For thousands of years, investing in Real Estate has evolved at a similar pace to humanity. At first, owning real estate was only meant to serve as shelter. More recently, it has become an opportunity for many to either move out of financial struggle or further increase their wealth. That said, as is the case in any market or industry, innovative technologies are quickly wiping out the traditional investing methods we have been accustomed to for decades, and for good reason. It pays to discover the pros and cons of traditional real estate, and whether or not a shift towards fractionalized assets is needed.
Before we get into the pros and cons of traditional real estate, let’s set the goalposts so our explanation is concise and based on a unique standard. Traditional real estate can be defined as all practices used in the industry, starting from the acquisition of land, obtention of construction permits, the pre-sale of property to keen investors or fresh homeowners, marketing, sales, and deal closures through brokers and agents, which can also expand to rental agreements and collection of deposits… Hefty, right? Perhaps the existence of all of these factors is not a con itself, but rather them being scattered under the control and responsibility of too many third, fourth, and fifth parties, which brings us to our first con: administrative times
In traditional real estate, one of the biggest points of concern is administrative times. These include the time spent — or rather wasted — processing in countless sheets of information, contractual agreements, payment receipts, and more to confirm some of the most basic aspects of real estate. For example, if a homeowner is seeking to sell their property, unless they have the luxury of a wide network of keen investors, they will most likely contact a real estate agency which will assist with finding a buyer. To get this in check, the homeowner and agency will most likely have to negotiate on certain fees such as finder’s fees, administration fees and more hidden costs. Once an agreement is reached, and a buyer is found, the agency must coordinate the buy, which entails the drafting of the transfer of ownership documents, signing of purchase agreements between all parties, and for the seller, the processing of some tax payments due to the capital appreciation they most likely benefited from. Countless other processes exist that take up too much time in traditional real estate. Luckily, fractionalised real estate immediately solves all of the issues we stated.
Let’s apply the same scenario within a blockchain reality. The same seller that is looking to sell their home will simply log into their on-chain real estate portal, list their property, have a buyer immediately purchase it with the transfer being documented on-chain, and the amount requested from the seller transferred to their wallet. Easy, right?
Note that such technologies are in the works, and it is not yet available to list one’s own properties on Propchain post-launch.
When buying real estate, you are almost assured that you will be making a profit if you ever decide to sell your property, you are ensuring a monthly income flow of rental payments, and you are guaranteeing yourself a home to live in if push ever comes to shove. In times of severe recession and inflation, you are protected due to your cash flow and the ability to be sheltered without paying rent. Conceptually, it is a phenomenal investment, and a pro of traditional real estate. That said, how many people can confidently say they are able to purchase real estate today? Whether it is through a 20-year mortgage loan or full-cash, the high prices of real estate today make it almost impossible for any average Joe to invest. Adversely, fractionalised real estate allows anyone to invest in real estate and collect its rewards on whichever scale they choose. By tokenising a property, anyone with a wallet address will be able to invest as little as $100 into any listed property of their choice, thus receiving the rental income proportionate to their share of ownership in that property on a monthly basis. Furthermore, this investor can subsequently make use of compound interest by reinvesting that income into owning bigger portions of the property of which they are already an owner.
Multiple other pros and cons of traditional real estate exist, and although the industry itself will remain successful and active in the coming decades, it is likely that fractionalised real estate will be eating up a larger part of the pie in the coming years. As blockchain technology as a whole continues on making great strides, the shift in how we invest in real estate is also following suit, and Propchain is proud to be pioneering the world’s first fractionalised real estate ecosystem.
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