One of the major reasons investors avoid real estate investments is the lack of liquidity. They are looking for investments they can jump in and out of without the pressure of long term commitment. There are three primary questions investors have in the back of their minds when looking at illiquid investments: (1) How long before I can access my money again; (2) The “what if” question related to every risk factor pertaining to the investment; (3) will I possibly need this money in the future for something else.
One of the benefits of the stock market is liquidity, but it wasn’t always this way. Before the Dutch East India company in the 1600’s the stock market didn’t exist, and you couldn’t just invest in any company that you were interested in. Even If you were able to invest in a company pre-1600’s you would have had a very illiquid investment–and that wasn’t good for business. The stock market provided access for anyone to invest in the equity of a company, and that investment provided capital, spread risk, and allowed the company to appreciate in value much faster.
The first public company
One of the first public companies was the Dutch East India Company founded in 1602. Sound familiar? Chances are you have heard of the East India companies; because there were several, and not to be confused with the British East India Company which was a rival during the same time period. The Dutch East India company went on to become a global multinational corporation that would dwarf the British East India company, all because the Dutch East India company went public decades before the English.
The ship trade was a dangerous and risky business, often times a single ship had a 30% chance of returning back to port due to shipwreck or being hijacked by pirates; for this reason, it made sense to issue stock to pool money and spread the risk. Investors didn’t need every ship to make it back to make money, if they lost a ship but several others returned that was a good outcome. By pooling money together, they were able to scale the Dutch East India company much faster than their English counterparts.
As public markets became more advanced the NYSE and NASDAQ were born, these exchanges made it even easier for the general public to invest in companies. These public exchanges were liquid enough that people didn’t fear jumping in the stock market, they knew they could pull their money out if they needed too.
Companies going public provided opportunity for the average person to invest some hard-earned dollars into an investment that could provide a return on investment, and for the company issuing the stock it provided capital and spread risk. It truly was a game changer for the global economy.
Real estate is going through the same transformation
Real estate is going through a transformation equal to that of corporations going public–only it’s a much larger market being worth 217 trillion-dollars.
Tokenization of real estate assets opens up opportunity in the same way that public companies did in the 1800s, except the market is larger, much larger. This digital record connected to the blockchain creates more transparency, reliability, trust, and less fees that you otherwise would spend on a real estate transaction. With global real estate being worth around 217 trillion-dollars, you can see why this is so disruptive on a global scale.
Not only does it simplify the entire process of purchasing real estate, but it now makes cross-border transactions possible for the average global citizen. The barriers that existed before will be removed through tokenization.
The blockchain is a more secure way of investing in real estate assets, it’s an immutable digital record of truth- where each user is incentivized to make sure the hash is correct. One false transaction can break the chain making each transaction invalid, for this reason each user has a personal incentive to enforce transparency and honesty.
Through tokenization real estate can be divided into digital tokens on the ERC-20 Ethereum platform, which is the most advanced blockchain platform in existence, and the most widely used. This digital ledger is more secure because it’s secured by smart contracts instead of a middleman– which means there is less opportunity for human error or fraud. Each token is time stamped and contains the history of the property including past transactions, income generated, and other pertinent information crucial to the property.
The other advantage of tokens is the ability to trade with people all over the globe in exchanges that are ERC-20 compliant. Think of a bigger and better NYSE that works 24 hours per day all over the world. That is what the future looks like for tokenization.
RealtyReturns is a company leading the charge on tokenizing real estate investments so that investors from Europe, Asia, and South America can invest directly into income producing real estate
Tokenization of Real Estate
The disruption occurring in real estate today from ICO’s like RealtyReturns is directly a result of blockchain technology and the concept of tokenization. Think of real estate tokenization as the process of digitizing a stake or portion of a real-world asset like a property or building when someone invests with cryptocurrency. With tokenization each token represents digital ownership or a stake in the particular asset.
Due to the accessibility and demand on the Ethereum platform Return Tokensfrom RealtyReturns can be traded easily among other Ethereum traders from around the globe. The ERC-20 platform is the most recognized cryptocurrency on the market today and because it’s so widely accepted and used in the blockchain world any asset tied to a token on the Ethereum platform can be traded very easily with anyone around the world.
The Ethereum market today has around 50 billion dollars invested, but will only grow with time, making it an ideal marketplace for tokens to be traded easily 24 hours each day. The key to liquidity is having access to buyers instantaneously and having simplicity around the transaction, tokenized assets accomplish both making trade easy for everyone.
RealtyReturns is democratizing real estate investing by offering cross-border real estate transactions through their online portal. Regular people can invest in real estate through their ERC-20 compliant security tokens. The integration of the blockchain into the traditional real estate investing model provides asset-back tokens and liquidity to investors all across the globe. Each token represents legal ownership in fractional real estate with access to income generating properties and capital appreciation.