The brave new world of asset-backed tokens could offer a broad range of investments, creating an extra layer of diversification in real estate investing.
New technology is transforming the way we invest and right now it is in the realm of real estate where we are seeing the most dramatic changes. Investors looking for innovative ways to diversify their portfolios are embracing the introduction tokens tied to real estate assets. This is because tokenization through fractional ownership can open up a broader range of investment opportunities to new communities of investors and may provide an extra layer of diversification within their property portfolios.
Real estate for all, on the blockchain
Asset-backed tokens are similar to the process of securitization in that assets are converted into a security. This is similar to investing in a traditional share of stock but the difference is that rather than issuing paper certificates, the assets are represented digitally using crypto currencies and blockchain technology.
Tokens tied to real estate assets can provide investors with the ability to own fractions of properties. Fractionalization is where unrelated parties can share in the ownership of a tangible asset. Each token can represent a defined fraction of the total available investment in a single property or basket of properties. As securities, they would need to operate under securities laws and the administration of these tokens can be managed by a smart contract on the blockchain.
One company at the leading edge of the new world of financial products is QuantmRE. It has developed its own token that is tied to real estate assets – ‘EQRE’ – and these EQRE tokens can be traded on a real estate network built on blockchain technology.
QuantmRE’s EQRE token is aimed at crypto buyers and investors wanting a broader exposure to real estate assets. Because it is tied to a diversified and audited pool of real estate assets, the EQRE token has measurable intrinsic value.
Less capital, richer opportunities
More and more investors are finding that this form of tokenization can offer wider investment opportunities. Because of their fractionalized structure, qualifying individuals rather than just institutional investors or property insiders will also be able to buy the tokens, including those looking to diversify their portfolios as well as those investors looking for potential liquidity.
A recent report by PwC stated that the top cities for real estate investment in 2018 in the US included Seattle, Fort Worth, Los Angeles and Boston. Buying rental properties or investing in residential development projects in these areas would require large amounts of capital tied up for long periods. It is very difficult for many people to invest in all, or even any, of these locations. Yet, by using tokenized real estate investments, it may be possible for potential investors to access a richer, more liquid set of real estate opportunities with a lower minimum investment.
Flexible, diversified portfolio
Another benefit of tokens tied to real estate assets is that investors maydevelop their own diversified real estate portfolios. QuantmRE, for example, has been designed to enable members to build, model, manage, and trade small fractions of real estate investments easily viewed on the QuantmRE platform: “Our aim is for all investors, not just the institutional and high net worth, to be able to generate potential returns from a diversified property portfolio,” says QuantmRE’s CEO Matthew Sullivan.
And whereas real estate investment trusts (REITS) or property funds typically have more of a buy and hold structure with a narrower range of investments; they are generally sector or geographically specific, tokens backed by real estate may offer a broader choice, flexibility to buy and sell with no timing constraints and full transparency on the platform. “Owning a token can mean that investors are able to trade directly, transparently and securely with each other at any time,” adds Sullivan “Plus, without fees from brokers and middlemen, administration costs for asset-backed tokens can be considerably lower”.
One key factor that the QuantmRE platform, in particular, has in common with traditional property funds is the level of governance. The tokenized assets are designed to operate within securities regulations. The use of smart contracts can help enforce a transparent and reliable registration of investors’ assets.
Tokens tied to real estate assets may signify a new world of financial innovation. Now, investors may have more options to take advantage of potential returns and build more diversified global property portfolios.