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Here's what we got today:
- A Deep Dive into Real Estate on-chain
- Quick Bites
- Milky Memes
DEEP DIVE: REAL ESTATE ON THE BLOCKCHAIN
People talk about on-chain real estate all the time. They say it can be one of the major use cases for blockchains.
Single-family rental homes represent a $3.4t industry. Putting that on-chain would 3x the current size of crypto.
The US real estate housing market as a whole is approximately ten times that size. We’re talking big numbers here.
But the Milk Man has questions.
- Why would you buy real estate on the blockchain?
- Is it possible to put real estate on the blockchain? Others have tried it before, so why is this project getting so much attention?
- Is it really possible to buy and sell real estate using an ERC 721 smart contract, the same way you’d buy a punk or an ape?
- And, like, how does it actually work tho?
In October, we wrote about a house that was bought on the blockchain for $175k in South Carolina.
The company behind that blockchain sale is called Roofstock onChain - a Web3 platform that lets you buy single-family properties using NFTs.
Here’s how it works:
- They create an LLC for each property
- The LLC takes ownership of the property (i.e., the home is titled in the name of the LLC)
- An NFT is minted that is associated with the LLC and creates a record of ownership of the LLC on the blockchain
- When you own the NFT, you own the LLC. And the LLC owns the house. Which means you own the house.
- People can browse the NFTs on the marketplace & buy the homes in one click, in a legally enforceable way.
You can even check out the full tour of the house on OpenSea here.
So, why would you put real estate on the blockchain?
The real estate market already works. Is this another case of a crypto bro trying to insert blockchain into something that doesn’t need it?
Let’s dig a little deeper to understand why blockchain might make sense:
- It can be a treasury management solution for Web3 institutions. Crypto native organizations can finally invest some of their crypto holdings directly into real assets, not just Monopoly Money (looking at you, SBF)
- Buying a house the traditional way kind of sucks, blockchain makes it a lot easier. (How, you ask? We’ll cover that in a minute)
- It can give real estate investors a bit more flexibility and a whole lot more competitive advantage
- And, maybe best of all, you can use crypto to buy a house with one click (imagine Amazon Prime, but for buying homes)
We covered the “why” of mixing blockchain with real estate, but what about the “how?”
Let’s talk details……
Can crypto institutions AVOID getting REKT by revamping how they manage their treasuries?
We know crypto failures are on everyone’s mind, so let’s get into the meat and potatoes real quick.
Like, the thing that makes on-chain real estate such a massive deal.
You know how crypto companies have been blowing up like that bottle of Coke mixed with Mentos in your sixth-grade science class?
We’re talking FTX, Celsius, you know, all the household names…the ones that bet it all on black and lost.
And yet those tragic outcomes are now threatening to contaminate a lot of other Web3 players who are innocent bystanders. We’re talking about the hardworking, unsung hero-builders of the Web3 ecosystem–the DAOs, protocols, and even VC-funded crypto companies that maintain their treasuries in crypto.
For them, treasuries aren’t just a fun way to gamble with other peoples’ money – they actually represent the lifeblood of the organization that keeps them running. And this year, those treasuries have evaporated faster than the fizz from said Coke experiment.
Well, what would have happened if those companies had maintained some of their money in real assets instead of their native coins?
Imagine where the crypto industry would or COULD be today if these companies deployed their cash into something like real estate. A tangible, appreciating, and potentially cash-flowing asset instead of Monopoly money.
Think about it, real estate has been around forever, and over time, it almost always appreciates. And if we’re talking treasury management, diversification is the name of the game.
If you talk to most wealth managers, they’ll tell you to DIVERSIFY your portfolio and invest in stocks, bonds, and other alternative investments (like real estate).
Diversification is how money management is done, people!
So wouldn’t it be crazy for crypto institutions NOT to manage their treasury in a similar way? Wouldn’t it be insane? Like just as insane as losing billions of dollars of investors’ money, imploding an entire industry, and taking everyone else down with you?
Real estate isn’t correlated with the crypto market, it’s not necessarily correlated with the stock market, it can generate yield, AND it can appreciate over time. It’s pretty stable, especially compared to crypto.
