The world is an exciting place, and every day it grows bigger, at least digitally. I just finished reading my first book on the metaverse, and boy, are we in for a ride. However, it will be where the digital and physical worlds overlap where we will make the most profits.
Currently, there are two main avenues to invest in real estate—real estate investment trusts and rentals. They both have their advantages and disadvantages, but overall, you should grasp how these markets intersect.
Fresh on the scene is real estate tokenization (RET). RET is the process of putting ownership of real estate on the blockchain and then selling shares to investors. The blockchain holds all the essential data, payments, regulations, etc.—no intermediary required.
Let’s Get Rich with NFTs
Let’s review. If you are new to the world of cryptocurrencies, I have you covered. I started my crypto-journey roughly eight months ago by reading various books to form my investing thesis. Luckily, I have been documenting my adventure and leaving breadcrumbs for all to follow.
First, I recommend you read my entire CryptoCurrency 101 series (101, 102, 103, 104, 105, 106, 107, 108, 109, 110). The article “CryptoCurrency 102: Important Words to Understand” is beneficial because it explains the blockchain.
The blockchain is how crypto separates itself from fiat (real) currencies. Every transaction is written on the blockchain for all to see. When you buy something like Bitcoin, you are not receiving a copy of a Bitcoin. Your transaction is written on the blockchain, like a ledger, documenting your purchase. You receive a receipt of the transaction that stays within your Key or Wallet.
Therefore, when it comes to RET, your ownership of the token is highly secure. Also, smart contracts and Decentralized Autonomous Organizations (DAOs) can prevent the facilitators from creating more coins without prior approval from token-holders.
Types of tokens. The market for RETs isn’t huge currently, but expect this to become much bigger in the future. However, don’t blindly invest in RET tokens without understanding what you are buying.
Crypto Showdown: Bitcoin vs. Ethereum
I am tracking two main types of RET tokens. Simply, it comes down to debt and equity. I wrote an article called “Real Estate Lifestyles 2: Investor vs. Lender” that holds up well in this situation.
Debt tokens. If you invest in debt tokens, you are loaning money to investors (similar to bonds). They will take your investment dollars and buy property to make a profit. You usually don’t share the property’s profits (or losses) as you invested in the loan: much less risk, much less reward. Debt holders receive payments in the form of interest.
Equity tokens. Equity is the equivalent of holding shares of a company. Equity holders share in the profits, rent increases, capital gains and usually have some form of governance (voting rights). However, facilitators could dilate (create more) shares if you are not careful. Equity-holders receive payments in the form of capital gains and dividends.
A typical scenario. Let’s say that a real estate owner wants to tokenize a 10-unit apartment. She can buy 100 coins and offer 50 to the general public. She retains the lion’s share but also takes the majority of the risk.
Is Now a Good Time to Invest in Crypto?
It is important to note that equity stakeholders receive a cut of the profits. If there are no profits, then there are no payments. So, it behooves investors to understand real estate investing. I’m sure as the craze starts to build, everyone will be tossing around huge numbers for dividend yields.
However, using simple cash-on-cash return calculations, you should be able to prevent yourself from disaster. Let’s look at our 10-unit example in greater detail.
- If she owned the property free-and-clear, she would be making a nice profit per room. She may be tokenizing to purchase more properties elsewhere. Sort of like a cash-out refinance, but instead of taking on debt, she is selling shares (tokens).
- If she had a mortgage, her profits might be much lower. You would need to see the entire financial statements to see debt service, expenses, property management, and finally, net operating income (profit).
Price Appreciation. Yes, when you invest, the numbers may not appeal to you currently. It’s important to understand the real estate market is at a peak right now. Outstanding deals are not jumping out of anywhere.
However, buying tokens now may yield massive results tomorrow. As rents and property values appreciate, so will your tokens. Token-holders can also sell their ownership on the secondary market for a profit or loss.
You’ll Need $20,000/month in Passive Income
I’m willing to guess that RETs will become quite popular in expensive cities like those in California and New York. It is hard for individual investors to gain ownership of housing in these high cost-of-living areas.
Tokenization may also be a great way to invest in housing overseas, especially if you plan to move abroad during retirement. Buying property in a foreign country is challenging and intimidating, so that RET may be an outstanding balance between risk and reward.
Conclusion. Don’t get wrapped up in RET until you understand the world of cryptocurrencies. The rules inside crypto differ from traditional finance (TradFi), mostly for the better. However, there are still bad actors among us.
Run a Passive Airbnb Business
If someone is offering RET tokens that earn 10% annually, you should perform deep due diligence on this product. It’s hard to achieve these numbers, and they may be banking on capital gains from the secondary market. Be careful.
Real estate tokenization has a lot to prove. Yes, coins can appreciate in value; however, I can earn 9% interest on my USDC coins with zero risk. What benefit do I receive from investing in RETs, especially if I already own REITs and physical properties?
This article is just a general overview of RET and the future of the real estate. My use-case is for investing overseas, in places like Turkey. That would be the ideal way to invest across country lines. You can read more about real estate tokenization in this article on Scalac.
Please join my Facebook Group if you want the latest articles and free books delivered to your news feed. Also, you can contact me inside the group and ask questions. I also have a Facebook Page where you can see my latest articles.
- PDF of the Month: Financial Independence through Real Estate 2 (Free 123-Page PDF)
- Free PDF Downloads: Download FREE PDF books here (Twitter Link)
- Financial Mindset: Become CEO of Yourself (book)
- Retirement Planning: Don’t Gamble with Retirement 3+4 (696-Page Free PDF)
- Investing: How We Plan to Retire on Dividends 2 (165-Page Free PDF)
- Cryptocurrencies: The Magic of Cryptocurrencies (Free PDF)
- Real Estate: Real Estate is a Mindset (Intermediate) (Free PDF)
- Business: Retire Rich, Retire Comfortable with a Business 2 (Free 185-Page PDF)
- Everything!: The Biggest Book on Passive Income Ever! (book)(Web Edition)(Art Edition)
- I bought a Kindle Oasis: Check it out Amazon
- Read My Books for Free: Free Kindle Books Schedule
- Sign up to Access our “Hidden” Free Kindle Book Schedule
- Kindle Unlimited: I Why Finally Subscribed Kindle Unlimited (learn more)
- Book Reviews: 54 Takeaways from 54 Books (book)
- Want to Build Passive Income from Books and Affiliate Marketing? (Learn here)
- Writing: Can Grammarly Make You a Better Writer? (direct)
- My Favorite Chromebook: The Ultimate Chromebook (direct)
- Follow us: On our Facebook Page and Join our Facebook Group
- Amazon Author Page: Check out my author page on Amazon
- Monthly Dividend Planner: Check it out on Etsy
Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
Leave a Reply