The use of blockchain-based tokens allows investors to access illiquid asset classes that would otherwise be difficult to invest in. Perhaps the most prominent use case for asset tokenization is real estate.
What is asset tokenization?
Asset tokenization refers to the process of capturing a physical and/or illiquid asset and turning the rights to it into a digital token that runs on a blockchain.
Art, Collecting, Debt, Capital, Investment funds, vintage cars, Music, Real estate, Luxury items.
As you can see, the world of tokenization is huge and opens up completely new investment opportunities for both retail and institutional investors.
For example, let’s say you’d like to add artistic impact to your portfolio but can’t afford to buy a £49.8 million ($60.75 million) Picasso painting. Moreover, you would trade your art token between auctions for whatever price you and the buyer can agree on, based on how the art market works for that art.
While the idea of tokenized artwork may seem a bit futuristic, it’s already happening. The auction brought in $1.7 million for 31.5 percent of the painting at a $5.6 million valuation.
Benefits of tokenization
Lowering barriers to entry for investors who want to be exposed to physical and/or illiquid assets is one of the main selling points for asset tokenization. But there are others.
Other benefits of tokenization include:
Provides new opportunities to raise capital
Reduces investment risk by lowering capital requirements
Increases the liquidity of illiquid assets
Reduces dependency on costly intermediates to lower transaction costs for all stakeholders
Increases transaction transparency for all stakeholders
How to invest in tokenized real estate
Real estate tokenization is perhaps the most popular use case of tokenization today. Real estate tokenization refers to turning physical property claims into digital tokens, which can then be sold to investors to grant them partial ownership of a real estate asset.
Buying real estate-backed tokens is a combination of buying bitcoin and investing in a startup on an online crowdfunding platform.
Let’s look at the steps.
First, you need to set up a digital wallet that will allow you to store the asset you want to buy. In most cases, this will be an Ethereum wallet that supports various types of Ethereum-based tokens.
You then need to sign up for a real estate token investment platform that allows you to buy tokenized real estate in the currency of your choice. (Below you’ll find a list of top platforms for you to check out!)
You then look at the tokenized properties available to determine which one suits your investment goals and risk preferences.
Once you have found a suitable property to invest in, you continue to purchase the offered property tokens in the amount that suits you.
Finally, you securely store your purchased tokens in a digital wallet.
The secondary market for real estate tokens is still very small. While this is expected to change in the coming year as this segment of the digital asset market develops, it is better to view investments in tokenized real estate as a long-term investment that you intend to hold on to for several years.
Real estate tokenization allows you to add real estate risks to your portfolio without having to make a large down payment on the property, manage it and deal with tenants. Instead, you can obtain partial ownership of real estate through the purchase of a digital token, which you can store in a digital asset wallet.
While the tokenized real estate market is still in its infancy, it could soon become the standard to add investment opportunities in commercial real estate in Tokyo, residential housing in New York, and industrial real estate in Germany to your portfolio by simply buying three properties backed by tokens on a digital asset exchange.