Everyone knows Warren Buffett’s two first rules but fewer people can cite the rule that every name-brand investor alive agrees is the highest priority in growth: asset allocation. Backed by every camp of financial thought, asset allocation refers to the diversification of a portfolio across different asset classes like stocks, bonds, cash etc. Some people may not think of real estate as an asset class. But because real estate appreciates in value over time like any stable security, the though is not so far fetched. The classification becomes even more appealing when one considers property owners that generate consistent revenue from renting out their asset.
But what about investors that cannot afford to purchase an entire property in order to play the game – certainly one does not need to purchase the Berkshire Hathaway corporation to benefit from it’s growth. Stocks represent a fractional investment in a company. Real estate did not afford such accessibility until the very recent development of fractional real estate investment.
The advantage to fractional ownership of a company comes in the form of dividend payments. Without some mortgage prestidigitation, it is unlikely to realize the same regular payouts from a real estate asset. Rental properties solve this issue to a more substantial degree but it is even more uncommon to hear of a fractional landlord. Until now at least.
Here’s an excerpt from a company that is democratizing the process of landlordship:
Here’s how RealT does it:
Step 1: Fractionalize the Asset
In order for an individual to be able to directly own real estate, it must be priced at a level comparable to company shares in the stock market. Between $50 and $250 is ideal. This makes investment into real estate much less of a life-altering commitment, and much more of a habitual “put your change in the piggy-bank” activity.
Even when real estate asset prices are hundreds of thousands to millions of dollars, there is a huge difference between $0 of investment and $50–$250 of investment. This is especially true when low investment minimums allow people to the ability to make regular additions to their portfolios, and their portfolios begin to compound.
With RealT, properties are fractionalized into shares. Each property is divided into a number of shares that make each share valued at roughly $50–$250 in order to keep real estate affordable for everyone. RealT is able to do this by representing ownership of the property as digital tokens on the Ethereum blockchain…
Step 2: Make it Globally Accessible
Real estate properties are, by definition, a stationary piece of land. Blockchains, also by definition, are intangible pieces of software that exist ubiquitously across the globe. These two things could not be more opposite of each-other.
And that’s why they are so complimentary. Blockchains can make any real estate property accessible to anyone with an internet connection. Reducing the costs of the asset in step 1 is important, but equally important is enabling world-wide participation. With a blockchain, you can fractionalize the asset into affordable units, and then disperse these units across the globe, so that everyone can gain access to real estate investments.
Step 3: Pay Out Rent
Real estate pays you to own it. REITs, real estate hedge funds, and other real estate exposure instruments are great, but none of them put cash in your pocket. The benefit of owning real estate is that you get to add another source of income on top of your pre-existing one.
To learn more about the fractional real estate asset class secured on blockchain check out realt.co.
