Can you buy real estate with crypto? The rise of new age real estate business

How is blockchain technology changing the real estate industry?

The real estate industry is considered a cornerstone of economies. The industry that provides individuals and businesses with valuable real estate assets and investment opportunities, faced several significant challenges along the way due to its cumbersome processes as well as lack of security and transparency. 

The situation is changing, and traditional methods are gradually being replaced by digital technologies

Due to its main perks such as immutability, security and transparency, blockchain tech has the potential to boost the real estate industry and transform the way transactions are conducted as well as how real estate assets are managed and how data is being stored.

How can the real estate sector use blockchain technology?

Blockchain technology found its utility in many industries; from currencies, the financial sector, and science to supply management and the construction industry, blockchain tech is now being used efficiently within the real estate industry.

Here are some of the ways blockchain technology has changed many aspects of the real estate business.

Fixing prevailing challenges

Traditional real estate businesses have been plagued with several prevailing challenges. Primarily, the real estate sector relied heavily on intermediaries; relying on human trust factors typically requires involving multiple third parties which lengthen the entire process.

Going through all these intermediaries adds up to higher administrative costs and other associated fees, making real estate investments more expensive. The real estate business is also associated with a lot of paperwork; since all property agreements were in paper form, there was a higher risk of fraud within the sector.

These challenges resulted in inefficiencies within the real estate industry and highlighted the need to introduce an innovative approach based on enhanced security, lower transaction costs, and a higher level of efficiency.

Simplified real estate transactions

Blockchain technology brings to the table streamlined processes; by automating multiple procedures such as payments, property transfers, and leasing agreements, smart contracts are capable of reducing paperwork, speeding up transaction times, minimising errors, and providing a more cost-effective solution.

Smart contracts ensure that property transactions are carried out automatically when predetermined criteria are satisfied, eliminating the need for an intermediary. Automation provides reliability and precision in real estate transactions and can reduce conflicts between involved parties.

Asset and property management

By implementing blockchain technology within the real estate sector, all real estate assets can be tokenised, and all data about them can be stored in the public ledger. In the real estate sense, tokenization refers to the digitisation of securities, alternative assets, and financial instruments.  

These digital assets can encompass ownership rights, transaction history, and certain rules to ensure compliant asset issuance and transfers. Digital assets can be customised to meet all kinds of requirements. 

With the novel streamlined processes powered by blockchain technology, asset and property management procedures involve fewer administrative burdens and other costs. This increased efficiency benefits investors, property owners, and the entire space of real estate investments.

As for property management, sharing data and conducting business from one geographical location can become clumsy when a real estate business goes global. Blockchain technology enables data sharing and storage to be secure and permissionless. This adds up to better decision-making processes for the growth of the business.

Enhancing security

Can you imagine a property transaction being as secure as possible? This is what blockchain technology brings to the table. The blockchain’s infrastructure is designed to prevent fraud, scams, and errors that have plagued real estate investments and property transactions. 

When you think of traditional real estate property dealings, you have probably heard about discrepancies and other errors that used to happen. Blockchain’s distributed ledger adds another level of protection and makes sure that each entry is verified and publicly recorded. It provides clear ownership records and a higher degree of investor protection.

If you want to know more about the importance of blockchain technology in the ticketing process, we suggest reading this article: 'Blockchain vs Counterfeit: Redefining event ticket security'.

The days of forged documents or fraudulent actions are gone with the appearance of blockchains. Each transaction becomes part of an immutable historical record.  

However, the advantages don’t stop just at fraud prevention- the entire blockchain-based verification procedure reduces the possibility of human error and digital encryption provides secure storage of property records.  

In addition to the fact that blockchain is constantly enhancing security, this means that property management has become more streamlined, time-saving and cost-efficient.

Asset tokenized properties

Tokenized assets mean tangible properties are turned into digital tokens on blockchain-powered platforms. The tokenization of real estate assets enhances liquidity through fractional ownership which enables investors to readily trade partial ownerships of property.

