Tokenization in Real Estate 101
Alberto Marchi
Community Engagement Manager
- Location: USA
Of all investment asset classes, one that has continued to perform over the long term is real estate. It is deemed one of the most lucrative investment opportunities for building wealth and continues to attract a new generation of investors. And, much like other industries, real estate investment has evolved.
Advancing technologies have made a difference in almost every sector. With regards to real estate, construction techniques have improved, maintenance operations have evolved, and the property has been streamlined. For investing, technology allows for tokenizing real estate investments opening up opportunities for retail investors previously reserved for institutional investors.
How Does Tokenization of Real Estate Work?
To put it simply, a real estate token is a digitized share. A token could represent collateralized debt, equity, or a portion of the income stream. Different properties can be tokenized, like commercial real estate, residential property, hotels, retail, etc.
Benefits of Real Estate Tokenization
1. Flexibility
Unsurprisingly, hotels differ in many ways from other real estate properties. Hotels have a heavy operational aspect and depend on daily guests to determine profitability. Typically, in hotels, it is a one-night lease compared to a one-year lease for apartments or a 10-year lease for office property. As a result, hotels are highly sensitive to market changes since they price daily and, thus, should be treated as such. Furthermore, to remain relevant, hotels must upkeep capital and operational improvements quicker than other sectors.
2. High Speed of Investment
Since it is driven by Blockchain technology, tokenization eliminates the unnecessary expenditure of notary fees and bank fees. Investing with tokens can reduce costs and gain greater freedoms since you can buy real estate shares at any time and potentially profit from them.
3. Higher Diversification
With traditional real estate investment, significant capital is locked into an entire property. This, in turn, reduces the possibility of diversification. With tokenization, investors can commit smaller amounts of capital to various assets with potentially less complicated shareholding structures.
4. Highest Level of Security
Tokenization allows for both security and transparency in transactions. KYC / AML can be programmed into the token for securities regulation transparency. Tokens can trade with only whitelisted participants meaning the tokens can’t be hacked because there is a record of who owns which token. Information can be shared on the blockchain that gives parties clarity to the value. Current financial information could be linked to the token to give real time data.
Future Prospects of Real Estate Tokenization
With the growing popularity of real estate tokenization, investors are also seeking to experiment with this model with other properties. The tokenization of hotel real estate has emerged as a favored investment model. Although the pandemic has impacted the hospitality industry, the recovery of world economies has spurred hotel demand. Much like real-estate tokenization, hotel tokens offer a flexible investment opportunity to investors. Since the adoption of digital assets has skyrocketed in the past few years, tokenized reaal estate assets are following in their footsteps.
Final Thoughts
With the growing popularity of cryptocurrencies, tokenization has become an attractive investment opportunity in the real estate sector.
Disclaimer
This commentary is provided as general information only and is in no way intended as investment advice, investment research, a research report or a recommendation. Any decision to invest or take any other action with respect to the securities discussed in this commentary may involve risks not discussed herein and such decisions should not be based solely on the information contained in this document.
Statements in this communication may include forward-looking information and/or may be based on various assumptions. The forward-looking statements and other views or opinions expressed herein are made as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated and there is no guarantee that any particular outcome will come to pass. The statements made herein are subject to change at any time. GreatX disclaims any obligation to update or revise any statements or views expressed herein.
In considering any performance information included in this commentary, it should be noted that past performance is not a guarantee of future results and there can be no assurance that future results will be realized. Some or all of the information provided herein may be or be based on statements of opinion. In addition, certain information provided herein may be based on third-party sources, which information, although believed to be accurate, has not been independently verified. GreatX and/or certain of its affiliates and/or clients hold and may, in the future, hold a financial interest in securities that are the same as or substantially similar to the securities discussed in this commentary. No claims are made as to the profitability of such financial interests, now, in the past or in the future and GreatX and/or its clients may sell such financial interests at any time. The information provided herein is not intended to be, nor should it be construed as an offer to sell or a solicitation of any offer to buy any securities. This commentary has not been reviewed or approved by any regulatory authority and has been prepared without regard to the individual financial circumstances or objectives of persons who may receive it. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
Advancing technologies have made a difference in almost every sector. With regards to real estate, construction techniques have improved, maintenance operations have evolved, and the property has been streamlined. For investing, technology allows for tokenizing real estate investments opening up opportunities for retail investors previously reserved for institutional investors.
