The Real Estate Market Has ONE Massive Problem

in #cryptocurrency3 years ago

Real Estate Investments Are Great But….





Real Estate has historically always been an incredible investment; they have regularly outperformed the majority of markets over the past few decades and have relatively low volatility.

However, real estate investments have always had one major issue; illiquidity.


For the less nerdy of you out there, this basically means that, once you’ve bought property, your money is locked away until you choose to sell the property which is a very long process.

This negatively affects both investors and homeowners…

1. Investors


Real Estate vs Stocks

Let’s compare Real Estate investing to Stock investing to explain the difference and why it matters so much…

A) Stock Markets


Let’s say John decides to invest in stocks. He can purchase the stocks very easily and quickly. He can also choose to buy any amount he chooses; from the tiniest to the largest investments. Best of all, the process of selling those same stocks is just as quick and easy.

In other words, investing and selling stocks is:

  • Easy
  • Fast
  • Possible in ANY quantity

B) Real Estate





Now let’s imagine John has decided to invest in real estate instead. While there are options to crowdfund real estate investing, the majority of companies providing this service take a huge cut of the profits.

Instead, if John wishes to not have their profits taken from through fees, he must purchase real estate in full i.e. buy 100% of a property.

Therefore, John must put up a huge lump sun to begin with. Even worse, if he then decides that wants to sell his investment (maybe he has found a better alternative), he must go through an extremely long process to sell his property and pay out incredibly high fees due to the complexity of the deal; stamp duty etc.

In other words, real estate investments are:

  • Complex
  • Extremely slow
  • Very high minimum costs

To summarise, the real estate market is arguably the safest and best market for investors BUT the big problem in the market of illiquidity is so MASSIVE that it holds many, many investors back.


Homeowners





The average US household has debts of around $100,000

Much of this is often credit card debts and charge very interest rates. Therefore, each year, homeowners pay thousands in interest alone.

The worst part of all is that many of these homeowners have the money to pay off all of their debts but it is tied up in their house. The only way for them to access this money would be to sell their house.

This is an incredibly long process and also means that homeowners would have to find a new house to move into.

Ultimately, nobody wants to sell their home just to pay off debts.

What if it were possible to sell small % shares in your house to raise money, without having to sell your house in full?


And these shares could be a small as you want… you could even sell a 0.01% share to raise funds for some new furniture.

That way, investors could invest in your house and you could raise money without having to sell it. Then, once you come to selling your house, at the time you choose, the investors will collect their share of the profits; this could range from as little as a few £’s up to millions of £’s.

Sounds genius, right?



The idea is kind of incredible and could solve such a huge issue… just think of all of the people who have been evicted from their housing. If they could have just sold shares in their home and raised money this way, then perhaps then would never have been evicted in the first place.

The problem is that it, in the past, it has simply been impossible to do any of this… until Cryptocurrencies came along and changed the whole game!

Cryptocurrencies Are The Solution





Cryptocurrencies are revolutionary. Seriously.

In particular, it is the underlying BLOCKCHAIN technology of Cryptocurrencies that is revolutionary; it has the potential to change things just as much as the Internet has done after the past couple of decades.

Best of all, they are able to completely transform the real estate industry by providing exactly what we suggested before; the ability for homeowners to sell percentage shares of their homes to investors.

When the homeowner sells their house at a later date, the investor also receives a proportion of the profits based on the percentage of the house they won.

This is possible because of the incredible benefits that the blockchain has:

  • 1. Immutable & Transparent - The blockchain is permanent and can be accessed by everyone so there can be no disputes between individuals about agreements made

  • 2. Low Cost - The blockchain demonstrates incredible efficiency such that transaction fees are massively lower in comparison to current systems

  • 3. Tokenisation - It is possible to create a token on the blockchain which represents a percentage share in your house. By selling this token, shares in the house are essentially being sold hence it is possible to easily sell and track percentage ownerships of the house.

Due to the massive potential for this market, there are several cryptocurrencies in ICO stage or upcoming ICOs that are vying for this same market.

Therefore, I have decided to read through the white papers of all of the main competitors and write an article about each to determine which is the greatest investment opportunity for all of us!

These include:

  1. SmartRE
  2. Atlant
  3. LAToken
  4. REAL
  5. Aigang
  6. Propy
  7. REALT
  8. Rex

Guys, if I've missed out any, please let me know in the comments and I will be sure to add them to my list!

SmartRE



Today’s cryptocurrency is the upcoming ICO for SmartRE.

The purpose of SmartRE is exactly what I’ve mentioned before:

SmartRE will allow homeowners to sell percentage shares in their house to investors. Homeowners benefit as they can raise cash without having to sell their property, while investors benefit because they can invest in small quantities in real estate from all round the world


SmartRE's Business Plan


In their whitepaper, SmartRE have stated that they will begin operations in Northern California due to the incredibly high house prices in the area and, therefore, the high amount of equity stuck in properties.

From there, they will then move on to the following popular cities: Southern California; Manhattan, New York; Austin, Texas; Seattle, Washington; and Portland, Oregon and other cities will follow soon after.

