You're wondering. I get it, everybody's talking about it, and like me, you may be curious as to what this means for the future of real estate investing. I mean, I'm paying attention, and I'm doing my research, and if you like making money, you're going to want to know what I found. You ready? Let's go.
Introduction
By the time we're done here, you'll know how to buy a real estate NFT and what it means for the future of investing. Oh, and by the way, if you're still looking to get that first deal under your belt in the real world, I put together a free training just for you to help you get that first one done and then how to earn five thousand dollars a month flipping contracts and properties working as little as one hour a day.
The Rise of NFTs
Right now, it seems like everyone is talking about NFTs. You hear them referenced in many different contexts from photos, videos, audios, and what we're talking about here today in real estate. I probably, like you, are straddling the fence between, you know, "I don't want to mess around with this weird stuff," and then also, "seems like there's a lot of money being made over here, and maybe I shouldn't be ignoring it." I mean, can you relate?
Embracing Technology
Well, I'm diving in, and here's the biggest reason why. I remember when I was in the music business and the digital download came along, and I completely snubbed my nose at it, thinking, "Who in their right mind would want to give up the experience of walking into a music store and thumbing through the crates digging for that next gem?" Well, apparently, everybody, as you'd be hard-pressed to find crates of records these days, let alone a music store. I know they're still out there, but they used to be on every corner. Anyway, that's not the point here.
The Importance of Adaptation
The point is that me ignoring technology in the past, ignoring progress, ignoring emerging cultures, all of that sticking my head in the sand and ignoring the direction that my industry was headed, that put me out of business. So, I learned my lesson, I'm not gonna be that guy this time. So, the real estate NFT has my attention, and I'm becoming a student of this new game.
What is an NFT?
So, NFT stands for non-fungible token. This is a non-interchangeable unit of data stored on a blockchain, a form of digital ledger that can be sold and traded. NFTs are not an actual cryptocurrency in the same sense as say bitcoin, but they live in the same digital world, so to speak. A cryptocurrency utilizes blockchain technology for its ability to track financial transactions between parties. They were designed as a type of digital currency for use on the internet and in a digital-first world. NFTs are also built on a blockchain but instead are used to guarantee ownership of an asset.
The Popularity of NFTs
Most NFTs are based on the Ethereum blockchain network. So, these NFTs seem to be in the news almost every day, from record-breaking prices for NFT art to NFTs used as marketing tools for popular fast-food chains. The trend seems to be really catching on, and a lot of money is exchanging hands as it does.
NFTs in Real Estate
So, as a gimmick or collectible, sometimes both, NFTs are easy to implement and execute. But it's proving to be a much bigger challenge to apply them to slow-to-change industries such as real estate. In the past year, experimental uses of NFTs have been popping up in the industry. Everything from building projects to lending are being tested as NFTs. Various companies and individuals are looking to improve our rather slow and inefficient document-heavy business.
Real Estate NFTs in Detail
In the context of real estate, NFTs are nothing more than unique digital titles or tokens to property, either real or virtual, that are stored on a blockchain ledger. And I'm starting to understand blockchain as the next evolution of the internet. It's easier for me to wrap my mind around it if I just keep reminding myself of that. But theoretically, using NFTs in real estate can reduce the risk of harm due to fraud and can improve the ability of an owner to prove that they do, in fact, own real estate in a more secure way.
Types of Tokenization
There are currently two types of tokenizations involved in real estate, entire asset (EA) and fractional ownership (FO). FO tokenization is fairly simple; it's similar to a crowdfunding platform or other similar structure that allows investors to buy shares of real estate. EA tokenization, on the other hand, cannot work unless the actual property deed is turned into an NFT. This is still incredibly difficult to accomplish due to the regulatory environment surrounding real estate investments.
Real-World Example
But this past February, a home in Gulfport, Florida, was auctioned for the equivalent of $654,000 and is being billed as the first home in the United States to be sold as a non-fungible token. It's questionable as to whether this is exactly how NFTs will be used in EA sales moving forward, but it does show that steps continue to be taken to move the ball down the field. There's plenty of kinks to iron out when it comes to registering individual physical homes as NFTs, but digital real estate can easily be registered using NFTs right now.
Exploring Digital Real Estate
Digital real estate exists in virtual spaces often referred to as the metaverse or sandbox platforms where users can interact with and construct almost anything that they want. So, just like real life real estate, virtual real estate lots are designated parcels within the space designated for that platform. So, there's a limit on how many parcels are available depending on the platform, and that creates scarcity in the same way that there's only so much land in the physical world.
How to Buy Real Estate NFTs
So, how do real estate NFTs work and how do you buy them? Well, real estate NFTs work just like any other NFT; they're purchased using a cryptocurrency of the seller's choosing, held in a digital wallet, and once owned, they can be sold again or, in real estate terms, flipped for a profit.
NFTs in Mortgages
Use of NFTs is starting to be incorporated into the mortgage industry also. Not yet widely used in mortgage products but they may become more popular. Loan snap using its bacon protocol has offered the first NFT mortgages in the form of home equity loans. They process loans just like regular mortgages but issue NFTs instead of simply creating mortgage notes with the liens. So far, just a handful of NFT mortgages have been minted and are not yet available for mortgage note or crypto investors to consider for their portfolios.
