How NFTs Work for Real Estate

Instant liquidity, no intermediaries, access to global markets and premium investments. These are just a few selling points drawing investors to the increasingly popular world of NFTs. Join us as we break down this new and intriguing technology – and how NFTs work for real estate.

 

What is an NFT?

Over the past ten years, we’ve seen cryptocurrencies such as Bitcoin and Ethereum explode onto the stock market. Their decentralized technology allows users to make secure payments and store money without the need to use names or banks. Needless to say, this has made cryptocurrency especially popular amongst the financial elite. NFTs, or Non-Fungible Tokens, like cryptocurrency, are units of data stored on a digital ledger called a blockchain. Their purpose is to certify digital assets as unique and not interchangeable.

NFTs can represent items such as music, a piece of art, or other collectible – certifying their ownership digitally. Prior to the rise of NFTs, it was nearly impossible to authenticate and “own” digital art or music. When it’s so easy to take a screenshot or simply download a file, why pay for it?  The NFT provides a unique, unforgeable signature, allowing owners to demonstrate provenance and making the purchase more lucrative and realistic.

 

NFTs and Virtual Real Estate

Now that you’re on board with the concept of NFTs, you’re probably wondering how they apply to real estate. Sure, COVID has inspired digital sales for conceptual homes on Mars and virtual properties in alternate reality games. But this intangible home buying trend is becoming more common. Real estate inventory is low in the US, but it may still surprise you to hear that some people spend millions on virtual properties that exist only on the blockchain. Digital worlds such as Decentraland and The Sandbox, known as metaverses, give blockchain real estate tycoons a place to build their wealth in this intriguing new way. After all, the value of anything is whatever someone is willing to pay for it.

 

NFTs and Physical Real Estate

So, when in the physical world can NFTs work for real estate? Cryptocurrency advocates are already making the connection and see a lucrative future for NFT investors in a tangible way. Blockchain technology enables the secure trading of digital assets from anywhere in the world. Where the traditional transfer of property ownership is time consuming and expensive, many believe that tokenizing the rights to a home would make them much more manageable.

Tokenization allows a physical property to be divided into digital tokens or shares. Each token represents a fractional share in that particular piece of property, opening new doors to accessing real estate assets. It not only gives investors a new tool, but gives homeowners methods to further capitalize on their properties. A real estate security token can represent fractional share, equity in a legal entity that owns the asset, rental income associated with the property and more.

Famous venture capitalist Tim Draper, for one, is eager to jump aboard the NFT train. With his investment in real estate transaction platform Propy, Draper plans to transform the industry – making transactions and titles simpler, more secure and less expensive through innovative blockchain technology. Propy is the first to use blockchain for real estate and seeks to automate the home buying process, with NFTs being a key component.

“I am excited about how NFTs in the virtual world are going to be applied to real estate in the physical world” Draper says, I suspect that people will soon be able to buy a building, buy the air rights and buy the virtual rights of any physical space. The future is awesome.”

 

Blockchain is the Future

The real estate industry tends to take its time when it comes to adopting new technologies. However, there’s no denying that it is already trending toward a more digital future and in many ways already behaving as a digital asset. For example, innovations from companies such as DocuSign have mostly digitized the ownership transfer process. And gone are the days of dependence on governments to store home, car and other asset ownership data. Depending on the type of property, owners and property managers may still physically maintain buildings and collect rent. Still, the idea of property ownership has become more of an abstract function than a physical handling. Its roots now exist in the digital space rather than the world of movable, tangible personal property.

Henry Elder, president of IBREA (International Blockchain Real Estate Association) also believes that blockchain is the future for the real estate industry. “Imagine I could buy a house as an NFT and instantly borrow against the NFT using DeFi or TradFi products with a 2-4% interest rate” Elder says, “Why would I ever go through the brain damage of using Wells Fargo or Chase, with their months of nightmare due diligence?”

 

Where Do You Stand?

All facts considered, what do you think of bringing NFTs into the industry? Would you consider investing in virtual real estate or tokenizing your property? Join the conversation and drop us a comment with your thoughts!