Blockchain Real Estate: How To Invest, Best Platforms, & Fees
Much like stocks give us fractional ownership of companies, blockchain real estate brings fractional ownership of real property in this new use of blockchain technology. Investors can now own part of a property anywhere in the world without a large financial commitment and with near-instant settlement.
What is Blockchain Real Estate?
Tokenized real estate investing is a relatively new way to invest in property, allowing investors to own fractions of a piece of real estate anywhere in the world. The “tokenized” part refers to the way the value of the property is divided into digital tokens that represent the owner’s stake in that property. All of the tokens for that property are stored on the blockchain, the same technology that underlies cryptocurrencies like Bitcoin.
The current value of the tokenized real estate market is approximately US$200 million. However, given that the present value of the global real estate market is thought to be US$317 trillion, a 0.5% tokenization rate would create a trillion-dollar industry.
There are, of course, several benefits to tokenized real estate investing, but there are also some facts you should understand. Let’s take an objective look at everything to do with tokenized real estate, including how it works, examples of investment, and what companies are already providing opportunities for tokenized real estate investment.
Traditional Real Estate vs. Tokenized Real Estate
By its very nature, tokenized real estate investment brings several new characteristics that make it quite different from the conventional real estate investing market. Here’s a quick breakdown of those differences.
| Traditional Real Estate | Tokenized Real Estate |
|---|---|
| Buyer purchases the entire property | Buyer can purchase as few or as many fractions of the property as desired |
| Market usually only open to local buyers | Market is open to anyone in the world |
| Buyer usually holds a mortgage with a centralized bank | Buyer does not need to deal with a centralized bank |
| Less liquid — i.e. harder to purchase and sell | More liquid — i.e. easier to purchase and sell |
| Title for the property is held with local government | Title for the property is secured and shown on the blockchain |
| Usually must pay with fiat (traditional currency) | Can pay with cryptocurrencies such as Bitcoin or Litecoin |
| Lengthy ownership transfer process | Near instant ownership transfer process |
How Does Real Estate Tokenization Work?
Tokenization is used across many industries and simply refers to producing digital securities (tokens) that represent fractional ownership of an asset, in this case, real estate.
This tokenization is done on a blockchain, which is a public, distributed ledger system. This means that when a real estate asset is tokenized, all ownership records are stored securely and permanently on the blockchain.
The tokenization process involves three key steps:
1. The creation of digital tokens representing fractional ownership in the property
2. Issuance of the tokens on a digital ledger
3. Trading digital tokens on an exchange or platform developed for tokenized assets
How Does the Blockchain Real Estate Market Work?
The tokenized real estate market is predominately led and facilitated by specialized tokenized real estate companies and platforms.
- A tokenized real estate company will work with local real estate operators to source desirable real estate investment opportunities.
- The tokenized real estate company will create a special purpose vehicle (SPV) for the property, a legal entity created to protect its investors, such as a limited liability company (LLC).
- That LLC is then fractionalized into digital security tokens.
- A smart contract is created on the blockchain to ensure and exhibit ownership, security law compliance, etc.
- Fungible security tokens are minted and issued to investors, reflecting their fractional investment in the piece of real estate.
Real Estate Tokenization Example
Here’s a quick example of how an investor could partake in a tokenized real estate investment:
Our investor Tracey approaches a tokenized real estate platform to invest in a particular piece of real estate. The property is worth US$300,000.
- The platform has already sourced the property, established a special purpose vehicle (SPV) company for it, and divided its ownership into digital tokens.
- Tracey then decides she would like to invest in 5% of the total company, equaling US$15,000.
- Tracey sends US$15,000 of her chosen cryptocurrency, which will be reflected in her account on the platform as a 5% ownership stake in the company.
- The transaction is then approved by a smart contract, which is stored on the blockchain.
- Tracey is now officially a part owner of that particular piece of real estate, enjoying all the benefits of real estate investment.
