Maybe you’ve heard about or even jumped on board with innovations such as cryptocurrency, bitcoin, and blockchain. Blockchain, in particular, is one innovation that many real estate experts are keeping a close eye on due to its potential to revolutionize the way real estate transactions are carried out.
Whereas the advantage of that potential is currently theoretical, advanced investors need to learn about blockchain’s affordances and start thinking about how you could use it to your advantage. Let’s look at what blockchain is and why it is described as a game-changer for Pueblo West real estate investors.
Blockchain Defined
In straightforward terms, a blockchain is a digitized ledger or shared database. This is distinct from other databases because it is built on decentralized access. Distributed across various computers, blockchain data is unalterable and accessible to all. Because it cannot be changed, blockchain data is deemed more trustworthy. Although often confused with bitcoin or cryptocurrency, blockchain is a secure system for recording and distributing digital information.
How It Works
The blockchain process commences when a transaction or record is requested. This request is sent out to nodes or computers connected to a network. Utilizing algorithms, the request is processed by the nodes and then verified. When it happens, the ledger is updated with a new block of data added to the blockchain and closed. Once closed, it cannot be deleted or altered in any way.
Implications for Real Estate Investing
The most significant aspect of blockchain for real estate investors is that it reduces the need for trust between a buyer and a seller. Using unalterable information, a buyer could instantly prove their available funds, while a seller could instantly prove their property ownership.
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 accessible and your holdings more liquid. This could be accomplished through the use of smart contracts and tokenization:
- Smart Contracts. Smart contracts are lines of code that are stored on a blockchain. When certain terms and conditions are met, they automatically execute a transaction. For instance, if your financial profile was stored on a blockchain, your mortgage lender could have urgent access to everything they needed to make a decision about your loan application. Then, a smart contract could be issued to automatically transfer property ownership once the funds are released. This transaction would be shared with all participants, who could then check the status of the process at any time. Smart contracts could also be used for leasing Pueblo West rental property, possibly obviating the need for background checks, security deposits, and more.
- Tokenization. In real estate, tokens could be described as digital certificates of an ownership interest. Tokenization happens when property owners seek to raise funds by offering shares in their property ownership. While comparable to a real estate investment trust (REIT), tokenized real estate is more direct and flexible. Individuals can buy an interest in a property for far less than purchasing an entire property and sell their token quickly and easily for cash. This makes tokenization far more liquid than other types of real estate investments.
As you can see, blockchain, smart contracts, and tokenization have the capability to significantly alter the way that real estate is bought, sold, and owned in the future. Not only could it be possible to keep unalterable records of all transactions, but it could also help speed up contracts and leases, reduce fraud, and decrease the cost of investing in and leasing rental property.
Still, most of the potential of blockchain is years away from being fully realized. But smart investors should start to think about ways to use this developing technology in future investing activities.
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