Chad Hegrat
In recent years, cryptocurrency has reshaped investment opportunities across various industries, revolutionizing transactional processes. However, real estate has largely adhered to traditional methods—until now. The tokenization of real-world assets is beginning to transform the real estate market in cities like Detroit, Chicago, and Cleveland. This shift introduces the concept of “fractional ownership,” making property investment more accessible than ever. But what are the potential trade-offs?
Let’s start with the way it works. You may or may not have heard the term “Non-Fungible Token” or NFT, for short. NFTs are a unique digital asset stored on a blockchain that represents ownership of a specific item, such as art, collectibles, or even real estate. Like many others, my understanding of this concept started with the Crypto Punk fab, virtual avatars people would purchase and own either a fraction or all of it. These were assumed to be collectible digital art pieces, thus a potential investment.
In the real estate sector, NFTs can represent individual properties, allowing them to be bought, sold, or transferred seamlessly on blockchain platforms. By tokenizing a property as an NFT, investors can own and trade digital deeds in a way that simplifies the traditional real estate process. This emerging trend is set to revolutionize how properties are bought and sold because it can offer faster transactions, lower costs and decentralization, ultimately leading to increased market participation. While the advantages are high for the investors of real estate tokenization, the other side of this business is dealing with massive underlying issues, and it’s happening right now in places like Detroit.
RealT, the Florida based company, claiming to revolutionize real estate investment through tokenization, has purchased nearly 800 properties in Detroit since 2019. Since then, it has been reported that hundreds of those properties are already in disrepair. Tenants of these properties have reported many different issues such as never being offered any leases, ignoring repair and maintenance requests, and not knowing who to even pay rent to, leaving them feeling trapped with nowhere to turn. As these ongoing problems remain unanswered, these tenants will continue to pay the rent for these run-down properties due to them not having anywhere else to live.
The idea of real estate investing through tokenization can be revolutionizing, as it opens the opportunity for anyone to participate, however, we are still far from a happy medium. The method of fractional ownership of a property has made it extremely difficult for the correct decisions to be made, which has ultimately led to poor property management, unhappy tenants, and a loss of property value. If companies like RealT can successfully overcome these issues and disconnect, it will be interesting to see how the real estate investing industry will transform and adopt these concepts. As for now, our traditional methods are still very strong and true.