Real Estate. Whether owned, rented or traded, it remains something fascinating to many people. It seems to be a fairly stable market worldwide on average, yet very difficult to access for the average breadwinner. If we dive into the depths we see an outdated system that likes to maintain the players and leave new players on the sidelines. But how can such an outdated system be maintained for so long? And how can we change this in the short term?
Let’s analyze the current real estate market for a moment. If we look closely, we can see a few major problems that keep recurring. Problems that benefit the current elite and at the same time make it very difficult to admit new players to the market. The current real estate market is held back by large players and banks, who make it impossible to provide financing to beginning investors. The biggest piece of advice today’s entrepreneurial gurus gives you is to never enter a market that has been the same for over 20 years. This means that it is old-fashioned, difficult to change and may quickly become obsolete and the market may collapse. But why does this not apply to today’s real estate market? This market is also a system that has been the same for more than 20 years, but why does this market not change?
To answer this we need to look at the major players behind the current real estate market. They have been maintaining this system for several decades now. We list the biggest pain points.
High entry barriers without proper financing
To begin with, how can you enter the real estate market at all? Entry amounts are considerably high, properties must of course be bought in their entirety. For this, of course, you need financing. This can be done privately, but since this is difficult for most people we quickly look in the direction of the bank. Banks find the risk too great and reject these novice investors very quickly. If you unexpectedly do qualify, it usually takes months before it is granted at all. Banks and financiers prefer to provide financing to wealthy people or people with experience in the real estate market. This puts you in a kind of closed circle where there is no room for new blood. Only the elite continue to have access to the market as a result.
In the current market, a lot of investment money is lost to third parties. Unnecessary amounts are spent on banks, the IRS, notaries, photographers and brokers. In Germany, for example, the percentage in total for all these costs is around 10% of the total sales value of your real estate asset. Because everything is done manually, too much time is lost.
I hear you thinking, REITs (Real Estate Investment Trust) are a solution to these problems. But these REITs have many disadvantages compared to emerging investment platforms. Since you are not at the helm and leave the management to the real estate fund, you have no control over the policy, vision, management and administration of the properties. In short: you do not have the choice to sell a property at top profit. In addition, you put your money in the fund, they promise you a certain return but you have no grip or choice about which property you invest in. You do not have a good overview of where your money is going. You cannot make improvements to the properties to increase the return or raise the rent. Because you have no control, there is little you can do to improve your returns. REITs also offer moderate dividend payments; REITs often work with a system in which once per quarter or twice per year a payment is made. Another disadvantage of the REIT is that the share is sensitive to interest rate developments. We have experienced this over the past year. This is because REITs often need to borrow money to finance real estate. These are not short-term loans, but long-term mortgages. Many small investors have substituted bonds for REITs in recent years, but that has not become a license for price declines when interest rates rise.
Often it is also difficult to cash out in a REIT, there is no 24/7 market available where you can sell your real estate asset to secure your investment.
And whenever you enter the real estate market, the struggle that properties must be rehabbed, maintained, and managed comes up. Financing payments, real estate taxes, insurance, management fees, and maintenance is time consuming and costs can add up quickly.
How can we fix these problems?
Now that we have the current problems of the real estate market listed, how can this then be remedied? The fact is that the current market is in need of new development. The current players are happy to keep this variant of the world’s largest industry going. Nevertheless, a major change is imminent. We are talking about major problems that we have just analyzed, yet the emerging investment platform EstateX is planning to cause a huge revolution in the real estate market.
How exactly are they going to do that? EstateX is going to link the biggest revolution since the rise of the Internet (blockchain) to the biggest industry in the world (real estate). Working with the new data storage system blockchain, they will ensure that properties are broken down into tokens that house your deposit value in a property. This makes investing in real estate possible for the average breadwinner as well. Let’s analyze the solutions for the outdated real estate market.
Tokenization and fractional ownership
With their new and advanced blockchain solutions, they make it possible to tokenize real estate. This makes it possible to get into real estate from as little as 100 dollars. With these solutions they create the possibility to trade real estate security tokens on our secondary marketplace 24/7 without financial or country borders. Fractional ownership removes the barriers to entry and lowers the cost of entry and exit. Retail investors can now enter the real estate market, which was previously closed due to restrictions and limitations for non-accredited individuals, without any concerns. The blockchain offers safe, secure and transparent transactions that are controlled by smart contracts and not by human hands, preventing human errors and time waste. It is now possible to buy a fraction of a property and enjoy perpetual returns, without the need to maintain the property.
EstateX is going to implement a lending system. With this system they allow investors of EstateX security tokens and EstateX stable token EURX to bond their tokens to allow for collateralized lending up to 75% of their total pooled tokens. With this, EstateX aims to eliminate the often discussed liquidity problem of the real estate market. Banks and lenders are very reluctant to provide new loans to first-time investors. They make it possible for investors to raise money so they don’t have to go through a long and difficult process with a lender but can just handle it within the EstateX ecosystem. By doing so, they reach out to novice investors and real estate entrepreneurs and allow them to apply the leverage model in this way. This is still one of the best models to work with in real estate. They not only stimulate investors but let them grow into true real estate magnates. Holders of EstateX security and stable tokens will be able to leverage their values into other products such as other real estate projects within the EstateX ecosystem.
Faster daily dividend payouts
Normally, investment funds distribute dividends to their investors on an annual or semi-annual basis. This can cause problems and lack of clarity, and this is a problem EstateX would like to avoid. By offering the certainty that dividends can be paid out on a daily basis to their members, EstateX counters these problems. The real estate deals they have concluded guarantee rental returns for 1–3 years, which will be paid out immediately.
Smart contracts on the blockchain
Having to deal with middlemen like real estate agents, banks, and notaries is costly as well as time consuming. The paperwork is done with lightning speed on the blockchain without the need for human interaction. This eliminates the work of agents, brokers, notaries and banks and prevents human error and time waste.
Tokenization of shares allows each individual investor to hold a trade-able asset on a securities exchange. EstateX wants to provide the ability to convert your real estate tokens into real money at any time. They do this through a secondary marketplace. This will allow them to create more liquidity for investors and allow projects to raise capital through retail on the secondary market directly. EstateX will operate a real estate focused securities exchange for secondary market liquidity. We offer an automatic exchange on our platform, in which it is possible to sell the tokens you own directly. Should you decide to sell your purchased asset, you can always safeguard your investment and cash out. Compared to traditional markets this significantly reduces the time of exit for investments. The average time for a traditional exchange of real estate assets is 30 days. With the EstateX marketplace this can be done within seconds.
As a preliminary conclusion, we can conclude that the old-fashioned system is in need of an update. And that update seems to be coming; EstateX offers good, realistic solutions to open up this market. Although it seems that the big players and banks don’t like to see this system change, it’s a matter of adapting or giving up for these parties. Blockchain, which is going to be as big as the rise of the Internet, will bring about this revolution. EstateX is acting smartly and is one of the first parties to offer a new way of investing. The only question that arises isn’t or but when will the big banks, real estate parties and investors join the queue behind EstateX.