Real Estate Featured

Property tokenization as an investment. Benefits for property owners & top case studies.

Gene Deyev

Sep 22, 2022 • 5 min read

The real estate sector has always been one of the safest investment options, yielding a stable return no matter what. Ask anyone about their long-term investment ideas, and they will tell you they dream of buying a few apartments or business centers and earning a steady passive income. However, investing in any kind of property historically requires a large budget. Now, thanks to property tokenization as an investment, anyone can afford to own a small part of even the most luxurious resort.

Tokenization opens up tremendous opportunities for both property owners who need investments and investors who would like to enter the market on more accessible terms than traditional investment tools.

In this piece, we will talk about property tokenization as an investment, how to make the most of this blockchain use case, and describe some top real estate tokenization projects. Keep reading!

Property tokenization explained

With property tokenization as an investment, existing ownership rights are digitized and transferred to the blockchain, together with cash flows directly related to the tokenized buildings or premises. Companies issue tokens that are actually digital certificates of the assets.

In this case, some conditions are met:

Ownership rights are recorded digitally. Thus, in the case of residential or commercial real estate tokenization, the owner assigns the real estate ownership and the cash flows generated by it to a digital marker.
Ownership can be transferred directly through the blockchain. Any operations involving tokens (symbolizing ownership of a share of real estate) are legally binding and do not require paperwork.
The value of a token is directly related to the value of an existing building (residential complex, office, resort, etc.).

Real estate owners can tokenize their objects for different purposes. In particular, tokenization allows sellers to sell property faster by dividing its value into many tokens, affordable to more investors. Some companies are tokenizing real estate in order to get quick investments and use them to modernize and renovate their buildings. Another tokenization scenario is financing early construction. By offering tokens corresponding to shares in your future facility, you will quickly collect the investments you need and start construction. At the same time, your investors will be protected, as authorized companies thoroughly examine the project from a legal point of view.

Why is tokenized property a good investment idea?

Property tokenization as an investment has many advantages for property owners compared to traditional methods of obtaining investments.

Liquidity

Tokenization allows you to split one object into hundreds or even millions of tokens. Accordingly, the entry threshold for investing becomes much lower and affordable to more investors worldwide. Let's say you tokenize the Chrysler Building, recently valued at $150 million. If you split this asset into 1 million tokens, one unit will cost just $150. This will make investing in the Chrysler Building possible for almost anyone. Another effect of tokenization is the possibility for investors from all over the world to participate in the fundraising campaign.

The tokens can be easily traded on the real estate token exchange, which provides a secondary market and an easy exit for the investor, if necessary.

Programmability

One can significantly automate the workflow with tokenization by adding business logic to smart contracts. This allows you to dramatically simplify the real estate's management and financial flows and make them more transparent. In particular, investors can jointly make decisions related to the use of real estate in which they have a digital share. At the same time, investors can be completely unfamiliar with each other and be located in different parts of the world. Physical presence and numerous seals on documents are not needed to manage tokenized real estate. In addition, by establishing an income distribution formula, you can be sure that investors will receive their income from using the real estate, no matter what. A smart contract will ensure honesty and timely payments.

Democratization of investments

Tokenized real estate is an excellent long-term investment. Investors can receive stable payments from a real estate operation (such as rent) by owning a token. In addition, if necessary, they will be able to sell the token at a higher cost than they originally bought it if the project turns out to be attractive to other investors.

Growth in value

How to tokenize your property

Tokenization works in much the same way as the issuance of traditional securities, but stocks and bonds are replaced with tokens. Residential and commercial real estate tokenization is performed in several steps:

The property owner creates a certificate of ownership for an object or a cash flow associated with it.
The intermediary issues a limited number of tokens, each of which is a digital share of ownership of the tokenized object.
Investors can buy tokens, and, in the future, they can enter the secondary market and grow in value, depending on the community's interest.

As a rule, the sale of real estate tokens occurs in three stages:

Private pre-sale of tokens to large investors. This stage also allows you to test the viability of getting an investment in your property. As a rule, property owners sell 5-10% of the total emission of tokens at this stage. Usually, investors are invited privately, or those who wish to participate are added to the whitelist.
Pre-sale. At this stage, more investors with smaller budgets get access to invest in the project. At the pre-sale stage, the owners give more information on the project, and contractors, announce the details of the investment deal, and so on. As a rule, 60-75% of tokens are sold at this stage.
Main crowd sale. The rest of the tokens are sold openly to anyone without restrictions on the investors' accreditation or the amount of investment.

You can learn more about tokenization stages and intricacies by contacting the Stobox team. We will gladly answer any of your questions.

Top real estate tokenization project

Property tokenization as investment has long ceased to be just a concept for using blockchain and has become a widespread use case. Over the past few years, there have been dozens of such projects in the USA, Asia, and Europe. Here are some of them:

ReitBZ

In 2019, Reit BZ closed the soft cap, raising a total of $3.3 million from retail investors. RBZ became the first security token backed by real estate in Brazil. A large and well-known investment bank, BTG Pactual, manages this property. It is noteworthy that this company only worked with investments from wealthy individuals earlier, but now the situation has changed radically, and BRZ tokens are available to almost everyone. Token holders will earn income through the actions of the real estate manager.

Manhattan condo

In 2018, the first major asset in Manhattan worth over $30 million was tokenized on Ethereum. It was a luxury condo consisting of 12 apartments, each with an area of 1700 square feet. A feature of this project was that investors could choose whether they wanted to receive digital or analog interest in securities.

AnnA Villa in France

In 2019, France welcomed its first property tokenization case when a luxury villa worth €6.5 million was tokenized. AnnA Villa is located in Boulogne-Billancourt, a suburb of Paris. The shares were divided into ten tokens, each of which was then divided into 100,000 units. Thus, one token cost only €6.50 and was available to investors of any size. This real estate tokenization case study represents fractional ownership, one of the most beneficial use cases of blockchain capabilities in the investment sector.

Summary

Property tokenization as an investment helps property owners raise funds easier and faster than ever. Investors can expand their opportunities and get a share in real estate to generate a stable income. Tokenization is available to any company or investor of any size because ownership rights can be split into thousands of tokens, making investments affordable to everyone. In addition, such tokens can be traded effortlessly on the secondary market (e.g., real estate token exchange), which means that the investor can exit at any time.