Although we can’t predict the future, we can say that next year will not be a return to business as usual. The pandemic, inflation, geopolitical instability, and new remote work protocols all but guarantee that leading teams and businesses forward in the coming calendar year will be anything but “business as usual.”
An additional influx of new technologies adds a new dimension to the coming changes in the real estate industry.
Knowing this, pause and check your mindset. Are you feeling ready for that reality or are you feeling uncertain?
The first step is to accept that reality. Accept the additional layers of challenge that there may be, that way you are entering into 2022 with a winning mindset.
The digital world vs the real world
Technology can make our lives easier but it also can replace people’s jobs and the human touch that goes into those jobs. Let’s take the example of a real estate investment company vs a digital real estate investment company.
One model depends on droves of people to keep it operational and the other depends on a distributed network of servers to keep it hosted.
Allow me to illustrate the key differences between the digital and physical real estate worlds. For background, I started a bitcoin ATM company in 2014 and a blockchain software consulting group in 2018. Both of those companies are still running. I was also a real estate agent in Boston, VP of sales at a real estate tech startup, and am now wholesaling across America so I have a unique mixture of blockchain and real estate knowledge.
Real property has to first be designed, developed, and constructed. That includes expert developers, engineers, and architects all coming together to create a unified vision for a piece of land or a building. The materials used to build a 100 unit building, for example, come from a multitude of sources all over the world. The building is then built over the course of many months, or years if it’s supertall. One World Trade in Manhattan took 7 years to build.
Then brokers market, show, and sell the individual units. People choose to live in the building, companies sign leases, and before you know it it’s 99% occupied. Demand for specifically residential real estate is not slowing down with the work from home revolution. That’s not changing anytime soon.
Once the building is occupied the building needs to be maintained by a team of property management specialists and/or contractors. A building is a living breathing entity that needs upkeep. The maintenance never stops.
An apartment building of 100 units could be employing hundreds of people directly and indirectly, and continually. Those hundreds of people don’t include those that helped in the real estate transactions such as attorneys, title companies, county and city offices that manage permits, zoning, appraisals, and tax revenues. Those taxes are then used to support emergency services, public transit, and other social services.
Think about how many different industries and professions go into designing, developing, constructing, and selling a building and then after that, keeping the desirability and occupancy high for years to come.
By comparison, a virtual apartment building is designed by a small team of digital artists and built by a small team of software developers. It needs no maintenance once it’s built, it is a static piece of digital art that is found on a specific blockchain. It’s not a living and breathing entity like a real building. It has no tenants and needs no upkeep.
A successful virtual building design can be copied and pasted in a sea of virtual spaces. The endless digital oceans don’t have the same scarcity characteristic that land has. You can only build so many buildings in the real world because there is only so much land available. Nobody is making more land. There has been very little progress with seasteading which is the design and deployment of floating land out in the ocean to create new “land.”
The scarcity of land (which all real estate is built on… we aren’t making floating cities yet… we might be one day when we unlock the secrets of electricity and magnetism) ensures its value and this value compounds when that land is inside of a desirable town or city. That town or city is not likely to expand its borders and if it does it will be by a marginal amount.
What’s inside the desirable zip codes gets the benefit of long lasting value and what doesn’t has to find a home elsewhere. The digital real estate is a digital land grab of zeros and ones instead of drywall, plumbing, electric wiring, countertops, and fixtures so on. It doesn’t provide real housing for anyone. It provides an investment opportunity to speculative investors with a pioneering spirit. It’s closer to static art rather than dynamic real property. Its value trades hands based on bragging rights more than the real-world utility and cash flow it provides.
Blockchain and Crypto
The technology trends of automation and digitization (the blockchainification) of business tools and assets isn’t going anywhere anytime soon. This trend can accelerate the speed of business and add a dimension of more certainty into your business dealings. You can drastically increase your real estate organization’s value and efficiency with these new technologies as they become more available and easier to use.
Here’s how.
