To understand what real estate tokenization is, let's first look at its definition and the three main types of tokens that are created as part of the process. Real estate has existed since the beginning of civilization, and it’s one of the oldest forms of investment that exists to this day. If you have been thinking about buying or investing in real estate lately, you may have heard about tokenization and wondered how it works and how it can impact your real estate portfolio going forward.
What Is Real Estate Tokenization?
If you follow crypto markets, you might have heard of real estate tokenization in passing. But what exactly does it mean to turn a building into a digital asset? Simply put, tokens represent an interest in the property; they can be used to raise capital for investment or sell ownership of the property outright.
How It Can Benefit Traditional Real Estate Investors
With a real estate token, traditional investors can obtain access to alternative assets they wouldn’t have otherwise been able to invest in. It also makes it easier for them to buy smaller parcels of real estate which may have previously been beyond their reach. These tokens are highly liquid which means that when demand rises, investors can sell their tokens much faster than they could in more traditional investment vehicles.
Are There Any Downsides To Real Estate Tokens?
Like any business model, real estate tokenization has its advantages but also its drawbacks. One of these relates to how coins are managed after they’re issued. If you purchase tokens and want to take your money out of a project, you may need to wait as long as 18 months before you can redeem them for cash or another property. You’ll likely need to hold on that long to give developers enough time for project completion and planning for sale or rent.
Where And How To Invest In Real Estate Tokens
Tokenizing real estate doesn’t have to be complicated. While there are certainly some hurdles, you can take a straightforward approach that fits your skill set and budget. Here are three places you can invest in real estate tokens: Peer-to-peer marketplaces, Cryptocurrency exchanges, Community investment funds (i.e., ICOs).
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