And stability tends to be pretty darn attractive (except for maybe certain people, or one woman, at Alameda who shall not be named).
Alright, so maybe you’re thinking that real estate could actually have value for Web3 institutions. Maybe you’re even sold on the idea.
But if you’re a Web3 institution, you probs don’t have time to deal with tenants complaining that the shower is too slippery when the water’s on. And you probably didn’t know that there are companies that handle the boring, administrative part of owning real-world rental properties.
Allocating part of your crypto treasury to real estate may sound like a good idea, but you might be saying, “That’s not my bag, baby.”
Until now, it really wasn’t possible for Web3 institutions to use crypto assets to purchase homes because it was just too much work.
But as Bob Dylan once said, The Times They Are A-Changin'.
Imagine a world in which Web3 institutions could, quite literally, hand over their crypto and get a real estate portfolio in exchange.
Roofstock lives for this. Roofstock can help you build your ideal portfolio of single-family rental homes, whether you want to buy 5 homes or 5,000. They’ve done this for some of the biggest professional real estate investors.
We’re talking about sourcing, acquiring, and managing tens of thousands of rental homes. Why shouldn’t the good people of Web3 have access to the same investment opportunities as the billionaire private equity investors?
And get this, you can even get your rent money in crypto. Turn Key, Baby.
Will companies like Roofstock onChain solve all of the crypto industry’s woes? Hell no. But they might be able to help people and institutions find a safer home for their crypto.
In preparation for the next crypto up-cycle, deploying capital into real estate might just be the building block every crypto institution needs for their treasury management.
Web3 just makes buying a house easier…..
Okay, so maybe you’re not a crypto institution but just a regular dude (or gal) looking to buy a house.
If you've bought a house before, you’re probably familiar with all the hoops and hurdles (unless you’re a millennial, in which case, let us explain the process.)
First, you have to be approved by a bank.
Then, you’ll meet with a mortgage broker. This is the part where you’ll sweat through your clothes while they check your credit score, bank accounts, and employment status.
It’s at this time that you can expect to be grilled on that late student loan payment from 2014 (you needed groceries that month… okay?) and side-eyed for putting down Uber Driver, Freelancer, or crypto-bro as your current employment.
They’ll check your credit to evaluate how good you are at getting into debt, then digging yourself out of it. But you might get poor marks if you recently closed a credit card or two (your debt-free journey is really backfiring right now) or if too many brokers pulled your credit report while you looked for the best rate.
And if you don’t even have a credit history (because Dave Ramsey said so), you might be sh*t out of luck. Even if you’re rich in crypto, like Miami nightclub rich, but you don’t have any fiat, you might as well be broke in the eyes of the banks.
Even if you pass all the requirements with flying colors, the bank can still just say, “you’re not worthy.”
There’s no Pythagorean theorem for real estate loans. Every situation is different. Which is why the mortgage denial rate for Black borrowers is 84% higher than for white borrowers. One of the top reasons for denial is a lack of verifiable credentials. Huh, that verifiable word sounds familiar. What if we had a system that could… okay, never mind.
But let’s say that you make it through the mortgage approval process.
Next, you have to find a real estate agent. Which shouldn’t be too hard since they’re probably already in your DMs asking you to grab a coffee and “chat.” This may or may not trigger your social anxiety and leave you wondering, “Are they trying to get to know me or get a commission check?”
The real estate agent will help you “find” the house that works best for you (even though you’ve dedicated your lunch break to scrolling Zillow for the last 6 months.) You put down an offer to purchase the home, then the house goes into escrow.
Once you're in escrow, paperwork hell starts. You need paperwork for:
- Purchase agreement
- Amendments to your purchase agreement
- Seller disclosures
- Inspection reports
- Title insurance policy
- Closing statement (this is where you learn about approximately 39 extra fees that you’ll be paying as part of the transaction)
- Property deed. Which is physically mailed to you and recorded in the basement of the county’s public record office
What even are those?
The whole process can take anywhere from 30 to 90 days.
