Commercial real estate is an industry with high entry barriers, as an investor needs a large amount of capital to get into the business. Acquiring and maintaining strip malls, shopping centers, and other commercial facilities often takes millions of dollars. Unless someone has that much cash to invest in properties, they rely on loans to secure the necessary funding.
However, with the introduction of blockchain technology, more investors can gain access to commercial real estate assets and property fund investment. Blockchain technology makes it possible to exchange properties in portions or percentages. Plus, blockchain increases transaction flexibility and the number of options investors can pursue. This article outlines blockchain technology and how it’s already playing a role in the commercial real estate industry.
What is Blockchain Technology?
Simply put, blockchain technology is a digital means of recording financial transactions. However, there isn’t a centralized control system or authority that oversees the process. Instead of a central banking system, computer systems replicate and distribute financial transactions across a network. The process involves a high level of encryption that makes it nearly impossible to hack or make unauthorized changes to the system.
Blockchain and Real Estate Transactions
Under traditional systems, real estate transactions require a third party to record them and document the transfer of ownership. This third party is usually a title company that works with real estate agents representing buyers and sellers. A blockchain system removes the need for intermediaries like title companies. You can read more at extrance.io about how blockchain technology helps record real estate transactions.
Besides keeping track of ownership, blockchain technology also facilitates partial investments. For instance, some platforms allow individuals to purchase portions of various properties. The strategy is somewhat similar to a mutual fund or diversified portfolio investment. Instead of putting all your eggs in one basket, you can invest different amounts of money in various properties.
For example, someone may have $100 to contribute to their portfolio each month. Every $100 contribution is split between five properties. The $20 buys the person a fraction of the property, along with other investors. An individual’s returns and dividends on each property are smaller but, together, contribute to a larger portfolio return that meets the person’s financial goals.
Transparency and Peer-to-Peer Options
Some of the most expensive costs in buying and selling real estate are commissions and fees. There are title company fees, bank and loan fees, and agents’ commissions. Interest costs and prepayment penalties also exist for those who take out loans to secure properties.
In commercial real estate, the owner rarely occupies the property. It’s rented to other companies that need storefronts and offices to conduct business. Therefore, the costs of owning commercial property also involve management, maintenance, leasing, and marketing expenses. Blockchain removes many of these barriers since partial, hands-off ownership is possible.
There’s increased transparency in completing real estate transactions, as some of the fees and added expenses go away. After all, who really knows why banks charge a loan origination fee when so much is earned in interest? In addition, blockchain opens up the availability of selling and buying fractions of properties through peer-to-peer or p2p networks.
Commercial real estate is an industry that normally requires large amounts of capital to buy and maintain properties, but blockchain technology is transforming who can become a commercial property investor. As the technology becomes more mainstream, investors can expect a complete revolution within the industry.
