Blockchain technology has been on the rage lately, with plenty of industries adopting it to use it to improve their services. It has become a popular topic among many industries outside of cryptocurrency due to the massive potential it can serve. While it was initially built to serve as a public transaction ledger for cryptocurrency, it has become more than that.

One of the many industries that blockchain will reshape in the coming years is real estate investing. Blockchain technology can change how real estate is owned, managed, and translated around the world. Admittedly, blockchain still has some growing pains to go through. However, the technology continues to become more robust with each passing day. Once it has reached its full potential, blockchain will impact many industries, including real estate.

Many companies are emerging with their mindset on a blockchain, ready to reshape the landscape of transacting real estate investments. The technology’s real power all lies from the automated execution of transactions using the technology and the ability to generate fractional ownership in real estate assets using tokens, which can be traded on a blockchain-based exchange. Consequently, opening up investment opportunities in the real estate market.

If you are interested in investing in real estate, it’s crucial to be aware of blockchain. That’s why we’ve decided to put together this article to inform you about everything you need to know.

What is blockchain technology?

Blockchain technology allows the user to record information on a digital ledger. It’s one of the many reasons why blockchain is sometimes used synonymously with distributed ledger technology (DLT). It should be noted that these two are not the same thing. For the most part, when referring to the blockchain, most people will usually mean distributed ledger technology.

Blockchain can divide and store the entered information in a compartmentalized array across many computer systems on a blockchain network. Due to blockchain technology making full use of distributed ledger technology, the saved data becomes hard to hack or modify.

It works by administering a set of rules to verify the transaction as having occurred or the information as being validly submitted. Each of these verified records of information is protected and bound to each other using cryptographic principles. The documents are then attached to the ledger and distributed throughout several, hundreds, or even thousands of computer systems across the globe. All new transactions or pieces of information added to the entries are instantly available for all network participants.

That makes the need to transfer information between interested parties or storing the information in different databases obsolete. The network can be either publicly available, which means anyone can access it, or it can be a private network where only those with authorization can access it.

DLT is a comprehensive record for every transaction that has been conducted since the launching of the ledger. Since blockchain was created to ensure the data stored in the network are secure and immutable, it’s nearly impossible to remove or change any data found on the system.

How will blockchain reshape real estate investing?

Real estate has become one of the largest asset classes in the world. In fact, the value of real estate property around the world has reached $281 trillion. Yet, the industry has not managed to evolve much when it comes to transaction methods for several decades. The introduction of blockchain technology in real estate can reshape the whole thing.

Intermediaries are no longer needed

One aspect that has always been a part of the real estate industry is the intermediaries that handle the workload. They have always been involved with ensuring that the whole transaction can occur seamlessly between both parties. However, with blockchain technology, their roles and participation in real estate transactions may end in the coming future. Emerging platforms can assume the necessary functions behind real estate transactions, such as listings, payments, and legal documents.

Eliminating the intermediaries from the whole process can result in buyers and sellers getting more out of their transactions as they save on commission and fees typically associated with these intermediaries. That causes the whole process to be quicker as the back-and-forth between representatives is no longer in the way.

Liquidity

For a long while, the real estate industry has been traditionally an illiquid asset due to the sale of this asset being long and process-heavy. That does not apply to cryptocurrencies and tokens since they are readily traded for fiat currencies through various exchanges. However, if real estate becomes tokenized, it can be readily traded. A seller no longer has to wait for a buyer who has the finances to afford the property to receive some value out of their property.

The investment process

The tokenization of real estate causes fractional ownership to become a possibility. By permitting fractional ownership, blockchain also reduces the barriers of real estate investing.

Usually, when you are investing, you need to fork over a hefty sum of cash upfront if you wish to gain ownership of the property. On the other hand, investors can decide to pool their money to acquire more substantial ticket properties. With blockchain technology, investors will gain access to a trading platform to buy and sell even fractions of tokens whenever they wish to. Additionally, fractional ownership gives them the option to avoid the requirement of managing any of these properties themselves.

Performing upkeep alone can increase the significance of the costs, and dealing with tenants can be a tiresome endeavor. That also impacts other activities, such as lending, where property owners frequently have to use their properties as collateral for loans to have fast access to money. Depending on the wording of the terms, property owners may have the option to enjoy living on their property.

The cost of investing in property

The decentralized nature of blockchain can cut down the cost associated with real estate transactions. Aside from saving cash by not needing to deal with intermediaries fees and commissions, there are other costs you can save on. These costs include inspection costs, loan fees, registration fees, and taxes related to real estate. The expenses will vary depending on the area and its jurisdiction. Similar to intermediaries, these can be lowered or even eliminated from the equation as platforms automate the whole process.

Smart contracts in real estate investing

Typically, the documentation required for the buying or selling of a real estate asset, such as title deeds, property valuation, finance agreements, and so forth, are in possession of various stakeholders. Sharing all of that information can be time-consuming and tedious for everyone involved. Blockchain technology has all that information readily available into one distributed ledger and authenticated at the point of creation due to consensus mechanisms.

