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Why Real Estate Tokenization Could Be A Better Investment Tool?
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In the bright new world of tokenization, real estate investors may be able to diversify their portfolios even more.
When it comes to investing, new technology is revolutionising the way we do so most dramatically in the field of real estate. Tokens related to real estate assets are gaining popularity among investors searching for new methods to diversify their holdings. These new communities of investors may be able to get access to more investment options via tokenization and fractional ownership. This might help diversify their property holdings.
What is Real Estate Tokenization?
We must first grasp what "real estate tokenization" is before we can discuss its benefits and drawbacks.
Tokenization is the process of establishing digital tokens that reflect ownership of a real estate asset on a blockchain. A broad variety of assets are currently being tokenized, and this offers several advantages over conventional investing options. Securing real estate by splitting it into shares that may be sold to investors is possible via this method.
Why is Real Estate Tokenization a Better Real Estate Investment Tool?
Lowering the Entry Barrier for Real Estate Investment
Real estate tokenization has allowed for the division of assets into smaller units of ownership, namely fractionalized property ownership. It is possible to split a real estate token in order to make it simpler for smaller investors to become involved.
Investing in high rental-yield properties may sound as a good idea for many real estate investors. However, investors are not spared from paying a huge down-payment and securing bank facilities in order to become a property owner, subsequently to start renting out the properties.
On the other hand, real estate tokenization makes it simpler to start investing in real estate since the transactions might no longer require the retail investors to put hefty down-payment in the first place since the investor can now start to have a stake in a particular real estate starting with a few digital tokens. This could then allow the investors to purchase digital tokens that are backed by real estate according to one’s affordability and work his/her way up to owning an entire stake of property in later time.
Flexible and Diversified Portfolio
Tokens linked to real estate assets have the additional advantage of allowing investors to build their own diverse portfolios of real estate.
Furthermore, compared to REITS or property funds, tokens backed by real estate or Asset-Backed Tokens may offer a wider range of investments, the ability to buy and sell entirely by one’s own discretion. This is in contrast to REITs or property funds which typically a fund manager will be assigned to pick the types of assets in the real estate portfolio.
Promote Liquidity for Real Estates Owners
Fractionalized property ownership does not only benefit investors, but also offer asset owners a better way to dispose of their real estates.
Liquidity is a major concern when it comes to selling real estates, more so when the industry is still regaining its pace from the pandemic recovery. Most asset owners with insufficient holding power would have no choice but to bite the bullet in lowering their property sale price.
As mentioned above, real estate tokenization helps to convert real estate ownership into digital tokens which allows a piece of property to be owned by multiple investors. To illustrate this better, it would be helpful to refer to the case of St. Regis Resort in Aspen, Colorado.
On the Ethereum blockchain, New York City-based asset management business Elevated Returns raised $18 million in a tokenized real estate sale in 2018. A valuable asset in Aspen, Colorado, is the St. Regis Resort & Spa.
The resort's owner, Elevated Returns, sold tokens for 18.9 percent of the company. Aspen Digital, the firm that owns 18.9 percent of the St. Regis Aspen Resort, has produced Aspen Coins (tokens), which represent a stake of Aspen Digital. A minimum purchase of 10,000 tokens was necessary for investors to qualify as accredited investors and acquire Aspen Coins.
Leveraging real estate tokenization, real estate owners can now enjoy a more viable fundraising option which no longer needed them to look for an investor to purchase the entire stake of a particular property.
Takeaway
Real estate tokenization is quickly altering market dynamics. For the first time ever, investors from all walks of life will be able to participate. Asset owners can better manage their equity and investors can start their real estate investment journey easier than before. There are other additional arguments in favour of real estate tokenization, such as the ease of transferring the ownership of real estates via security token exchange which will demonstrate that it may be the better way real estate assets investment will be handled in the future.
Real estate tokenization is arguably the better investment tool based on these ideas. In comparison to the usual paradigm of dealing with properties and investors, this procedure offers greater flexibility, higher security, and incredible adaptability.
This might be the beginning of something new in the world of real estate investment. As a result, investors may also be able to better diversify their worldwide property holdings and reap the benefits of higher prospective returns.
Visuals Courtesy of FREEPIK, PIXABAY and UNPLASH
