What does it even mean to invest in real estate? Historically, you buy a building. You develop. You occupy. You rent. You manage. Real estate has always been, literally, something real and tangible, something you can touch. But over time, as with every other investment type, real estate has become virtual and abstract. You can own shares in a real estate investment trust (REIT) or membership in an LLC that owns real estate as part of a syndication. You can own part of an apartment complex without subdividing it. And you can acquire title to a property without ever holding the keys in your hand.
Property title itself is changing. Gone, for the most part, are the dusty tomes archived in the courthouse (and ready to fuel the next fire). These records have been better preserved by digitizing them and are now stored in multiple copies at multiple locations, safe from the localized accident. But these records are, literally, pictures of books, often stored with some amount of metadata that lets you know what book and page they are from. Better systems include the names of the parties and the addresses of the properties. These systems allow you to search title from the comfort of your computer. However, the data is not the title. It is still the words on the pages of the pictures that tell who owns a property and what rights they are granted.
Over the next few years, this approach to owning real estate and having title will change. Two cryptocurrency-based methods of documenting ownership are emerging that will radically restructure title systems. These latest approaches to owning real estate are both more abstract and more permanent and real.
Nonfungible tokens (NFTs) are smart contracts that represent ownership of an asset. These are the hottest types of crypto assets this year. Numerous platforms have been developed to support creation of NFTs. And earlier this year, an apartment in New York City was sold with the ownership represented as an NFT. NFTs (or some other form of smart contract) are already becoming the backbone of title systems in several countries and individual counties in the U.S. are experimenting with them.
NFTs have several advantages over current title systems. They are immutable (no more worries about courthouse fires or inattentive clerks) and can be exchanged without the involvement of a third party. Once a title system is based on NFTs, it will be easy to search title and much harder to challenge title from some historical claim. The details of the title may become digitized objects so that looking up the boundaries, the ownership history, the easements, and any liens may become much easier without the need for specialists. Title insurance will become focused on defending new infringements rather than protecting overall claims.
Similarly, security token offerings (STOs) are poised to replace current approaches to syndication. STOs represent partial ownership in properties and properties with ownership sold as STOs have all the benefits of syndication with the addition of easier liquidity in a secondary market. STOs can automatically enforce securities regulations – from multiple countries at the same time – providing better compliance and enforcement. And as more real estate becomes tokenized, the secondary market will be rich in opportunity for investors of all income levels to own part of high quality commercial real estate. It may become common to invest $100 in an apartment building or a shopping mall. Institutional quality real estate could become available to everyone without the high REIT management fees.
When we combine these trends, the future of owning real estate looks like real estate title as an NFT. The NFT is syndicated and tokenized into large numbers of small pieces of ownership and all those fractional interests are tradeable on secondary markets providing whole new ways for real estate investors to own real estate and diversify their portfolios. All these ownership pieces are immutable and protected by strong cryptography. They may even be publicly maintained worldwide so that real estate title becomes a global property and not a national one.
This is one potential future. Regulation could prevent it —though it doesn’t now. Having property ownership tracked on a global blockchain arguably threatens the sovereignty of nation states. No doubt they will fight it. But if the blockchains remain decentralized so that there is no one to imprison or sue, it may be hard to prevent the democratization of real estate ownership. It will be an interesting ride the next few years as waves of innovation build on the amazing creativity already unleashed over the past four years. Learn now about NFTs and STOs so you can ride that wave to profitability.
Steve Streetman is a real estate consultant specializing in deal structuring and the use of cryptocurrency. Look for his book, “Cryptocurrency and Real Estate: How to Profit as Bitcoin and Blockchain transform real estate investing” available now on Amazon in paperback and ebook formats. You can also find out more at https://www.CryptoREBook.com. Contact him for more information about the World Homes Initiative or the Hemp Powered Community.
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