The real estate sector deals with tangible, real-world assets like land, homes, and buildings. It covers the residential, commercial, and industrial real estate segments. As you’ve probably guessed, it is one of the largest industries in the US, with the commercial and residential real estate segments commanding $113.58 trillion in market value in 2023.
On the other hand, cryptocurrencies are digital currencies operating on a blockchain, which is a cluster of records stored in a decentralized ledger. The cryptocurrency industry is an emerging industry with a global market value of $2.56 trillion as of June 13, 2024.
Although crypto operates on intangible technology, that has not stopped enterprising investors from finding investment opportunities in the real estate industry using the blockchain. This article explores the top six ways physicians can invest in real estate with cryptocurrency.
1. Buying Using Crypto
You can use crypto to buy property locally or internationally if the seller is willing to accept crypto. One of the great things about crypto is that it allows for fast transaction speeds at a lower cost, especially for overseas payments. For instance, there are about 1.1 million Ethereum transactions daily, which cost $1.4 per transaction on average.
For instance, if you were to purchase overseas property using traditional means, it must receive approval from a clearing house in the US and another where the property is located. A payment platform like PayPal will charge you 5% of the entire amount as transaction cost, while some financial institutions have a transfer limit.
Because some sellers and real estate platforms don’t allow crypto, new FinTech lending platforms in the market (like Milo) are allowing buyers to collateralize down payments with crypto. The platform provides crypto-collateralized mortgages in place of traditional down payment loans.
Moreover, buying real estate internationally using crypto can offer additional benefits. For instance, buying real estate in Montenegro and St Kitts and Nevis comes with the option of citizenship or residency. St Kitts does not charge capital gains tax on some investments like crypto under certain conditions.
Since Crypto prices fluctuate frequently, you might strike it lucky with its price rising before the transaction. That could save you some cash without even having to invest it. Ethereum, for instance, experienced an annual growth of 144.4% between May 2023 and May 2024.
Ethereum growth rate
Source: https://ycharts.com/indicators/ethereum_price
Note that a Lending Tree survey shows 38% of crypto holders said they made a loss when selling crypto. 28% asserted they made a profit, while 13% said they broke even.
2. Crowdfunding
Refers to using tokenization and blockchain technology to raise funds from several investors for a real estate project. This works like conventional crowdfunding but where real-world assets (RWA) are tokenized on a blockchain.
Under the arrangement, the block-based crowdfunding platform creates property-related tokens (PRT) aiming to raise money for the real estate project. The PRT represents a share of ownership of the RWA.
The global real estate crowdfunding market size brought in revenues worth $11.5 billion in 2022. It is projected to rake in $161.8 billion in revenue by 2030 at a compound annual growth rate (CAGR) of 45.9%.
Under Regulation D 504, a company can sell unlimited tokens to any number of investors, but the offering has a $10 million 12-month limit. However, under Regulation D 506(C), the offering is unlimited, but investors have certain limits.
Crowdfunding platforms enable pooling of resources from a wider audience of global investors. Further, they facilitate automation and digitization of the real estate transfer process, as well as near-instant trading and liquidity.
Some of the leading crypto-based crowdfunding sites include:
- KickICO: An Ethereum-based platform for donation and reward-based crowdfunding and initial coin offering (ICO). As a backer, you send a bid for tokens on a specific project, and if you are one of the highest bidders, you secure the tokens. The platform has helped entrepreneurs raise more than $500 million to date.
- RealT: The platform brings together experienced real estate and blockchain experts. It relies on the Ethereum and Gnosis blockchains to facilitate fractional investing. Investors worldwide can crowdfund and buy tokens of residential real estate properties in the US.
- WeiFund: This decentralized crowdfunding platform has pre-developed templates integrated with smart contracts, simplifying the campaign starting process. If a campaign does not hit the target, investors will receive refunds.
- Tecra Space: A blockchain crowdfunding platform aimed at raising capital for blockchain-powered projects, like the real estate Etherland project.
3. Tokenization
The blockchain has opened up a new avenue for expanding the reach of real estate by pioneering the concept of real estate tokenization by turning assets into digital tokens. One way to utilize tokenization in real estate is through fractional ownership.
Since investing in traditional real estate property requires hefty amounts of money to purchase (median home sale prices are currently at $420,000), fractional ownership enables investors to own a fraction of a real estate property.
This has seen the real-world tokenization industry move from a $0 market cap to over $300 million between January and September 2023. Global RWA payments volume hit $1.6 billion at the end of Q1 2024, with a total RWA supply of $533.3 million.
Growth of real-world assets tokenization
The process utilizes smart contracts in a blockchain by converting the ownership rights of a fraction of the real-world property into a digital token on a blockchain. Each token represents a share of the asset, which you can sell or trade on digital platforms.
Tokenization facilitates faster sales of traditional property as the fractions are more affordable, transaction costs are lower (average cost per transaction is $0.000065), and assets are exposed to a broader, international market.
Even if you have the cash to buy a property outright, fractional ownership helps you buy fractions of properties in diverse markets, diversifying your investment portfolio and minimizing risk.
4. Real Estate Crypto Investing
Another way to take advantage of tokenization is to invest in real estate-centric cryptocurrencies. These innovative solutions combine the strengths of traditional real estate and the blockchain, enabling tokenized property investment.
According to a UK government survey, 63% of crypto investors reportedly made a profit, with 14% making a loss. Average profits and losses were under £500, while 8% reported making profits over £12,500.
These investments rely on a variety of ways to profit from the real estate industry, so you don’t have to do the research. Since they use cryptocurrencies, they operate globally, ensuring exposure to the best-performing markets. Examples include:
- USP: A stablecoin pegged to the US dollar. The company maintains $2 worth of reserves in the form of real estate and cash for every token and commits to buying its token at a minimum of $1.