All stakeholders gain immediate access to every bit of information and can track the progress of the transaction in real-time. The participants can provide a digital confirmation that their half of the transaction is finalized, allowing them to continue to the next phase of the transactions process.

Smart contracts can automatically monitor and activate transactions whenever specific conditions are triggered. That diminishes the possibility of any human error from occurring due to manually inputting the information. It can also reduce the number of intermediaries required and grants automatic payment either directly from the buyer’s bank account or an escrow account, permitting completion to happen more quickly.

For that reason, blockchain technology makes use of smart contracts to reduce the overall costs for real estate transactions.

Smart contracts differ from the traditional contracts you’re more aware of. It’s a type of computer code that generates a self-executing agreement. While real-life contract terms can be adjusted or terminated, smart contracts can’t be changed or erased in any way. Neither is it possible for a smart contract to recognize contract terms that need interpretation. For instance, terms like complete within a reasonable timeframe or use reasonable endeavors.

While smart contracts do have a limit, there is no doubt that they will continue to grow as the technology further improves. In time, it may be capable of handling even more complex transactions.

Impact on asset management

Asset management has the potential to be streamlined by blockchain technology by managing all the essential data for a specific real estate asset on a single online platform. A smart contract can also handle the tenant runt and services charge accounts.

With the help of blockchain technology, it may be possible to hold all the technical and maintenance information for a property in one location. That way, it can be readily accessed and updated at any time. Whenever you schedule maintenance for the building, you can store it away on the distributed ledger. Doing so will permit property managers to keep track of routine maintenance visits by contractors. Plus, smart contracts can be used to automate payments to relevant service providers. The ledger will contain all the records as a result granting property managers a fully transparent audit system.

Another possibility with blockchain technology is to use its ability to automate the payments of compensation under a service level agreement in case of failure to meet the required service levels. If the service provider cannot reach its service level goals, that can trigger an automatic credit to the client. That can streamline the whole process and prevent the need for manual intervention.

What is tokenization?

Simply put, a token is a digital representation of a physical asset or value. There are plenty of blockchain-based applications that either use tokens as a currency in order to use the application or conduct transactions using the application. It also permits the creation of tokens, which can then be traded on the platform. The most well-known types of tokens would have to be cryptocurrencies.

As you can see, the possibility of using blockchain technology to tokenize real estate assets is not entirely out of the question. Not only will it be capable of increasing the liquidity of illiquid assets, but drives the possibility of fractionalized interest in those assets and trading them later on. Instead of purchasing the entire or parts of interest for a property, you can obtain tokens that can be immediately traded on a blockchain-based exchange platform.

Another intriguing possibility of tokenization is the idea of fractional ownership. Instead of a single person owning a single real estate asset, it becomes possible for several individuals to collectively own the asset. Instead of having all of your finances tied up on a single asset, you have the option to spread your investment by buying fractions in various properties, which can net you greater diversification and lower risk.

In summation, tokenization of real estate assets can create liquidity, reduce the obstacles of investments, and provide transparency and security for real estate transactions.

Future of blockchain in real estate

Blockchain has a set of powerful features that can reshape the whole real estate investing sector. By cutting off the need for intermediaries in transactions, boosting trust among transactors, improving liquidity, lowering fraud, and reducing costs, blockchain can shake the foundations of the whole real estate industry. Best of all, this technology is steadily growing into a powerhouse that will outperform the traditional system currently in place. Within a few years, real estate investing will become a whole new ball game.

Investors need to take the information above into consideration. Starr by thinking about various ways to get themselves involved with these innovative technologies hitting the real estate market.

Here at CitaDAO, we have made it our mission to modernize the way people access to real estate globally. Our goal is to improve the accessibility, liquidity, and composability of the real estate industry. Our platform was built to align the long-term interest and benefits of all stakeholders who contribute to the development of the asset base and liquidity pool.

In short, the advantages of CitaDAO come from composing technological expertise, innovations, and quality real estate networks to create a community that is aligned with the success of the CitaDAO platform. By working together, the community can bring together the best of the real estate industry and DeFi composability to establish a sustainable DeFi real estate platform for everyone.

About CitaDAO‍

CitaDAO.io is a Decentralized Finance (DeFi) platform for Real Estate to be tokenized on-chain, built on the Ethereum ecosystem. CitaDAO aims to solve the lack of liquidity, access limitation, and lack of composability in existing real estate ecosystem by creating interoperability with other DeFi applications/primitives that operate on the Ethereum protocol. Real estate token allows the community to diversify their portfolio on-chain to generate stable yield through real-world assets that have constant liquidity through AMM. Interested to build the future with us?

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Disclaimer: The information contained in this communication is based on sources considered to be reliable, but not guaranteed, to be accurate or complete. This communication should not be relied upon or the basis for making any investment decision or be construed as a recommendation to engage in any transaction or be construed as a recommendation of any investment strategy