How Does Tokenization of Real Estate Work?
To put it simply, a real estate token is a digitized share. A token could represent collateralized debt, equity, or a portion of the income stream. Different properties can be tokenized, like commercial real estate, residential property, hotels, retail, etc.
Benefits of Real Estate Tokenization
1. Flexibility
Unsurprisingly, hotels differ in many ways from other real estate properties. Hotels have a heavy operational aspect and depend on daily guests to determine profitability. Typically, in hotels, it is a one-night lease compared to a one-year lease for apartments or a 10-year lease for office property. As a result, hotels are highly sensitive to market changes since they price daily and, thus, should be treated as such. Furthermore, to remain relevant, hotels must upkeep capital and operational improvements quicker than other sectors.
2. High Speed of Investment
Since it is driven by Blockchain technology, tokenization eliminates the unnecessary expenditure of notary fees and bank fees. Investing with tokens can reduce costs and gain greater freedoms since you can buy real estate shares at any time and potentially profit from them.
3. Higher Diversification
With traditional real estate investment, significant capital is locked into an entire property. This, in turn, reduces the possibility of diversification. With tokenization, investors can commit smaller amounts of capital to various assets with potentially less complicated shareholding structures.
4. Highest Level of Security
Tokenization allows for both security and transparency in transactions. KYC / AML can be programmed into the token for securities regulation transparency. Tokens can trade with only whitelisted participants meaning the tokens can’t be hacked because there is a record of who owns which token. Information can be shared on the blockchain that gives parties clarity to the value. Current financial information could be linked to the token to give real time data.
Future Prospects of Real Estate Tokenization
With the growing popularity of real estate tokenization, investors are also seeking to experiment with this model with other properties. The tokenization of hotel real estate has emerged as a favored investment model. Although the pandemic has impacted the hospitality industry, the recovery of world economies has spurred hotel demand. Much like real-estate tokenization, hotel tokens offer a flexible investment opportunity to investors. Since the adoption of digital assets has skyrocketed in the past few years, tokenized reaal estate assets are following in their footsteps.
Final Thoughts
With the growing popularity of cryptocurrencies, tokenization has become an attractive investment opportunity in the real estate sector.
Disclaimer
This commentary is provided as general information only and is in no way intended as investment advice, investment research, a research report or a recommendation. Any decision to invest or take any other action with respect to the securities discussed in this commentary may involve risks not discussed herein and such decisions should not be based solely on the information contained in this document.
Statements in this communication may include forward-looking information and/or may be based on various assumptions. The forward-looking statements and other views or opinions expressed herein are made as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated and there is no guarantee that any particular outcome will come to pass. The statements made herein are subject to change at any time. GreatX disclaims any obligation to update or revise any statements or views expressed herein.
In considering any performance information included in this commentary, it should be noted that past performance is not a guarantee of future results and there can be no assurance that future results will be realized. Some or all of the information provided herein may be or be based on statements of opinion. In addition, certain information provided herein may be based on third-party sources, which information, although believed to be accurate, has not been independently verified. GreatX and/or certain of its affiliates and/or clients hold and may, in the future, hold a financial interest in securities that are the same as or substantially similar to the securities discussed in this commentary. No claims are made as to the profitability of such financial interests, now, in the past or in the future and GreatX and/or its clients may sell such financial interests at any time. The information provided herein is not intended to be, nor should it be construed as an offer to sell or a solicitation of any offer to buy any securities. This commentary has not been reviewed or approved by any regulatory authority and has been prepared without regard to the individual financial circumstances or objectives of persons who may receive it. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
About the Author
Alberto Marchi
Community Engagement Manager
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