Over the years, there has been a lot of talk about cryptocurrency. While it may have started as something only talked about in certain circles, it eventually became so massive that mainstream media picked up on the emergence of digital currency. These days, you have everyone talking about Blockchain, Bitcoin, Ethereum, and other related subjects. Everyone from the most well-known celebrities to politicians has begun to take this seriously.

With the growing popularity of cryptocurrency, plenty of upcoming developers have made it their goal to ensure cryptocurrency becomes usable in other industries. These endeavors will be challenging since most people do not understand the basics that make the world of cryptocurrency. For most people, it’s something very vague and foreign. In fact, most people don’t realize how it can potentially impact the way traditional investors can invest in real estate. Like any other new revolutionary technology, only the early adopters seem to understand the value behind it.

Traditional investors interested in being involved early on with the tokenized real estate need to understand its inner workings. For that reason, we are going to tell you everything you need to know about blockchain in real estate.

What Is Blockchain?

In the simplest terms, a blockchain is a ledger of transactions. These transactions are assembled into packets of data, otherwise known as blocks. When the block has reached its max data capacity, the block receives a timestamp and is chained to the previous one.

A new block is generated with all the available information of the previous block, including the latest info, and the process continues anew. Due to the way these blocks tend to interact, if someone attempts to change the information in a block, the rest of the blocks can cross-reference one another and fix any errors. That makes the history transparent to the rest of the users on the network and immutable. It also cuts out the need for centralized data storage and verification.

These two factors have made blockchain become one of the most trusted methods for recording critical information.

Blockchain technology has reshaped the real estate industry by offering new platforms for investors, home buyers, and sellers to connect more seamlessly. Blockchain has streamlined the transaction process in real estate by reducing costs and eliminating intermediaries. The transparency offered by blockchain further enhances the experience.

How is blockchain tech applied to real estate?

Like any other emerging technology, blockchain has managed to disrupt the way things are done in many industries. Real estate is just one of the many industries that have become a part of the blockchain bandwagon. Blockchain is being utilized to change the way people are buying and selling homes. As blockchain technology becomes more widely available, it will erase the need for intermediaries, lower costs, and increase access to funding and investment opportunities.

Here are several ways blockchain technology helps investors in real estate.

Smart contracts

Real estate transactions have to deal with far too many regulations. Anyone that has dabbled in real estate long enough will understand that there are so many paperwork and legal issues to deal with in real estate. Smart contracts assemble the necessary documents under a single database accessible by anyone on the network.

For example, let’s say you need to require the paper for selling a home in Miami, FL. All you need to do is log onto the blockchain and input a few things to get the necessary information to appear at the forefront. These smart contracts can be generated to meet all the financial and legal requirements of the sale.

With these documents openly available, smart contracts eliminate the need for a real estate attorney or agent when it comes to the transaction of the property.

Asset tokenization

When it comes to using smart contracts, blockchain technology is capable of transforming assets into tokens that become tradable, just like cryptocurrencies. That tokenization splits real estate assets into segments that can be broken down and purchased individually. When it comes to traditional real estate investing, you need to have the appropriate capital to buy whole properties or contracts in properties. However, tokenization through blockchain allows small investors to trade in fractions of properties. That diminishes their liability because they are not responsible for the property.

Emerging platforms

Due to the tokenization of assets, new platforms are starting to appear on the market to streamline the whole process behind real estate. These platforms have a ton of opportunities and disrupt the complex transactions behind real estate.

Intermediaries and costs

Since blockchain provides a transparent and secure network, it can eliminate plenty of legal and financial barriers. Some blockchain platforms permit the users to purchase the whole property with cryptocurrency. These transactions also cut off the need for banks, brokers, and real estate lawyers. With cryptocurrency, real estate can be purchased and sold securely, removing the costs affiliated with intermediaries, like appraisal fees and closing costs.

Transaction speed

Even if you are incapable of purchasing a product entirely through cryptocurrency, mortgage lenders are also attempting to use blockchain technology to speed up the process by replacing most of the legal and financial barriers with automation. That could potentially lower the pre-qualifying process by half.

Additionally, smart contracts and the removal of intermediaries reduces the various layers behind real estate transactions. For example, several platforms are using blockchain to establish a title registry. These title registries will vastly lower or eliminate the work of title companies to prove who has ownership over a specific property, removing another piece of the closing process.

How is blockchain affecting alternative financing?

Raising the necessary finances for a new real estate project can be challenging. Property development firms have to deal with exorbitant fees when working with banking institutions as single source loan providers. They also need to potentially deal with multiple loan sources as crowd finance can be hard to administer.

Blockchain makes the accessibility to alternative financial models viable by helping investor management for developers and guaranteeing investment transparency. That also enables consistent ROI tracking for investors. Financial products created on the blockchain are programmable for worldwide distribution. These solutions streamline the investor’s experience, raise trust, and grants access to a more ubiquitous investment pool.

