This is no ordinary article or time in history. If you haven’t heard some rumblings about a new technology called “blockchain” and how people are almost printing money with “bitcoin,” you’ve probably been living under a rock the last few months.
I think we will all look back and marvel at the change and growth in a world that we’ve only started to scratch the surface of understanding.
A few notes before we start:
- The focus of this article isn’t to give an exhaustive explanation of blockchain technology or bitcoin. Many others have done a remarkable job explaining this in better detail than I ever could. Here is a good place to start.
- My interest in this technological tangent was first sparked by observing the insane gains made by people who had simply purchased bitcoin at the right time and held it. No value created, no improvements made, just pure timing. At its core, this doesn’t fit within the the model of a real estate investor or developer. My success is built on identifying needs and creating tangible value that solves those needs. This inconsistency led me to dig deeper and realize that bitcoin was the tip of a much larger and more interesting technological revolution called blockchain. Today, I seek to lay out a few reasons why I think this technology will have a profound impact on the real estate industry.
- The words below are simply my thoughts, musings, and ideas. I am by no means an expert in any of this and am not espousing you invest in cryptocurrency, bitcoin, or anything else that you have not adequately researched and understand. Find your niche and stick to it. This has worked well for me in real estate, and I intend to continue this philosophy in all future investing. Caveat emptor!
I’m a real estate investor and developer; I’m completely self-made and have devoted the majority of my professional life to learning about the nuances of this incredible industry and wealth-generating tool. You and I probably ended up in real estate for many of the same reasons: It’s stable, it’s tangible, and it produces cashflow (something we all need to live and function in modern society). Thankfully, I don’t think we are going to innovate ourselves out of the undeniable power that comes with investing, owning, and developing real estate. But every now and then, something pushes an entire industry, generation, and even world forward (think the electric light, modern medicine, the internet, etc.).
I’m taking what some would consider to be a risky stance: I consider blockchain technology to be one of those innovations.
Right now, while the majority of the world is caught up in the hype of bitcoin, ethereum, and litecoin that just in the last year has gone up 6,072% (talk about a solid annual ROI!), many are missing the truly world-changing shift that could take place if this technology is correctly shepherded.
4 Reasons Bitcoin & Blockchain Technology Will Transform Real Estate
1. Our monetary system is broken, and cryptocurrencies could be the fix.
We as real estate investors understand this better than pretty much anyone else. I have never trusted or invested in centralized banking, fiat currency, and the stock market. I want to control the assets I’ve worked so hard to build. Real estate to a large degree allows me to do this. Nobody can create more land right next to mine and cause the value of my property to tank. That can and does happen with centralized banking and government controlled currency. The amount of trust we are forced to exercise when depositing money into our local banks is a little bit terrifying.
We have been off the gold standard for decades, fractional reserve banking has led to economic meltdown more than once, and the Federal Reserve that’s supposed to guarantee our deposits only keeps enough cash on hand to satisfy 1% of these transactions. Talk about disconcerting.
The fundamental concept behind blockchain and bitcoin is we now don’t have to blindly trust. All cryptocurrencies are built on a decentralized network that is made up of each individual who owns any piece of the digital currency. There is no single point where an individual, organization, or government can manipulate the system for their gain.
Why does this matter to real estate?
We real estate investors already enjoy a hedge of protection that most other types of investments don’t. Theoretically, our property would go up in value at a similar rate to even out hyperinflation. We also have the added benefit of being able to utilize a property to provide basic needs (namely shelter or food) if we reached a level of economic instability that took us back to bartering and trade.
Related: Bitcoin or Real Estate: Which is the Better Investment?
I, for one, though, don’t relish the fact that the currency I use to purchase, invest, and improve my real estate is always teetering on the brink of a large-scale meltdown. A stable, decentralized currency WILL benefit all real estate investors and developers.
2. Blockchain technology provides an easy way to transact money and data safely.
Now, here’s where things get really interesting. The way the decentralized network of bitcoin works is on something called a blockchain. This is essentially a way of creating a transparent ledger that is next to impossible to fraudulently manipulate. When information is entered on this blockchain and spread out to a network of millions, tens of millions, or billions of people, hacking into and manipulating the data inside becomes extremely difficult. (For the sake of brevity, I’m glossing over a TON of details.) So you’ve basically created a very secure way to transfer money, data, etc.