- Propy: Leverages automation to facilitate real estate transactions. Users can buy or sell a real home using crypto, turn it into an NFT, and list it as such. The company uses its crypto, stylized as PRO, to facilitate transactions on its platform.
Alternatively, you could invest in companies with a heavy focus on cryptocurrencies. The crypto market is experiencing respectable growth, with data from Statista projecting it will experience an annual growth rate of 8.62% between 2024 and 2028, realizing an increase of $71.7 billion in that period.
Investing in a crypto-focused company could tap into the potential earnings if their stock rises as well. Examples of such companies include:
- Milo: Provides mortgages to foreign nationals to help them invest in American properties. It offers a crypto-backed mortgage where investors can use their crypto as collateral to secure a mortgage. Borrow up to $5 million for 30 years.
- Digital Currency Group: This is a venture capital company specializing in the digital currency market. The company buys, builds, and invests in blockchain companies. It reported revenues of $210 million in Q4 2023, up 59% year on year (YoY).
5. Investing in Digital Real Estate
Real-world real estate comprises physical properties, while digital real estate works in the same way but in virtual spaces. Digital real estate is a virtual property that users can interact with online in the metaverse.
Just like real-world assets, investors can buy, sell, and trade in digital real estate found in the metaverse, which is a 3D virtual world that allows users to log in and interact with their digital assets.
S&P Global Market Intelligence predicts the worldwide metaverse market revenue will grow from $17.5 billion to $54.5 billion between 2023 and 2028. Businesses accounted for 42.8% of the users in the industry by 2023.
You can use digital real estate in a variety of ways, such as building a mall and renting out shops to tenants. Some companies are even expanding their online footprint by recreating their real-world offices into the metaverse and holding meetings with clients in the virtual world.
The metaverse relies on the blockchain to record transactions because they are immutable, ensuring transparency and reputability of commerce on the platform. The blockchain also helps preserve data privacy, store data, and improve data interoperability.
The leading real-estate-related platforms in the metaverse include:
- Decentraland – Users utilize the MANA cryptocurrency to buy virtual plots of land turned in the form of NFTS. On June 11, 2024, Decentraland had a market cap of $835 million, with a trading volume of $46.4 million in 24 hours. The average land price for the same day was $344.75.
- The Sandbox – Players can own, develop, and sell land, represented as NFTs, using the SAND Ethereum-based token. As of June 11, 2024, its market cap for the past 24 hours was $893 million, with a volume to market cap of 21.72%.
6. Staking and Investing
Staking is one of the ways cryptocurrency holders can earn rewards while still holding onto the assets. If the crypto you’re holding allows staking, the blockchain will use it in the proof-of-stake validation process or lend it to third-party DeFi protocols engaging in yield farming, earning you passive income.
The global staking industry has a market cap of $334.86 billion, providing nearly $5.85 billion in rewards annually at a benchmark reward rate of 5.54%. As of June 11, 2024, the net staking flow for the last seven days was $16 million.
Annual percentage yield (APY) varies from platform to platform. For instance, staking the Crypto.com Coin on Coinbase will earn you a 7.77% APY on average if you hold it for a year. The coin has an asset market cap of $2.8 billion, with a staking market cap of $99 million. Other reputable platforms include Binance, OKX, and Kraken.
Staking follows a similar process as depositing cash in a savings account, with the bank lending the money and giving you interest on your balance. You can use the proceeds of the staking returns to invest in real estate. Some platforms like DappRadar can help you find the best staking options and provide detailed analytics and insights to maximize returns.
Alternatively, you could invest your existing crypto assets by posting them as collateral for a loan, which you can use to invest in real estate. There are plenty of traditional and decentralized financial institutions that offer this kind of service. Examples include Aave, Compound, and YouHodler.
Advantages of Investing in Real Estate Using Crypto
Using cryptocurrency to invest in real estate comes with several benefits:
1. Liquidity
Crypto is highly liquid, so it allows you to effect transactions quicker and more efficiently. Digital assets also have a history of fast buying and selling times, so you can trade them more often than physical real estate.
2. Global accessibility
You might not be able to access fiat currency wherever you go, but you can access cryptocurrency anywhere online. Crypto also facilitates frictionless cross-border payments as it has the same value in all countries.
Digital real estate also operates globally, so investors can access real estate markets in different countries without relying on the bureaucracy of traditional financial systems.
3. Lower transaction fees
Crypto transaction costs are much lower compared to traditional real estate transactions. Further, traditional real estate transactions are slow. Cryptocurrency transactions are faster, with transactions completed in minutes.
4. Automation
Part of the reason traditional real estate transactions are slow is that all parties need to meet face-to-face several times to iron out issues. The blockchain provides tools like smart contracts specifically tailored to real estate transactions.
Smart contracts automate the payment process, property transfers, compliance checks, auto-send for signatures, and retrieve verification information. This minimizes the need for manual processes and intermediaries, streamlining the process.
The intersection of real estate and cryptocurrencies offers opportunities for potential growth and diversification of portfolios. Conducting thorough market research will help you pinpoint viable investment opportunities.
Final Word
Cryptocurrency is a relatively new frontier compared to the more established fiat currency. That’s why entrepreneurs are developing innovative solutions to utilize crypto and the blockchain to facilitate real estate transactions, which are traditionally slowed down by bureaucratic practices.
Some of the solutions include tokenization of real estate assets, staking and investing in real estate-friendly projects, and pooling resources in crowdfunding platforms. These solutions have enabled faster and cheaper transactions and opened the market to international investors, ensuring faster disposal of real estate assets.
Before investing in crypto and real estate, be aware that these markets are risky. Conduct thorough research before making an investment decision in the two.
