When I purchased my first investment property in 2012, it took 30 days to go from contract to closing. And it cost nearly $20,000 in fees to facilitate the transaction. I’m not talking about the down payment. This was just the amount to cover closing costs.
If you’ve ever purchased a home or investment property, this probably sounds familiar.
Transferring real estate is currently a complex, expensive process involving multiple intermediaries to review and validate every step of the transaction. During that 30 to 60-day transfer period, you have:
- Home inspectors to confirm the condition of the property,
- Appraisers to confirm the value,
- Title reps to research the ownership and confirm that the property can legally be transferred,
- Escrow officers to hold the earnest money deposit and distribute it according to the contract,
- Real estate agents to negotiate on behalf of buyers and sellers and coordinate the many moving parts,
- Loan officers to approve mortgage applications and issue the funds,
- County clerks to record the transfer of the deed,
- Etc., etc., etc.
But what if you could purchase a property with one click? Imagine the time, money, and energy this would save.
This is the ambitious promise of the blockchain. And we’re already seeing the early stages of this new reality.
In this article, we’re exploring real estate and the blockchain. We’ll show you how the blockchain can theoretically facilitate one-click real estate transactions. We’ll explain what this means for real estate investors. And we’ll show you how you can become an early adopter of this industry-changing tech!
What is the Blockchain?
Very simply, a blockchain is an online accounting ledger.
This ledger is “decentralized,” meaning that copies are simultaneously stored on thousands of servers worldwide. This prevents cyberhackers from changing data on the ledger; any attempt to falsify one copy would immediately be caught by the thousands of identical copies and disregarded.
We often talk about “the blockchain,” referring to the technology that makes this type of tracking possible. But, in actuality, there are many different blockchains, each keeping track of the transactions facilitated by their platform. For example, the Bitcoin blockchain specifically tracks transactions facilitated by this digital currency. The Ethereum blockchain does the same for transactions using the digital currency, Ether.
Blockchains track the flow of these digital currencies, which are often held anonymously, with ownership identified only by long strings of unique text.
How Blockchains Use “Smart Contracts” to Facilitate Real Estate Deals
Here’s where it gets interesting.
Some blockchain platforms support smart contracts. Smart contracts are self-executing contracts that are programmed into the blockchain. For example, a computer code can be written to automatically transfer the deed from seller to buyer upon receipt of the funds for the purchase of a property.
To do this, we just need to link real-world assets, like specific properties, into digital assets that can be recognized by computer code. This process is called “tokenizing” because you’re creating a digital token to represent an asset.
You may have heard the term NFT (which stands for non-fungible token) in connection with blockchain technology. You might even have a negative association with NFTs because of the boom and subsequent bust of digital artwork being sold as NFTs in the early 2020s. But an NFT is simply a unique digital code used to identify a unique digital asset.
When a property owner creates an NFT for their real property, they generate a unique digital identifier for their property that can be used in programming a smart contract.
And property owners are already doing this in 2023 using platforms like Propy. In fact, there have been multiple homes sold as NFTs in the US over the last few years!
The Future of One-Click Real Estate Deals on the BlockChain
We’ve just covered a lot of tech jargon, so it’s probably helpful to stop with the theoretical techie talk and see what a real estate deal would look like on the blockchain.
You want to buy a rental property. The current owner has already tokenized the property so it can be recognized as a unique digital asset on the blockchain. As part of the tokenization process, clear title has already been confirmed. A licensed home inspector has recently evaluated the structure, and the inspection report is available online. You’ve taken a virtual tour of the home and confirmed that the property is a good deal. So you click “Buy Now.” Three things happen instantaneously:
- The funds are transferred from your digital wallet to the seller’s,
- This triggers the preprogrammed smart contract to automatically transfer the title from the seller to you,
- A deed is instantaneously generated and sent to your County Clerk to confirm the ownership change.
No escrow officer, title rep, or real estate agent needed to be involved, and there was no lengthy contract period!
Naturally, the process would be complicated if financing had been needed. But even mortgage loans can potentially be accommodated by smart contracts. Fintech companies, like Klarna, are already providing installment payments for purchases through online platforms.
So this type of one-click real estate purchase is more manageable than you might expect, even with today’s existing technology!
Big Benefits of Blockchain Real Estate Transactions
Here are some of the key advantages provided by blockchain-supported real estate deals.
- Faster closings. You can potentially close the deal instantaneously.
- Lower fees. With fewer intermediaries needed to validate the transfer, both sellers and buyers can reduce their transaction fees and closing costs.
- Increased liquidity. Streamlining the transfer process makes it easier to buy and sell properties, which makes real estate a more liquid investment.
- Simplified fractional ownership. Fractional ownership can be messy in the real world, but by tokenizing shares of ownership, it is easier to buy, hold, or sell a fractional stake in a real estate deal.
Early Concerns About Using Blockchain Tech in Real Estate
While the tech needed to facilitate one-click real estate purchases on the blockchain already exists, it will take the industry some time to catch up and become comfortable with the technological capabilities. Here are some of the concerns about using blockchain tech in real estate at this stage.
- Cyber security. While the decentralized nature of the blockchain makes a ledger attack nearly impossible, hackers may be able to access individual digital wallets, potentially conducting transactions without the owner’s knowledge or consent.
- No take-backs. Unlike popular online marketplaces (like Etsy or eBay, for example), blockchain has no governing body. If you accidentally transfer money to the wrong party, there is no entity to file a dispute with. You might not even be able to identify the receiver of the funds to request a return of those funds.
- County record discrepancies. Until county records offices are digitized to communicate with blockchain ownership transfers, the owner in the county’s books might not match the owner recorded on the blockchain.
Safer Options for Investing in Real Estate Online
Having the technology available is one thing. Trusting the tech and knowing how to actually use it is something else entirely.
If you’re interested in quick and easy real estate transactions, but you’re not ready to fully embrace real estate NFTs on the blockchain, consider investing in real estate virtually with Gatsby Investment.
Gatsby Investment is a California-based real estate investment company. Our user-friendly online platform makes it easy to review available real estate deals and place investments. Every project offered on our platform has been pre-screened for return potential by our expert real estate analysts. Each deal is also professionally managed by our experienced team of architects, builders, designers, and marketers. And, because we specialize in fractional ownership via crowdfunding and syndication, you can buy into a deal for much less than it would cost to finance a deal on your own!
Learn more about investing with Gatsby, and experience the future of real estate investing today!