Let’s not belabor the point here. Buying a home the traditional way is a serious grind.
Buying real estate on-chain….not so much.
It all happens with the click of a button.
- Click a button to view property details and review all the due diligence materials, from inspection report to detailed property photos to title insurance, etc.
- Click a button to buy your next property.
- Click a button to verify your identity and review the transaction documents.
- Click a button to legally sign transactions, like DocuSign, but with wallets.
So get this, signing all that paperwork we listed above in a traditional settlement process thatinvolves countless people and takes hours to complete…Fuhgeddaboudit
Roofstock onChain doesn’t “do” physical paperwork. They don’t mess with DocuSign either (The program that lets you sign real estate docs online…millennials….).
The documents still exist for Web3 homes, but the process is different. Instead of the traditional settlement and signing process, when you “sign” the transaction using your crypto wallet, you are actually signing the applicable legal documents in just one click.
And if you hate people just as much as you hate paperwork, you’re really gonna love this.
If you buy real estate on-chain, you can ditch a lot of intermediaries. When you ditch them, you ditch their fees and transaction costs too, which can easily be 6-8% of the home price (how’s that for BiggerPockets?)
On-chain real estate can give investors an edge….
If you’re a real estate investor (REI), buying property on the blockchain could change the game. According to (Trigger Warning).... FannieMae, one person can’t have more than 10 mortgages. And many banks will cut you off before even reaching that number. But you just can’t stop acquiring property. It’s literally What. You. Do.
And the blows keep coming. As an REI, you might be raking in monthly cash flow and sitting on millions in equity, but without a W2 job (which many REIs have long abandoned), banks might not give you a traditional mortgage anyway.
There are plenty of creative ways around these hurdles, but if you’re an REI sitting on some crypto, you may be able to invest in real estate using crypto on a platform like Roofstock onChain.
If most of your net worth is in crypto and you don’t want to off-ramp to fiat but need to diversify your portfolio, on-chain real estate could make a lot of sense.
Plus, you can say you own a house in your wallet. I just like the sound of that.
Could this be the new “off-market” strategy?
Is it possible to put real estate on-chain?
Yes, and it’s promising, but like people, it has issues too.
- It’s new, and it will take time to educate people, gain their trust, and showcase successful examples
- Some people may not have the purchase price available in crypto, and it can be expensive to use fiat to buy large amounts of crypto. However, Roofstock onChain now works with Wyre to make this cheaper and easier
- Regulations always have the potential to create inconvenience. For example, Roofstock onChain is required by law to do KYC (Know Your Customer), however, your identity is not made public. When you buy a Web3 home, the only thing the public sees is your wallet address
- Are any other laws and regulations applicable here? Is Roofstock onChain another fly-by-night crypto operator, or are they taking these things seriously? Let’s just say that this project is co-led by a lawyer and that they have spent a year and an ungodly amount on legal fees to make sure Web3 homes are ticked and tied from a legal standpoint
The TL;DR
Roofstock onChain is bridging real estate and Web3.
And they’ve got a few more game-changing offerings up their sleeves.
It all starts with real-world NFT homes on the blockchain. Next up, look for DeFi lending to enter the scene (but more on that later.)
Stay tuned and stay thirsty, friends.
Want to learn more about Roofstock onChain real estate? Check em’ out here.
QUICK BITES
A group of 16 companies is forming a DAO to buy the Constitution in a Sotheby's auction later this month. No word on if Ken Griffin is showing up again.
Samuel offered Taylor Swift $100m to endorse FTX. Fellow FTX execs argued against the move and the pop star was reportedly never interested.
Kim Kardashian wins investor lawsuit over Ethereum Max. Aren't we glad the SEC and Gary Gensler spent the time going after Kim K?
MILKY MEMES
That's a wrap for today. Stay thirsty & see ya tomorrow! If you want more, be sure to follow our Twitter (@MilkRoadDaily)
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A ROADERS REVIEW
VITALIK PIC OF THE DAY
Throwback Thursday type
— The Milk Road (@MilkRoadDaily)2:42 PM • Dec 8, 2022
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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.
