Real estate tokenization, blockchain in the service of the real world.

A couple of weeks ago I learned about something called "real estate tokenization", a term in itself that evidences the participation of the virtual world represented by the blockchain in real assets, in this case in real state. I must admit that my investment alarm was immediately triggered, as this form of business still seems novel, as much as NFTs or cryptocurrencies themselves.

It is clear that portfolio diversification is a necessary strategy when it comes to investing, however the world of real estate usually contains as many uncertainties as certainties, but the fact of investing in a property by bypassing the bureaucratic and administrative steps skeems to be a more than valid reason to take the first step. Blockchain technology step by step is assuming a more decisive role in our lives, now offers the option of transforming a real estate asset into a digital unit of value, this is the tokenization of real estate, a trend that is becoming increasingly popular.

Blockchain technology is going to revolutionize many sectors, and not just cryptocurrencies, thanks to three basic pillars: security, transparency and traceability. In the case of the real estate sector, the technology that stores information in the form of blocks of data allows small investors to obtain, through tokens, a high return with a minimum investment (from, for example, $50).

Tokenization makes it possible for anyone to invest in real estate in a simple way and with little capital, with the added advantage of liquidity, since, if your personal needs change, you can disinvest quickly and easily.

Do you know what tokenization is?

Basically, any property (vacation, residential or commercial) can be represented digitally. But how? The economic rights generated by the property are divided into 'tokens', calculated as the proportional part of the monthly rent and the capital gain obtained in the sale of a property. This investment formula differs from timeshares in that investors do not enjoy the property itself, but rather its economic returns.

If we decide to launch ourselves into this field, the important thing is to analyze the profitability project behind each asset, as well as to have a clear idea of what kind of investor profile you are. If you prefer to have a more active management, you value more the monthly returns or if, on the contrary, you are more motivated by the potential revaluation of the property. The key to investing well in the real estate sector lies in access to good opportunities and good property management. This is precisely one of the handicaps that tokenization tries to solve because, normally, good opportunities do not reach the small investor, they are kept by investment professionals.

Some experts believe that it is better to refrain from investing in real estate located in large cities such as New York, London or Barcelona and consider other growing alternatives such as Miami or Malaga. Tokenization allows access to assets anywhere in the world without having to worry about paperwork and legal requirements, a condition that presents itself as a great opportunity to generate income in the world of Real Estate.

Are we exposed to scams?

Although security is one of the strengths of blockchain technology and this formula has the added advantage that users directly control their assets without the need for intermediaries, it is advisable to take some precautions to avoid scams.

It is generally recommended to check that the properties are registered in official records in the name of the company or owner that offers us to participate in it. It is also necessary to request the documents detailing the characteristics and address of each property validated by some entity in charge of the matter, this procedure is to obtain the guarantee that it is a regulated product.

Diversify first and foremost

However, as with any investment product, there are always risks. If, for example, a crisis similar to that of 2008 were to occur again, with the bursting of the real estate bubble, the returns on this type of asset would be significantly reduced. As a general rule, it is advisable to have a diversified investment portfolio and, within this diversification, to leave some room for real estate investment.

Another issue to note is the fact that if you add to this profitability the possibility of reinvesting the monthly returns, the so-called compound interest will enter into the equation, the scenario becomes interesting", he assures. As for the advisable period of time to maintain the investment, he says, "it is advisable to keep the investment for a certain period of time.

Another issue to note is the fact that if you add to this profitability the possibility of reinvesting the monthly returns, the so-called compound interest will enter the equation, the scenario becomes interesting", he assures. As for the advisable period of time to maintain the investment, Castelló suggests an average of between 3 and 4 years, although it can be disinvested at any time.

Where to start?

There are already several companies offering this type of investment product. Soon, we will also be able to turn to security token aggregator platforms. As they become more widespread, new tokenized investment models will emerge. One example of what is coming is the possibility of creating a marketplace for equity exchanges.

From my point of view, a negative aspect of real estate tokenization is represented by the obligation of the investor to re-establish a KYC (Know Your Customer) verification process, and prevention of money laundering, a measure created by the central power to control what we do in the name of supposed global security. Once the verification process has been passed, we can acquire 'online' the amount of 'tokens' we want of those properties that are available. And enjoy the benefits of renting them without having to worry about their management.

I must point out that this publication should not be considered as an investment recommendation, if you are interested in this subject it is your duty to investigate in depth and check everything mentioned here.

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