What Is Tokenized Property Ownership?
Tokenization is an updated version of traditional fractionalized property ownership. Tokenizing ownership means converting a physical asset such as real estate into several digital tokens; those who buy the tokens then own a portion of the equity in that asset.
Tokenization has the potential to provide market access to people currently priced out of real estate investing by making it more affordable.
Typically, when you invest in a tokenized property, you'll be rewarded daily or weekly with a portion of rental payments in proportion to your initial investment. This payment is usually made in stablecoins or the platform's native currency.
The Benefits of Tokenized Ownership
There are a few benefits to tokenized ownership, especially with real estate as an asset. The most blatant benefit would be that it doesn't require the investor to purchase the entire property; the investment amount is completely customizable.
One complaint of real estate investors is that when you purchase a property, you have to refurbish and manage the property too, find tenets, collect rent, and often investors just part ways with 30% of the property income and hire a property manager.
This is a huge chunk of cash, and tokenized ownership allows investors to gain the same upside without finding cost-efficient property managers or dealing with a physical property; the burden is passed to the platform. Passive income in real estate just became even more passive!
Easier Equity Release
There are also some platforms that'll allow you to tokenize your own property to raise capital. This would allow you to release equity, raise funds, purchase another property and grow your portfolio.
The Downsides of Tokenized Ownership
Although there are exceptional benefits to investing in tokenized real estate. There are some disadvantages too. The most obvious is that the rental payments will be minuscule compared to traditional rental payments.
Considering that your fee will only be in proportion to your initial investment, it won't be a large payout if you don't have a lot of capital.
The tokenized ownership market is saturated, with plenty of platforms offering the best APY and opportunities. But, with so many to choose from, owners of properties willing to list and release equity will be stretched thin.
This means that the number of opportunities for investors will be pretty poor. Not only that, but US housing stock is already at some of its lowest levels, and that also greatly limits the opportunities available.
Security tokens are not regulated in depth across the world. Although web3 removes middlemen, compliance is needed for the idea to scale. It would also be sensible for the platforms to have the correct licensing, which is easier said than done. So, before you invest or list your property, ensure the platform is compliant with local regulations.
Tokenized Real Estate Platforms
There are a few options; the main thing to look for is their track record with investors, how many successful investments they've processed and how varied their current options are.
DigiShares are for people that want to tokenize real estate, company equity, or physical assets. This service is more for people with physical assets or real estate to tokenize; you can invest in any property on this platform.
ArrivedHomes is a platform that allows you to invest directly into the property. In return, you'll receive tokens and rental payments. It's a fairly new platform to the real estate tokenization space but already has a great following.
The old-timer! RealT has been in the space for a while and built up quite the track record for successful investment opportunities. They must be doing something right because their properties tend to sell out quickly. Not only that, they have a large and experienced team, meaning they know what they're doing.