The rise of remote real estate opportunities is inevitable as the world adopts more technological advancements. Of course, it would be impossible to talk about the digital age without one of the most relevant innovations in the 21st century. Blockchain technology is undoubtedly a game-changer affecting how we view wealth creation and distribution. Consequently, it’s no surprise that landlords and tenants are beginning to adopt this modern tool to make their lives easier.
Unfortunately, there is still a huge knowledge gap between those who understand the concept and those who don’t. That’s why you must stick around to the end of this article. Do you ask questions like how blockchain technology impacts the real estate industry? Or what are the benefits and drawbacks of implementing it in my business? We have all the answers right here.
Potential Effects of Purchasing Property with Cryptocurrency
Cryptocurrency and blockchain technology is a complex framework that provides many opportunities for property owners to adopt a decentralized business model. In other words, it allows them to maximize rental investments by keeping banks and other intermediaries at a minimum. Of course, since it’s a new model, it requires that users perform their due diligence when evaluating business models. Experts recommend three foolproof tests to assess your structure: a decentralization, crypto-asset, and business model test.
When you buy a new real estate property, the seller transfers the title of ownership to you. Thus, you can legally claim the rights and profit of the property as the sole owner. However, blockchain technology challenges our conventional understanding of title management. In our digital era, we can talk about fractional ownership, where several investors own a single property. It is pretty similar to owning and earning dividends on REITs. These investors can easily exchange their rights to a particular plot for tokens on a blockchain-based system.
Typically landlords and renters need to sign a lease agreement at the beginning of every tenancy. This lease details the terms of the arrangement, including the price of rent, when to pay, and general building codes. Smart contracts work similarly, except they exist on a blockchain. However, the fact that they’re digital doesn’t make them less enforceable. On the contrary, they make it easier to compel specific actions. For example, a tenant might need to fulfill certain conditions like paying their security deposit to gain entry to the house. Since these open source digital contracts, property owners can quickly adapt and modify existing samples.
Pros and Cons of Using Blockchain Technology for Real Estate
One of the most significant benefits of using blockchain technology in your business is more accessible access to financing. In the battle between cryptocurrency vs. real estate, the ease of securing a loan often scores a point for the former. Traditional underwriting requires several paper-based processes that are slow and sometimes dependent on old data. On the other hand, the blockchain makes it easier and faster to verify information and grant loans.
Blockchain technology also reduces the need for intermediaries like banks, lawyers, and brokers. Landlords can use open source data and decentralized payment systems to set up legal leases, collect rent, and complete paperwork. As a result, property owners and renters earn more excellent value for their money by bypassing unnecessary fees. More so, it speeds up communication between both parties.
As we highlighted earlier, fractional ownership makes it easier for investors to own property. Consequently, it also increases the liquidity of their holdings. Liquidity is a significant drawback to owning a rental property because it’s not easy to offload a house worth thousands of dollars. But blockchain-enable properties allow owners quickly exchange part or all of their holdings for money.
Resistance to Change
Despite the many benefits blockchain has, there are a few obstacles to achieving universality. One of the most prominent is the real estate industry’s resistance to change. Many investors are not intuned with its real-world applications and do not see the need. Thus, it’ll still take some time for this technology to become mainstream.
Another drawback to adopting this technology is data protection. Although the information stored on the blockchain is less vulnerable to alterations, methods of amendment need to be clarified to the users.
We started this article with the question, how is blockchain technology impacting the real estate industry? We discussed some crucial potential effects of utilizing this tool, like due diligence, which places the burden of research and understanding on the users. Smart contracts allow landlords and tenants to create an agreement on the blockchain and the novel concept of fractional ownership.
As a result, we can easily conclude that blockchain in the real estate industry has several benefits for tech-savvy landlords. They can eliminate the need for intermediaries, improve their chances of getting a mortgage, and acquire more wealth. However, because this technology is still a relatively new concept, there are some hindrances to its wide adoption and the issue with data protection. Of course, if you want to maximize blockchain functionality without much hassle, you can rely on a professional property management company.