Perhaps you’ve heard about innovations such as cryptocurrency, bitcoin, and blockchain. Maybe you’ve even invested in them already. Blockchain, in particular, is one innovation that many real estate experts are observing due to its potential to revolutionize the way real estate transactions are carried out.
While the majority of that potential is currently theoretical, forward-thinking investors should learn about blockchain’s affordances and start thinking about what they can do to benefit from it. Let’s pay close attention to blockchain. Let’s figure out what it is and why people have been saying that it’s a game-changer for Ringgold real estate investors.
Blockchain Defined
To put it simply, a blockchain is a digitized ledger or shared database. What gives this an edge over other databases is that it is built on decentralized access. This means that the data is available on multiple computers and is accessible to all, but it cannot be altered. This is a key feature. Because it cannot be changed, blockchain data is considered 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 starts when a transaction or record is being requested. This request is sent out to nodes or computers connected to a network. Using algorithms, the request is processed by the nodes. After that, they get verified. Once this happens, the ledger is updated with a new block of data added to the blockchain and closed. Once closed, there is no way the data can be deleted or altered.
Implications for Real Estate Investing
The best benefit that blockchain gives for real estate investors is that it reduces the need for trust between a buyer and a seller. Using unalterable information, a buyer could easily prove how much available funds they have. A seller could also instantly prove that they own the property.
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 accommodating and your holdings more liquid. This could be made through the use of smart contracts and tokenization:
- Smart Contracts. Smart contracts are lines of code that are kept on a blockchain. When the terms and conditions agreed upon are met, they automatically execute a transaction. For example, if your financial profile was stored on a blockchain, your mortgage lender could have immediate access to everything they needed to make a decision about your loan application. Then, once funds are released, a smart contract would automatically transfer property ownership. This contract would be shared with all the participants. And each one could independently check the status of the process. Smart contracts could also be used for leasing Ringgold rental property, potentially eradicating the need for background checks, security deposits, and more.
- Tokenization. In real estate, you can view tokens as digital certificates that document ownership interest. Tokenization happens when there isn’t just one person who owns the property. For example, when a property owner offers shares in their property ownership in exchange for funds. Although similar to a real estate investment trust (REIT), tokenized real estate is more direct and flexible. This way, people can buy an interest in a property without having to pay the amount of the full property’s cost. This also means that they could sell their token for cash quickly and easily. This makes tokenization abundantly more liquid than other types of real estate investments.
As we’ve seen, blockchain, smart contracts, and tokenizations could change the future of real estate for the better. It could potentially improve how we buy, sell, and own real estate in the future. Not only would it be an amazing way of keeping unalterable records of all transactions– which would reduce fraud– but it would also speed up the contract and lease processes too. Blockchain would help in all these things, which would mean a significant decrease in the cost of investing in and leasing rental property.
Still, it would take a few years before blockchain would be fully implemented in our industry. But smart investors should already begin to think about ways to use this developing technology in future investing activities.
Are you looking to upgrade your real estate investing process now? Real Property Management Ascension can help! Our quality digital tools can help rental real estate investors like you optimize both your time and your cash flows. Contact us online today to find out more.
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