Types of Tokenized Real Estate Projects
Real estate investors can use tokenization to easily invest in various types of real estate, including:
- Single-family housing
- Multi-family housing
- Office buildings
- Industrial buildings
- Self-storage units
- Commercial development projects
- Undeveloped land
Tokenized Real Estate Platforms and Companies
As mentioned earlier, the tokenized real estate market is facilitated by specialized tokenized real estate companies and platforms. Here are some examples of those companies and platforms that are currently operating:
- Roofstock: Best for a quick purchase
- HoneyBricks: Best for commercial real estate
- RealT: Best for property management
- SolidBlock: Best for sellers
- Vave: Best for people low on cash
- DigiShares: Best for investing in energy infrastructure
- Arrived: Best for vacation rentals
Here’s a quick breakdown of the services offered by each provider:
| Provider | Buyer- Or Seller-Focused | Browse Online Real Estate Listings | Buy & Sell With Crypto | Minimum Investment | Purchasing Finance |
|---|---|---|---|---|---|
| Roofstock | Buyer | Yes | Yes | Not specified | Yes, up to 80% |
| HoneyBricks | Yes | No | Yes | US$100 | No |
| RealT | Both | Yes | Yes | US$50 | Yes, third party |
| SolidBlock | Seller | No | Yes | N/A | N/A |
| Vave | Both | Yes | Yes | US$10 | No |
| DigiShares | Seller | No | Yes | N/A | N/A |
| Arrived | Buyer | Yes | Yes | US$100 | No |
1. Roofstock
Pros And Cons Of Roofstock
Pros
- A platform for both buyers and sellers
- Attractive financing
- One-off fee
Cons
- Can’t browse properties on the website
- No financing
Roofstock was built by a team of lawyers, crypto enthusiasts, and graduates of The Wharton School’s Cypher Accelerator. They aim to build the world’s leading real estate investment marketplace by making ownership of investment real estate “radically accessible, cost-effective, and simple.” Started in 2015, Roofstock was initially reasonably traditional in its buying and selling model, however, it has since moved to include a tokenization model for even more accessibility. Since its launch, it has generated US$5 billion in transactions.
2. HoneyBricks
Pros And Cons Of HoneyBricks
Pros
- Commercial real estate focus
- Browse properties on the website
- Attractive financing
- No direct fees for buyers
- Low minimum investment
Cons
- Not for sellers
HoneyBricks was started by a team of real estate, crypto, compliance, and capital markets experts as a platform to connect investors with commercial real estate investments through asset-backed security tokens. Working with US real estate operators, it offers transparent, fractional ownership through tokenizing real estate investments on the Ethereum blockchain. Given its focus on commercial real estate, Roofstock would suit investors looking to diversify from residential real estate.
3. RealT
Pros And Cons Of RealT
Pros
- A platform for both buyers and sellers
- Third-party financing
- Low minimum investment
Cons
- Fees not specified
RealT was started by a team of real estate and blockchain professionals, along with marketing, e-commerce, and technology experts. Together, it aims to create a new real estate ownership experience through tokenizing real estate. With a minimum investment of $50, it offers one of the lowest barriers to entry for investors on our list.
4. SolidBlock
Pros And Cons Of SolidBlock
Pros
- Focused on sellers
- Large educational repository
- NFT and (planned) Metaverse capabilities
Cons
- Only for sellers
- Fees not specified
SolidBlock was established in 2018 out of its founders’ own personal frustrations in getting access to the best real estate investment opportunities. It set out to provide global exposure, liquidity, and transparency to the real estate industry to help the public get the same access to real estate as accredited investors. SolidBlock is working to build an ecosystem of partners with similar goals, helping to educate clients who want to tokenize their assets and prepare themselves for blockchain evolution.
5. Vave
Pros And Cons Of Vave
Pros
- A platform for both buyers and sellers
- Browse properties on the website
- Extremely low minimum investment
Cons
- No financing available
- Fees not specified
Vave claims to be the No. 1 platform for financial independence in the French-speaking world. It aims to provide clients with information that helps them to increase and develop their real estate and stock market investments. It offers the lowest minimum investment ($10) on our list, and so provides an incredibly low barrier for entry to the real estate investment market.
6. DigiShares
Pros And Cons Of DigiShares
Pros
- Focused on sellers
- Good educational repository
- Webinars and podcasts
Cons
- Fees not specified
DigiShares provides solutions for the creation, management, and trading of digital assets. Unlike the other platforms on this list, DigiShares doesn’t just work with real estate — it also tokenizes energy infrastructure investment like solar and wind. It works with various stakeholders, including asset managers, investment fund managers, real estate developers, and renewable energy project developers — providing them with solutions for investor relations and raising capital.
7. Arrived
Pros And Cons Of Arrived
Pros
- Focused on buyers
- Browse properties on the website
- Low minimum investment
Cons
- No financing
Arrived aims to empower the world through various types of real estate investing, including tokenized ownership. Co-founder and CEO Ryan Frazier said, “Our goal is to make the wealth-building potential of owning rental homes and vacation rentals more accessible. We believe we can do that by simplifying the process and lowering the cost to get started.” The browsing feature conveniently allows you to filter properties by fields such as “appreciation focused,” “great schools,” and “newly built.”
