You’ve probably read about innovations such as cryptocurrency, bitcoin, and blockchain. Maybe you’ve even jumped on board! Blockchain, in particular, is one innovation that many real estate experts are paying close attention to due to its potential to revolutionize the way real estate transactions are carried out.
While the majority of that potential is currently theoretical, forward-thinking investors should learn about blockchain’s affordances and start thinking about what they can do to benefit from it. Let’s take a close look at blockchain. What is it? And why is it being called a game-changer for Fort Lauderdale real estate investors?
Blockchain Defined
To simplify the concept, think of a blockchain as a digitized ledger or a shared database. What makes this unique is that, unlike other databases, this is built on decentralized access. This means that the data is distributed across various computers, accessible to all, but is unalterable. This is the key feature. Because it cannot be changed, blockchain data is considered very secure. Although often confused with bitcoin or cryptocurrency, blockchain is a secure system for recording and distributing digital information.
How It Works
The blockchain process starts when a transaction or record is requested. This request is sent out to nodes or computers connected to a network. Using algorithms, the request is processed by the nodes and then goes through verification. Once this happens, the ledger is updated with a new block of data added to the blockchain and closed. Once closed, there is no way to delete or alter the data.
Implications for Real Estate Investing
The most significant aspect of blockchain for real estate investors is that the security and trust between a buyer and a seller are already baked into the system. Using unalterable information, a buyer could immediately display proof of their available funds. Likewise, with the same tech, a seller could instantly display proof of their property ownership as well.
Without the need for additional verification, blockchain holds the potential to eliminate some of the most time-consuming and expensive parts of buying properties, from the title company to your real estate attorney. It could also make investing in real estate more accommodating and your holdings more liquid. This could be achieved through the use of smart contracts and tokenization:
- Smart Contracts. Smart contracts are lines of code that are saved on a blockchain. When a specific set of terms and conditions are met, they automatically execute a transaction. For example, if your financial profile was stored on a blockchain, your mortgage lender could have immediate access to everything they needed to make a decision about your loan application. Then, once funds are released, a smart contract would automatically transfer property ownership. This contract would be available to all the people involved, and they could each check on the status of the process at any time. Smart contracts could also be used for leasing Fort Lauderdale rental property, potentially obliterating the need for background checks, security deposits, and more.
- Tokenization. In real estate, you can think of tokens as digital certificates that certify ownership interest. Tokenization happens when a property has multiple owners. For instance, when a property owner sells shares of their ownership to other people so he could raise funds. Although similar to a real estate investment trust (REIT), tokenized real estate is more direct and flexible. This way, people can own an interest in a property without having to pay the cost of the full property. On top of that, when they need the cash flow, they could simply sell their token for cash. This makes tokenization abundantly more liquid than other types of real estate investments.
As you can see, blockchain, smart contracts, and tokenizations could alter the future of the real estate business. It would drastically improve how we purchase, sell, and own real estate. Not only would it be a great way to store unalterable records of all transactions, which would result in reducing fraud, but it could also speed up the contract and lease processes as well. In the end, what blockchain would do is decrease the cost of investing in and leasing rental property.
Still, we’re talking about a full implementation of blockchain that can’t be realized just yet. This will take years to fully materialize. But smart investors should look into this developing technology and think about ways to use it in future investing activities.
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