The impact on loan and mortgage securitization

At the moment, loan origination and underwriting are unstandardized and rely on paper documentation. The structure of the security is open to interaction, and massive effort is required to secure against double-pledging of assets. Trading and asset services decisions usually consist of outdated information. Plus, cash reconciliation throughout the lifecycle event usually incurs settlement delays affecting the investor’s cash flow.

Blockchain technology grants financial institutions a single piece of verified data, reliable data sharing, real-time payment settlement, and changeless transaction monitoring. If the mortgage and loan are digitized, they can be programmed to contain relevant data. That data includes ownership rights and loan payment history to assist servicing decisions in the coming future. Smart contracts can be used to gather and distribute payments to beneficiary holders and deliver real-time reports to regulators. That provides efficient management and buds confidence in the secondary market by offering investors proof of asset performance.

The impact on property management

When it comes to large property management firms, they have to deal with some of the most inefficient inaccuracies with their worldwide portfolios. Blockchain makes it possible to secure data sharing, which streamlines the whole rental collections and payment process for property owners. Best of all, it offers some of the best due diligence services for the entirety of the firm’s portfolios. That boosts operational efficiency and ensures saving costs. Plus, it creates some rich data to ease the decision-making process.

The impact on land and property registries?

Land titles have always been heavily related to paper documents to get the whole process finalized between interested parties. But these documents are prone to losses, fraud, and mismanagement. Additionally, property transfers and permits require various lengthy and costly legal procedures, which can lead to the land being locked in unproductive use.

The paperwork process is replaced thanks to authentic digital assets and track changes on immutable ledgers that act as a secured shared source of proof for documentations between various parties and organizations. For example, Ethereum permits transactions and property ownership records to become easily accessible. That makes the process behind market transactions much smoother, boosting inverter confidence, allowing more access to finance, and promoting the development of the local economy.

How safe is blockchain technology?

Since blockchains are decentralized, the data is far more secure than data being stored in a single location, such as a server. By that, we mean that the info is being stored away in multiple locations with various backups in place. If someone attempts to change the data in one block, all of the other blocks in the chain can immediately identify the changes. Essentially, blockchain creates a backup after backup for the data.

Blockchain also makes full use of a method known as cryptography. Each block comes with an identifier that’s referred to as a hash. The hash has a standardized length of 64 characters. Due to the extent and randomized nature of the string, it’s tough to crack into a particular block in a chain to change its data. However, if someone does manage to break into the block, the ledger would already have a record of the changes and could correct them.

Crowdfunding issuers

The changes done to the regulations enable commercial real estate crowdfunding to be conducted in a way people were not expecting. As of late, sponsors can solicit capital contributions from massive pools of investors instead of relying on people they only know. That has created a whole new opportunity for crowdfunding issuers interested in selling their own securities.

The idea of fractionalization isn’t a new concept for real estate. It’s a similar concept applied by funds that aggregate capital to be deployed into a single asset or greater portfolio. Blockchain has introduced a whole new method that eases fractionalization, making it a brand new solution for this method. Blockchain is capable of supporting fractionalization even without the usage of cryptocurrency.

For example, let’s use the idea of buying a fraction of a house. Most people wish to own a dwelling but are incapable of doing so. Instead, many of them purchase shares (typically tied to a particular block of time) in which they can then use that house on specific occasions. In this scenario, many people would purchase shares of the house as a cooperative. They register ownership to the blockchain, and usage of the house is tracked through a computer system. Since the system is automatic, when someone uses that house, their blockchain automatically logs that usage and will note down the debt owed to the consortium of owners. Ledgers are then distributed to all accounts, with the blockchain keeping track of all records.

That concept also applies to crowdfunding issues that wish to make an investment deal. For a specific investment, they can issue fractionalized shares of the real estate to the interested party. The blockchain proceeds to record all relevant data, issues updates, and brief the rest of the ownership group.

How does it work internationally?

Blockchain allows investors and buyers to gain access to international real estate is much more manageable than traditional ways. If you purchase them in cryptocurrency, there’s no international exchange rate that gets in the way. Decentralized title registries ensure the property is accurately defined and titles are secured. Smart contracts can take into account the various laws and regulations concerning real estate transactions in every country.

Conclusion

Understanding the inner workings of blockchain and how it is used for investing in real estate doesn’t take too much effort. As blockchain technology continues to catch on in the real estate industry, its capability to streamline the whole process is unmatched in efficiency and transparency.

If you are interested in investing in blockchain real estate, you need to have a decent grasp of the basics for investing in real estate. If you wish to purchase a home using blockchain, your best bet is to do some research on the platforms and services available. Reach out to a real estate agent that has experience when it comes to using blockchain to buy homes.

Here at CitaDAO, we are planning to make some significant changes in the real estate ecosystem. Check us out.

‍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 learn more?

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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