Therefore, one of the main benefits of asset-tokenized properties is liquidity since it enables it to obtain additional value that typically illiquid assets cannot.  

This approach is simple as it doesn’t require expensive procedures and makes the market more accessible to a wider range of potential investors regarding any real estate investment.

The use of smart contracts removes the feature of manual negotiation as their terms can be executed automatically, lowering costs and shortening the time needed to complete the process. Tokenization eliminates intermediaries such as brokers and escrow services.

The introduction of asset-tokenized properties means that every time a transaction happens, all participants can see it. When it comes to the real estate sector, this means that potential investors can audit property ownership, value and other types of relevant data.

Fractional ownership of real estate assets

In traditional scenarios, most individual property units are sold to one buyer. Blockchain technology changes this by bringing up fractional ownership.

With the use of blockchain technology, real estate assets can be now owned in fractional shares, meaning that investment opportunities are more accessible. The concept of fractional ownership eliminates traditional real estate entry barriers, enabling individuals to purchase high-value properties for less money.

When several investors don't have broad sums of money to acquire one property, they can join forces and pull their funds together for a single property. They can further buy or sell fractions of that property. Fractional ownership also means that owners don't have to pay for upkeep and maintenance from their own pockets as the shares get divided concerning the ownership ratio.

Global accessibility

Blockchain-based real estate businesses find it easier to conduct cross-border transactions by providing potential investors worldwide one platform where they can conduct business without an intermediary and in a transparent and more secure manner.

The decentralised infrastructure of blockchains successfully circumvents obstacles such as currency translations, divergent regimes and time zone differences. Real estate tokens are not bound by any geographical borders.

All this accessibility means that a wide array of buyers and sellers can participate in a global real estate industry and diversify their portfolios across multiple geographical areas. The transparent public ledger makes sure that transaction data is safely stored and accessible to all parties.

Cryptocurrency and real estate investments

The global real estate industry is a multi-trillion dollar industry and one of the broadest asset classes in the world. According to several statistics, the total value of real estate worldwide is projected to reach $729 trillion by 2028. 

The real estate sector is essential in individual investment portfolios as well as in national economies. As an investment, it is considered a tangible and stable investment for generating future income. On a macroeconomic level, construction and the real estate market impact employment and GDP. 

Purchasing real estate requires a lot of capital as well as conducting due diligence, negotiating and streamlining the paperwork process. All these challenges can be handled by utilising blockchain as the underlying technology. 

On the other hand, there have been new developments in crypto real estate investments. There is a growing acceptance of cryptocurrency payments by real estate developers as well as the fact that more real estate funds and investment trusts have been looking into crypto options and tokenization projects.

The future of real estate is also intertwined with real estate tokenization; this innovative approach has the potential to enhance the way people invest in, transact and manage real estate assets.

Keep in mind that this is not financial or investment advice. All information found in this article, either expressed or implied, is for informational and educational purposes only. Before making any investment decisions, be sure to do your due diligence or consult an expert.

How did it all start?

From the inception of Bitcoin in 2008, many companies and individual users started to recognise the potential of cryptocurrency and blockchain technology. Even though many people were sceptical at first, soon it became like a chain reaction. 

Crypto enthusiasts, as well as ordinary users, realised there is a need for a permissionless, transparent and more secure financial system that would fix the flaws of traditional banking services. Developers utilised blockchains and smart contracts to deliver a decentralised financial system.  

The new technology has been on the rise for the past 15 years. In early 2020, non-fungible tokens (NFTs) made a big splash among artists with pieces of digital art reaching all-time highs. During the ongoing pandemic, users turned to another novelty, the Metaverse, and engaged in investing within the virtual realm. 

Big brands recognised the opportunity and got ahead of the game by opening stores and selling merchandise in the Metaverse. It was also popular to own a piece of virtual real estate within the Metaverse. 

In the Metaverse, you could have been Snoop Dogg's digital neighbour. To find out how it all looked like in the virtual realm, check out this article: 'Metaverse and Real Estate: Should I get into virtual real estate?'.

