In the rapidly changing world of real estate, it is critical to keep up with all of the latest innovations and technologies. With that in mind, I wanted to reach out with some information about one of the newest innovations in real estate called NFTs.
NFTs, or non-fungible tokens, are tokens that are issued on a blockchain, comparable to cryptocurrencies like Bitcoin. What differentiates the two is that NFTs are non-fungible meaning each token is unique, unlike tokens in cryptocurrencies which are identical. Meaning that they identify a unique item, digital or physical. The token can be sold to transfer ownership of this item while ensuring its authenticity.
There are several ways NFTs can be used in Real Estate.
- NFTs could be used for fractional property ownership. By releasing tokens on the blockchain, homeowners can sell a portion of their property to a huge number of small investors. Investors can keep these tokens and earn a rental income, a profit split on capital appreciation on sale, or a combination of the two. With this people can buy and sell fractional ownership in rental properties with no middleman. This would allow many more people to enter the world of property investing and provide better choices for those who need to unlock equity without borrowing or moving.
- NFTs could also be used for mortgages. It may be possible to borrow in the future by issuing NFTs backed by your property ownership. Individual investors could then purchase an NFT that represented a portion of the debt. Holders of NFTs would subsequently be paid back in based on how much they loaned out through the blockchain.
This new technology has many benefits. It enables convenient and secure trading of assets from anywhere in the world. The existing method of transferring property ownership is exceedingly time-consuming and costly. Even an equity line of credit necessitates a large amount of paperwork. NFTs make it much easier to manage and trade property rights.
Another benefit is the transparency of the blockchain technology behind NFTs. The blockchain’s decentralized environment makes it possible for everyone to see and track their transactions. This feature adds to the openness and security of the technology. Hacking into a blockchain or attempting to defraud someone through it is extremely difficult because of its transparency. Everyone can see all of the shady operations taking place in the blockchain. Furthermore, seeing as blockchain technology eliminates the need for a middleman to perform transactions, it can save you a great deal of money. A transaction employing blockchain technology is less expensive since it does not require the involvement of a third party. Banks and service providers, for example, take a tiny amount of your money to validate the record and conduct the transaction. Without the intervention of a third party, blockchain technology does all of this through a unique and reliable mechanism.
However, there are some challenges to overcome before mass adoption of this technology is to occur. While NFTs may provide a way to unlock capital in a property, where does the legal right to control that property reside? As for NFT mortgages, who has the authority to collect on a debt if a borrower defaults? It would be an issue for both the lender and the debtor if each creditor could collect on their own. On the other hand, if only one party can collect, these mortgages would resemble peer-to-peer lending platforms and, as a result, will be vulnerable to the same centralization issues.
NFTs in the real estate industry, like any other new venture, will face a variety of challenges. However, there is a lot of room for improvement. While widespread acceptance of these technologies may take some time, it is best to be aware of them so that we may make use of them when the time comes.
Alejandro E. Jordan, Esq. is the Chair of the ESQ.title | Real Estate Law’s Residential and Commercial Real Estate Closing/Title Insurance Group, with nearly two decades of experience in the business of real estate closings, finance, and development. His broad base of knowledge allows him to stay ahead of the game and keep abreast of the latest market trends. If you have any questions on whether or not a particular real estate investment is right for you or your buyers or sellers, need assistance in drafting offers, contracts, LOIs, or in analyzing due diligence on a particular opportunity, or just have a question on your next real estate closing or potential transaction, contact us at 305-501-2836 or visit us at www.esqtitle.law for immediate assistance.