In real estate, what types of data are important to transfer without risk of manipulation or fraud?
Contracts! Deeds! Titles! Heck, every building block of our entire industry!
Why does this matter to real estate?
The amount of red tape, fees, and wasted time this type of network could eliminate is staggering. How many of you have lost deals, had deals massively delayed, purchased something that didn’t have a clear title, etc.? (And if it hasn’t happened to you yet, just stay in real estate a little longer.)
Imagine being able to purchase a piece of property without needing a title company or title insurance, while feeling 100 percent confident you were buying exactly what you thought you were. Sounds pretty good to me!
3. Blockchain allows for smart contracts.
Yet another powerful tool blockchain allows us to harness is something called “smart contracts.” When data, a process, or workflow is entered on a blockchain, it becomes impossible to deviate from this agreed upon path.
Why does this matter to real estate?
The real estate industry uses contracts all the time. My journey into investing first involved becoming a licensed sales agent. Visualize with me a world where you could spell out the terms of your purchase, sale, lease, on a smart contract and feel completely confident these terms would not be deviated from.
It’s happened to me more than once that a buyer has not performed on a contract and then has tried to hold up the earnest money that was now rightfully mine for months with stupid arguments and legal games. This could be a thing of the past. Deposits would be held inside the smart contracts and paid out exactly as the contract states. No deviation.
4. This new technology could create transparency and immutable records of title.
Once we as investors purchase a piece of real estate, there isn’t much worry that someone will dispute our ownership stake.
For billions of others, unfortunately, this isn’t true. Can you imagine purchasing a piece of real estate, making years of payments on it, and then a government official coming in and saying you don’t have legal ownership? It sounded crazy to me the first time I heard about this, but 78% of the land in Ghana is unregistered! The property records that date back decades in the United States just don’t exist there.
Would you be willing to build a store, apartment complex, or restaurant if you knew that someone could come in out of the blue and say you didn’t own the land anymore? Experts estimate that there are literally trillions of dollars locked away and not used for development and infrastructure projects.
Why does this matter to real estate?
Perhaps this won’t affect your business tomorrow, but the overall economic impact of smart contracts to keep accurate land records in developing countries is huge.
We would see third world countries making leaps into the modern age! What has taken decades or hundreds of years in other countries could be accomplished in just a few years by harnessing the power of blockchain and smart contracts.
This is Only the Beginning
You could equate it to internet in the late 1990s. Nobody really knew what it was, how to use it, or what the long-term benefits would be. I think we all can agree on the critical role the internet now plays in our daily lives and businesses. We can also observe the career-defining effect it had on early adopters who took risks and began applying internet technology to different industries and businesses.
Here’s what I’d encourage you to do.
First, do NOT go liquidate your real estate portfolio and dump it into cryptocurrency. I know I didn’t have to say that because if you’re reading this you, aren’t manipulated by hype and FOMO. But realize and accept you will undoubtedly hear the stories of the few who got lucky, took massive risk, and made insane returns overnight. Money quickly earned is usually quickly lost, and you probably won’t hear the stories of those who lost everything. The ratio of failure to success in this and in real estate is probably less than 10:1 or worse.
Second, don’t stick your head in the sand and pretend everything will go on as usual. The cat is out of the bag; there’s no going back. It’s time to get to work. This is the next area of real estate you need to become familiar with. I know every time I’ve pushed myself into a new aspect of real estate investing, it’s been a hard, exciting, but ultimately very rewarding experience. From flipping to rentals, wholesaling to commercial, growth and change is never easy.
Third, unless you want to invest directly in companies developing blockchain applications for real estate, you do have some time; adoption of new technology takes years. However, the time to prepare, strategize, and plan is now.
You’ve been given a peak behind the curtain of the future. What you do with this information is up to you.
“…the best possible way to prepare for tomorrow is to concentrate with all your intelligence, all your enthusiasm, on doing today’s work superbly today. That is the only possible way you can prepare for the future.”
We’re republishing this article to help out our newer readers.
What do you think? How will blockchain technology play out over the next several years?
Let’s discuss below!
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.