This was the first time crypto encountered real estate; in the virtual realm, investors purchased parcels which were like acres of land in the digital world. If an investor bought a piece of digital land early in a Metaverse’s development, the value could increase over time, and they could sell it when it was more valuable. The entire investment process resembled stock investments. 

However, crypto real estate investments are present in both the virtual and real world. Now people can buy physical real estate with cryptocurrency, or several people can buy tokens of a certain property and co-own it. The use of blockchain technology and crypto assets within real estate businesses enabled property to become more liquid and streamlined the entire process of real estate transactions. 

Pros of using crypto in real estate

Crypto real estate investments provide a wide array of advantages. Primarily, cryptocurrency presents a global investment vehicle since it enables fast global transactions with reduced costs.

As opposed to traditional real estate investments that are linked to geographical limitations and higher associated costs, investors can more easily invest in real estate properties located in different countries by using cryptocurrency. The global reach expands investment opportunities, provides portfolio diversification and easily facilitates international real estate transactions.

If you want to find out how to diversify your crypto portfolio, why not read this article: 'The concept of a balanced crypto portfolio'.

The crypto space is based on blockchain technology. The integration of real estate businesses with blockchains brings to the table several upper-hands such as more efficiency, transparency and security in comparison with traditional property transactions. 

Unlike traditional fiat currencies, cryptocurrencies are not subject to the same level of control. This feature provides potential investors with a higher degree of privacy and lower transaction costs. 

While volatility is at the same time a downside of the crypto market, seasoned investors have the possibility to capitalise on price fluctuations. By carefully monitoring the market, investors can potentially purchase properties at a lower prices and sell at higher prices. 

As mentioned above, real estate tokenization enabled by blockchain technology can provide fractional ownership in real estate. This means that investors can purchase pieces of real estate with lower capital requirements and more easily diversify their funds across multiple investments. 

Additionally, NFTs that represent fractional ownership in real world investments are considered more stable than virtual real estate NFTs.

Cons of crypto real estate investments

There are several disadvantages of crypto real estate investments anyone should be aware of. Let's explain them briefly.

The first downside of buying real estate with crypto is linked to the volatile nature of the crypto market and prices that are capable of going up and down rapidly. Volatility is influenced by a set of external factors such as regulatory changes, macroeconomic events and market sentiment. Since volatility can amount to severe losses, investors must always be prepared and implement efficient risk management strategies. 

Another challenge is linked to the legal landscape. Crypto assets are relatively new and they are still evolving; even though many crypto regulations have been enacted, regulators worldwide are still grappling with some aspects of the crypto sphere.

Keep in mind that divergent jurisdictions have different stances on crypto assets, and investing in crypto or buying real estate with crypto means that you must familiarise yourself with applicable regulations. 

This brings us to another issue- in most jurisdictions, accepting crypto is a payment method is voluntary. That means that real estate sellers can choose to but are not obligated to accept cryptocurrency as a form of payment.  

Since the crypto real estate sector is still under development, there are not many real estate platforms that provide these services. Most of these operating real estate platforms require investors to be accredited This means that they must meet certain minimum income or net worth requirements. 

Finally, buying real estate with crypto could have different tax consequences than most people are used to. It is recommended to understand all potential tax requirements before purchasing anything on the real estate market with cryptocurrency. 

Can you really buy real estate with cryptocurrency?

If you still aren't convinced, we'll say it once again- yes, you can buy real estate with crypto. A few years ago, buying a home with cryptocurrency wouldn't have been possible, but today you have that opportunity.

A broad number of private sellers and real estate agencies, along with some mortgage companies, are accepting cryptocurrencies such as Bitcoin as an alternative form of payment.

However, dealing with crypto can still sometimes be clumsy. Always do your own research to find a suitable real estate agency or property seller as well as learn about existing regulations in the jurisdiction you want to purchase a property.

If you are a crypto newcomer, it is important to learn as much as possible and get a handle on the basics. Check out available courses at our Learn Crypto Academy and start your crypto journey.