Digital assets and smart contracts create a new “value landscape” that real estate business leaders need to learn about and effectively navigate.
Has Docusign helped the speed of business? Undoubtedly. Was it hard to start using and incorporating into your business, not really. Is it blockchain? No.
If Docusign is a butter knife then blockchain technologies and smart contracts are like a swiss army knife of use cases. There are many different ways to integrate a blockchain strategy into your real estate business.
Blockchain-based real estate applications include:
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Automated transfer of real estate ownership based on preprogrammed conditions (using multi-signature smart contracts)
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Locking up real estate NFTs (utility tokens) as collateral for loans and property insurance that pays out instantly (decentralized insurance https://etherisc.com/ )
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Triggering recurring rental payments at the beginning of each month with preprogrammed conditions customized to your liking such as a 1% fee for each day a payment is behind, you could do automatic deductions of tokens in your property management system, you could have a utility token that renters in your portfolio must buy and use, and those same tokens could go up in value if they become exchange-traded which generates an incentive to stake the tokens and thus increase your portfolio value and your internal stake of tokens (capital)
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Offering derivative products that provide specialized exposure to industry trends
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Generating passive yields on a decentralized real estate ETF by having it serve as liquidity to lending pools, with an added benefit of greater transparency and simplified loan funding requirements
The use of smart contract applications within the real estate industry will bring about several unique benefits for users:
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Utility – real estate assets can be easily used within other blockchain-based financial products without the cumbersome manual overhead. This means that a digital asset (whether tied to a real property asset or not) will be able to be openly traded, more easily plugged into a real estate insurance contract, or a lending contract.
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Liquidity – real estate assets can become more globally accessible, creating additional liquidity and less slippage for buyers/sellers. This is very exciting because it means that fractional ownership of the most expensive apartment building in the city or more importantly the least expensive apartment building in a given city will be available for investment, worldwide. This means the most overlooked and run-down parts of a city will have investment flood in from all around the world. How so? That’s technically where there is the most delta for growth in the given city. Investors want two things: solvency and returns. An investor in Singapore could much more easily purchase ownership in a portion of an apartment building in Buffalo, NY, for example. Not only that it would be just as easy for a novice investor with not much capital, say a teenager in Chicago working at McDonald’s to start investing into stable real estate properties. Opening up access to real estate transactions is what excites me the most about this whole blog post. Real estate is the number 1 cash flow vehicle in the world.
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Provenance – blockchains can provide an immutable chain of title for a real estate asset (real or digital). This will massively simplify the title insurance industry if not eliminate it. This will also solve probate ambiguity so that properties don’t sit vacant and unused for years and years.
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Risk Management – blockchain derivative products can be built that open up more advanced hedging strategies like owners or brokers protecting themselves against a potential decline in projected home values within a geographic region. If West Coast real estate is going down while East Coast real estate is going up that risk can be better balanced. Also, instead of a building having a small group of owners it can have hundreds or thousands of owners.
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Efficiency – automated real estate transactions can be fully integrated with existing systems to reduce overhead and speed up settlement times. This applies to real estate law offices, property management contracts, HOA rules and payments, rental payments, and the editing on real estate purchase and sales contracts that need editing from multiple parties and need multiple addendums added on the fly. This makes real estate documents much more alive and modular.
All of these applications of blockchain smart contracts, fungible tokens, and non-fungible tokens will provide more certainty and less friction for real estate transactions and ownership.
Work-Life-Health Balance
Workers will have to interface and adapt to the new ways of working with the real world and the digital world.
This will require industry leaders to be nimble, more empathetic than ever—all while still being strategically focused so the wildly important goals don’t get lost in the mix of remote working and new technologies.
Workers are now enjoying the convenience of preferring to transition between life, fitness, and work in a few minutes.
The hour-long commute is becoming a thing of the past. People are moving to exactly where they want to be if they can work remotely.
The work from home revolution has prioritized functional residential spaces over commercial cubicle farms.