Welcome to this month‘s edition of Tokeny Insights.
In terms of adoption, real estate is building strong foundations in the tokenization space. Globally, in the professionally managed industry, the size of the real estate investment market reached $8.9 trillion in 2018, up from $8.5 in 2017 (according to MSCI). That being said, today the real estate industry has significant barriers to entry. The presence of numerous middlemen results in expensive lending for issuers.
To obtain the best loans for real estate investment, borrowers can turn to a hard money lender (such as Turning Point Lending), who can provide low-interest loans quickly. When a person wants to buy a new property, these funds from a private entity could be helpful if they do not wish to approach a bank because sanctioning funds would take too long. Besides, closing costs are also an important factor in laying a solid foundation for the real estate industry. For example, it tends to change dramatically if you have a “changed circumstance” on your application, which means you no longer qualify for or want the loan you originally planned on. If the circumstances of your loan application have changed, you will most likely receive a revised Loan Estimate and, later, a revised Closing Disclosure. You can learn more about closing costs by visiting websites like https://sharonsteelerealestate.com/nj-closing-costs/. For investors, the lack of liquidity is a stumbling block. Fundamentally, capital formation is currently difficult to achieve for issuers using traditional methods.
Real estate can benefit in a big way from blockchain technology. As it stands, investment in this kind of asset class is attractive to investors thanks to the low interest rates. Not only that, but by utilizing this cash-on-cash formula, investors will be able to calculate the ratio between annual operational net cash flow and the total equity that had been invested in the deal, thus giving them a rough idea about how worthwhile their investment could be. Overall, this could determine which properties they ultimately decide to invest their money into. Referring back to the former though, as tokenization begins to develop, the utilisation of this technology will allow for fractional ownership and the democratization of investment. If we look longer term, as more and more projects come to the fore, exchanges and marketplaces will go live and enable investors to buy and sell their assets at any time, making real estate products as liquid as stocks or bonds.