Benefits of Real Estate Tokenization
The nature of tokenization means it brings several advantages that traditional real estate investments don’t offer. These include:
Increased Access
Tokenization makes investing in real estate accessible to a much wider group of people, including those who may not have the means or qualifications to invest through more traditional routes.
Low Entry Cost
It is possible to purchase shares of a given property for a fraction of the cost required to purchase an entire property. This opens up investment opportunities that previously weren’t available to many people.
Fractional Ownership
The ability to divide properties into smaller units and tokenize them makes it possible to own a portion of a real estate asset, rather than needing to pay for the whole asset. This makes it easier to diversify investments and spread risk.
Liquidity
One of the major advantages of tokenization is that it allows for near-instant liquidity, meaning holders can quickly and easily convert their tokens into cash or another asset type with minimal fees.
Disadvantages of Real Estate Tokenization
Of course, it is essential to understand that tokenized real estate investment can also have some disadvantages. These can include:
Fees
Any costs associated with tokenizing a real estate investment may be an issue for some investors.
Regulatory Complexity
Given the newness of tokenized real estate investments, there is still a lack of clarity around many regulatory issues in some jurisdictions. This means there might be risks involved in investing in tokenized real estate. However, with the growing popularity of tokenization, the rules and regulations should become clear in the coming years.
Security Risks
As with any type of digital asset, the security of tokens can be a concern, particularly if they are held on an exchange or platform that is vulnerable to hacking. It is important for investors to ensure their tokens and wallets are secure before investing.
Security Token Offerings vs. Non-Fungible Tokens
A security token offering (STO) is a fundraising mechanism in which a company offers digital tokens representing ownership of the company or its assets. STOs can be bought and then sold on secondary markets, allowing the transfer of ownership of what the token represents.
A non-fungible token (NFT) is a token representing a type of asset that is non-interchangeable and unique, such as artwork, or in this case, real estate. The non-fungible part means each token is unique and cannot be copied, substituted, or divided.
An NFT can be bought and sold, however. NFTs are linked to the ownership of assets, but they are also used to certify the authenticity and originality of a given asset.
| Security Token Offering | Non-Fungible Tokens |
|---|---|
| Tokens are identical in their value and attributes | Tokens are unique in their value and attributes |
| Tokens are interchangeable and can be swapped with another token of the same value | Tokens are non-interchangeable and cannot be swapped with tokens of the same type |
| Tokens are divisible into smaller amounts | Tokens are non-divisible |
To Sum It Up
Tokenized real estate ownership promises to change the way everyday investors can invest in property. By splitting a property’s ownership into smaller pieces (represented by digital tokens), tokenized investment “democratizes” access to wealth-building opportunities, allowing smaller investors to own a piece of property for a fraction of the cost.
Tokenized real estate investing offers a number of advantages, including increased access, low entry cost, and higher liquidity. However, it is important to understand the potential disadvantages as well, such as fees, regulatory complexity, and security risks.
Today, more and more specialized tokenized real estate investment companies are helping consumers invest in real estate by sourcing properties, performing due diligence, and offering secure platforms for the investment process. As these companies continue to enter the market, tokenized real estate investing will become increasingly accessible and popular among everyday investors.
For investors looking to expand their portfolio with real estate, tokenization could be an interesting way to do so. With its advantages and potential returns, it is certainly worth considering. If you’d like to find out more, click on the company links above to see what they have to offer and then determine if tokenized real estate investing is right for you.
Frequently Asked Questions
To tokenize a real estate project, the first step is to decide which type of tokens you want to issue (security or non-fungible). Then, the issuer will need to create and configure the smart contract on a blockchain platform that meets all regulatory requirements. Once the smart contract is created, it can be used to launch an offering and issue tokens to investors.
At present, the real estate market makes up nearly 40% of the digital securities market, for a value of about US$200 million. In time, tokenized real estate could grow into a trillion-dollar market.
Yes, it is possible to tokenize a house. However, it is important to note that tokenizing real estate requires a thorough process of due diligence and regulatory compliance. It is best to consult with a professional tokenization advisor before attempting to tokenize your home.
Yes, there is tokenized commercial real estate. Many specialist tokenized real estate providers offer investors the opportunity to invest in tokenized commercial real estate. These companies source properties, conduct due diligence on them, and then offer fractional ownership through digital tokens.
Taxes on tokenized real estate are similar to taxes on traditional forms of real estate. Token holders may need to declare gains or losses when selling tokens and be subject to capital gains tax accordingly. It is best to consult with a qualified tax professional for more information.