SmartRE’s Process





The following depicts the process that occurs when a homeowner, John, decides to sell a portion of their house on SmartRE:

  • John lists his home on the SmartRE platform

  • His home is appraised, information for the geographic area is collected, along with areas sales data and historic price trends. All of these are used to produce a recommended price for John to charge and for investors to pay

  • SmartRE ensures completes a property title search to ensure it is clean and clear. They also ensure that the homeowner insurance is up-to-date and John has a good credit score

  • John decides the price and percentage share of his house he is willing to sell. The recommended price gives a good indication of what he should charge but it is ultimately his decision

  • The maximum percentage share John can sell is 49%; that way he will always own the majority share of the property and thus he will always have the incentive to maintain the property in good condition

  • Investors agree to buy shares in the house at the price specified by John

  • All information for this transaction (signatures, title information, legal papework etc.) are stored permanently on the blockchain and sent to both parties in the deal so there can never be any dispute

  • SmartRE’s customised, 3rd party insurance policy is applied to the house. The insurance is from the largest market in the world: Lloyd’s of London and it will apply, regardless of the status of the company as it is 3rd party

  • Due to the insurance, if something happens to the property, buyers will always be protected

  • If an investor wishes to sell their ownership of the property before the property is sold, they can simply find another buyer on the platform and resell the tokens at their chosen price

What’s The Token’s Purpose?



(Screenshots of their future app)


SmartRE list 3 uses for their coin in their whitepaper:

  1. 75% discount on the platform fees
  2. 3rd party trading on exchanges
  3. Transactions that conclude can use the SRE tokens as value storage

Let’s start with the 2nd and 3rd purposes for the coins; they are basically irrelevant. Every coin for a cryptocurrency can be traded on exchanges so this means nothing really. Also, stating that the tokens can be used as a store of value is pointless to because every coin can do this.

Only the 1st use is of any relevance so let’s discuss this.

Having spoken to the team behind SmartRE, they have told me that fees will be 0.5% of the transacted amount. Therefore, if an investor pays $10,000 for a 5% share in a property, they will have to pay $50 in fees.

By using the token, they will be able to save 75% of this which would be just $37.50… a pretty insignificant amount, when considering how much they are spending.

In fact, owning the token will only allow the users to save 0.0375% of the total amount they are spending for the transaction.


In other words, the tokens have very little usage in the platform.


This is usually a deal breaker for me sadly. Without a clear usage for the token, I am always very skeptical of investing in any cryptocurrency. After all, if there is no intrinsic value for the token, why should I invest money into it.

Is there an exception?


For my followers, you’ll be well aware of my strong hesitance in investing into a currency without a clear use for the coin/token.

However, I believe that the vast majority of investors appear to have overlooked this issue. This is why I believe that there will be a time that people stop overlooking this and the coins/tokens with no intrinsic value in their platforms will fall in value.

This won’t happen for a while though and, in the meantime, if investors are overlooking this, then token prices will rise anyway.

It is for this reason that I cannot rule out investing in this platform for ONLY the short-term. As I mentioned earlier, I will also be studying all of the other currencies to find the best investment opportunity in the real estate sector.

In this process, I expect I will find a strong currency whose token has real intrinsic value. I will then be able to recommend this as a strong investment opportunity. If this is the case then I will not be investing in SmartRE. I cannot rule out the possibility of investment with 100% certainty at this point though.

I guess we’ll see in the follow-up articles if there is a real estate cryptocurrency with greater potential.

Stay tuned for my upcoming articles, during which I'll be studying the whitepaper of all of SmartRE's competitors and then I will conclude by telling you all where I will be investing my money!

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Peace

Tom

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Great write up man! You got a new follower. This is an interesting new way of using crypto and blockchain technology. This could easily work in high end real estate markets where the homeowner has a pretty significant amount of equity. I do agree with you though, the coin/token should have intrinsic value, otherwise it could easily be dumped.

Save your money. Invest in actual assets.

Cryptocurrencies are extremely volatile. Unless you are extremely bullish and are willing to lose it all I would go with a safer investment.

BUT if you want to start playing around with investing in cryptocurrencies I would suggest starting small. You Max loss is however much you are willing to buy. Your Max gain in theoretically infinite.

I invest in some cryptocurrencies and use coinbase as this is the easiest and most seamless way to buy/sell.

Thanks for the advice mate. I believe there is incredible potential to be found if you're smart and research thoroughly; sort of like going back to the early 90s and being able to invest in internet-based ventures before they took off but that's just my take :)

You'd think blockchain tech created fractional real estate ownership the way these RE coins get promoted! Its an old concept and it has a name: 'Tenants in common" ownership. The issues are to many to get to here, but I'm dubious on how successful these 'coins' will be. Thanks on the detailed post though..Ive been watching LAtoken and Propy for a while. By the way..if the property is encumbered with a loan? It can be called due if your selling off a partial ownership via the 'due on sale' clause. So this only works on free and clear RE. Even then..tons of issues...

I agree with you, dont know how banks and state will react to splitting ownership. They don't like to share profits from "debt slaves" :D

It's a good point mate and I'm not saying that there aren't significant issues. What I'm saying is that, if you can find an opportunity for one of these cryptos priced very low, then the incredible potential that they have can make a investment worthwhile :)

Great article Tom. Always enjoy reading these and you're providing some great information. Thanks again mate. Keep up the good work

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