it can take several days to get paid when the money is transferred between systems, complicated by the fact that during this time the exchange rate can change.

Blockchain solves all this because you’re transacting digitally with a cryptocurrency, so the usual exchange problems don’t occur.

How Can I Start Using Blockchain For Real Estate?

Before you go about making an investment, consider doing your research on blockchain and the fintech being used as well of the fundamentals of the investment. Also make sure you’re aware of your own risk tolerance.

If you want to use blockchain in your real estate investment, you can find a real estate agent in your area who is familiar with the technology and can help you tie the threads to other providers. If you want to transact in this way, it’ll be important for them to know how the process works.

If you’re investing in tokenized goods, it’ll be important to find an investment app that allows you to trade your investment as well as track its value.

The Bottom Line: Stay Informed About Blockchain In Real Estate

Blockchain is a distributed ledger in which transactions are digitally verified. This is typically thought of only in cryptocurrency, but it also has major implications for smart contracts where the conditions can be written into the code. Physical assets can also be tokenized to be sold digitally and even broken into fractions using this type of system, which opens things up for small investors.

Before getting into blockchain, make sure you understand the basics of saving and investing as well as your own risk tolerance. If you plan to use blockchain in a real estate transaction, make sure you’re working with a real estate agent and a team with experience dealing with the technology and its use in the home buying process.