While the bulk of that potential is currently theoretical, advanced investors must understand blockchain’s affordances and begin considering how you could use it to your advantage. Let’s take a closer look at what blockchain is and why it is described as a game-changer for Sterling Heights real estate investors.
Blockchain Defined
In basic terms, a blockchain is a digitized ledger or shared database. This differs from other databases because it is built on decentralized access. Distributed across numerous computers, blockchain data is unalterable and accessible to anyone. Since it cannot be changed, blockchain data is regarded as more trustworthy. Even though frequently 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 requested. This request is distributed to nodes or computers connected to a network. Using algorithms, the request is processed by the nodes and then verified. When this occurs, the ledger is updated with a new block of data transferred to the blockchain and closed. Once closed, it cannot be deleted or modified in any way.
Implications for Real Estate Investing
The most important aspect of blockchain for real estate investors is that it eliminates the need for trust between a buyer and a seller. Using unalterable information, a buyer could immediately prove their available funds, while a seller could instantly prove their property ownership.
With no need for further verification, blockchain holds the capability to remove some of the most time-consuming and costly aspects 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 might be performed by using smart contracts and tokenization:
- Smart Contracts. Smart contracts are lines of code that are stored on a blockchain. When specific terms and conditions are met, they automatically execute a transaction. For instance, if your financial profile was stored on a blockchain, your mortgage lender might have instant access to all of the information they required to make a decision about your loan application. After that, a smart contract could be issued to automatically transfer property ownership after the funds are released. This transaction would be shared with all participants, who could then monitor the status of the process at any time. Smart contracts could also be utilized for leasing Sterling Heights rental property, potentially removing the need for background checks, security deposits, and more.
- Tokenization. In real estate, tokens could be labeled as digital certificates of an ownership interest. Tokenization occurs when property owners seek to raise funds by offering shares in their property ownership. Although comparable to a real estate investment trust (REIT), tokenized real estate is more direct and flexible. People can buy an interest in a property for far less than purchasing an entire property and sell their token rapidly and easily for cash. This makes tokenization far more liquid than other types of real estate investments.
As a result, blockchain, smart contracts, and tokenization can dramatically alter the way that real estate is bought, sold, and owned sooner or later. 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.
However, most of the potential of blockchain is years away from being fully realized. But wise investors should start thinking about ways to use this developing technology in future investing activities.
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