“Everything will be tokenized and connected to a blockchain one day.” — Fred Ehrsam
In the past, I’ve been very critical about cryptocurrency.
I thought the whole thing was a scam for a while.
Maybe you’re thinking the same thing!
I even did some videos about why I thought the whole industry was gonna crash.
At the time, I didn’t realize the technology behind cryptocurrency is called blockchain.
Those are different things.
Bitcoin is not blockchain.
Bitcoin uses blockchain.
We’re seeing implications of blockchain technology in real estate.
Real estate has a lot of inefficiencies.
Sometimes it feels like the whole industry is in the stone age!
If you ever close on a deal, they’ll send a notary to your house to make sure it’s you.
A more secure way to transfer ownership could be blockchain technology.
It even might do away with things like title insurance.
With the way the world is changing, there may be no need for third party verification to transfer assets.
So many people are using blockchain.
Because of this, there are implications for syndications and real estate.
Let’s get into it!
1. Blockchain Will Simplify Real Estate
Blockchain is going to simplify real estate.
In terms of transactions, it could be much easier to buy and sell a property.
Obviously, there are risks with that.
If I sell a property to you, I could look at my phone and not see my property.
There will be different safeguards, but the technology behind it has a lot of implications, particularly when it comes to owning and transferring assets.
Think about assets that have higher valuations like stocks or bonds.
Whenever something is liquid, meaning you can go and sell it any day you want, there’s a high premium.
You see this in private companies.
If I owned a gas station, it might trade for 5x the earnings.
The same gas station traded online might go for 20x or 30x the earnings.
There’s a huge premium given to have liquidity.
Sometimes the valuations could potentially be higher than the real estate itself.
2. Syndications and Blockchain
I had the amazing opportunity to speak with Michael Flight at an event recently.
He’s considered the godfather of blockchain real estate.
Around 100 fund managers were learning how to tokenize syndications.
Why would anyone want to do that?
What does tokenize even mean?
Tokenize means that instead of buying a share of the company, you buy a tokenized share.
That means it’s more tradable.
The biggest benefit I saw is that tokenizing provides liquidity.
When you’re in a syndication deal for 10 years, you can’t always sell when you want to.
Or, if you had to, you sell at a significant discount and find somebody to take the spot.
It can be very difficult!
With tokenized shares, you can potentially sell instantly.
At the conference, they were looking at different ways to be able to buy and sell.
Tokenizing will make deals much easier to get in and get out.
There’s an entrepreneur in Austin, Texas named Peter Rex who has a number of companies.
We’ve used ResProp, his property management company, before.
He also has a company called Own Prop.
In $50 chunks, you can buy (and potentially sell) multi-million dollar properties.
That’s pretty amazing!
There are simple ways to get in just for a small amount.
I uploaded my accredited investor letter and it was approved 10 minutes later.
Now I own some tokenized property.
However, there are some challenges.
What if you get into hundreds of different properties and you’ve got a K-1 tax form for every single one?
How do you take advantage of this trend without too many road bumps?
3. How You Can Take Advantage of This
When I look at trends like this, I always try to figure out how to take advantage.
How can you take advantage of blockchain and real estate coming together?
The first way is something we talked about earlier: liquidity.
By owning tokenized real estate, the asset could be worth more.
I have a friend who sold a medical practice recently at around 8x earnings.
The group that bought it is a private equity group.
They buy a bunch of practices, put them together, and try to sell them to larger firms for 20x to 30x times the combined earnings.
There’s an advantage to see where the value’s being created.
Being in a tokenized property, or setting one up, may draw more people to that property.
Because the asset is more liquid, it could actually increase valuation.
If you want to try it yourself, maybe go buy a small amount like I did on OwnProp and see how it works.
You might find it very interesting!
I’ll definitely be keeping my eye on tokenizing real estate investments.
Now I want to hear from you!
Are you interested in the future of blockchain and real estate?
Will you look into tokenized syndications?
Let us know in the comments.
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Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.