Blockchain-powered asset tokenization allows investors to gain exposure to illiquid asset classes that would otherwise be difficult to invest in. The most prominent use case for tokenizing assets is undoubtedly real estate.
In this guide, you’ll learn everything you need to know about real estate asset tokenization.
What is asset tokenization?
Asset tokenization refers to the process of taking a physical and/or illiquid asset and converting the rights to it into a digital token that works on a blockchain.
Advantages of tokenization
Lowering barriers to entry for investors seeking exposure to physical and/or illiquid assets is one of the key selling points for asset tokenization. But there are more.
Other benefits of tokenization are:
Provides a new avenue for companies to raise capital
Reduces investment risk through lower capital requirements
Increases the liquidity of illiquid assets
Reduces reliance on expensive intermediates to lower transaction costs for all stakeholders
Increases transactional transparency for all stakeholders.
How to Invest in Tokenized Real Estate
Tokenization of real estate is arguably the most popular tokenization use case today. Real estate tokenization refers to converting claims to a physical property into digital tokens that can then be sold to investors to give them fractional ownership of a real estate.
Buying real estate backed tokens feels like a combination of buying bitcoin and investing in a startup on an online crowdfunding platform.
Let’s look at the steps.
First, you need to set up a digital wallet that will allow you to hold the tokenized asset you want to buy. In most cases, this is an Ethereum wallet that supports different types of Ethereum-based tokens.
Next, you need to sign up for a real estate token investment platform that allows you to buy tokenized real estate in the currency of your choice. (Below is a list of leading platforms to check out!)
Then browse the tokenized properties available to gauge which one fits your investment goals and risk preference.
Once you have found suitable properties, proceed to purchase the real estate tokens on offer for an amount that you are comfortable with.
Finally, you keep the tokens you have purchased safe in a digital wallet.
The secondary market for real estate backed tokens is still very small. While that is expected to change in the coming year as this segment of the digital asset market matures, it’s better to treat tokenized real estate investments as long-term investments that you want to hold onto for several years.
Top Real Estate Tokenization Platforms
Real estate tokenization is a popular use case for blockchain.
As the real estate tokenization market grows more and more service providers. Coming to offer this type of service. In light of the strong performance of real estate as an asset class in countries like the US and UK. We can expect more and more properties to be tokenized and sold to investors in the form of blockchain-powered real estate tokens.
The Bottom Line
With real estate tokenization, you can add real estate exposure to your portfolio without having to make a large down payment on a property, manage it and deal with tenants. Instead, you can gain fractional ownership of a home by purchasing a digital token that you can keep in a portfolio of digital assets.
Although it is still nascent in the tokenized real estate market, it may soon become the standard to add investment exposure to a commercial real estate in Tokyo, residential New York and industrial real estate in Germany to your portfolio by simply adding three real estate-backed tokens on a digital asset exchange.