How to tokenize real-estate
Following are some FAQs that might help you understand how it can function:
Can you tokenize a real-estate asset?
Yes, you can tokenize a real-estate asset. This process is often called a "tokenization" or "asset-backed tokenization." Tokenization involves creating a digital representation of an asset, which can be stored on a blockchain or other distributed ledger. The asset can be anything of value, such as a property, a work of art, or a commodity. Tokenization can provide greater liquidity for an asset, as well as more opportunities for fractional ownership. Tokenized assets can also be traded on secondary markets, which can provide greater price discovery and liquidity.
How do you tokenize a real-estate property?
It works like this: let's say you own a property worth $1 million. You can tokenize that property by creating a digital token that represents ownership of the property. That token can then be sold to investors in fractions, meaning that each investor owns a piece of the property. The token can be stored on a blockchain or other distributed ledger, which provides greater security and transparency. And because the token can be traded on secondary markets, it can provide greater liquidity for the property.
How does the price of a fractionalized token relate to a unit of the real-estate asset represented by that token?
The price of a tokenized asset is typically based on the underlying asset's value. So, if a property is worth $1 million, and there are 1,000 tokens representing ownership of that property, each token would be worth $1,000. The price of the token can go up or down depending on the underlying asset's value. For example, if the property increases in value to $2 million, each token would be worth $2,000. Or, if the property decreases in value to $500,000, each token would be worth $500.
What about the legal stuff?
It's important to note that tokenization does not change the legal status of an asset. So, if you own a property, you still own it after you tokenize it. And if you owe money on the property, you still owe that debt. Tokenization simply provides a new way to represent ownership of an asset. Please don’t take this as legal advice as it really just depends on your domicile and the jurisdiction that governs it. Do your own research before making any investments as it can be risky business.
What happens if you sell a fractionalized token in a secondary market? Would the legal status of who owns the physical fractionalized unit of a real estate also change hands to the new holder of a token?
No, the legal status of an asset does not change when it is tokenized. So, if you own a property and you sell a fractionalized token in a secondary market, you will still own the property. The only thing that changes is who owns the digital token that represents ownership of the property. The holder of the token will have the right to trade the token on secondary markets, but they will not have any legal rights to the physical property.
