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How NFTs are Changing Real Estate

The real estate industry has undergone major changes in recent years, and the next big step is the use of non-fungible tokens (NFT) to unlock homeowners’ home equity. Here’s why.



How NFTs are Changing Real Estate

Since the inception of blockchain technology and cryptocurrency, there have been a flurry of new projects and applications being created. One such application is Non-Fungible Tokens (NFTs).

NFTs are unique in that they represent an individual asset on a blockchain. The recent spate of eye-popping NFT purchases, including the 10,000 NFTs of the Bored Ape Yacht Club fame, is bringing a lot of attention to the potential within the technology.

This continues to fuel their use in a variety of industries outside of cryptocurrency, including both virtual and physical real estate.

Real Estate is starting to embrace blockchain and NFTs

The first recorded NFT property sale was in January of 2019 when a virtual world (metaverse) called Decentraland sold a virtual plot of land for $200,000. The land was purchased with the cryptocurrency Ethereum. Two years later, it sold a plot of land for a whopping $2.4 million. The precedent had been set for other NFT property sales that followed suit.

These sales demonstrated there is a tangible market for NFT properties. But more importantly, the technology behind it. NFT purchases are fast, easy, can be done at any time and are trackable forever on the blockchain.

This ease of purchase, and the ability to parse ownership across sellable NFTs, caught the attention of the physical real estate industry.

Tapping into home equity using NFTs

A big benefit of NFT purchases of virtual land is the lack of government regulation. This can be seen as a positive or negative, depending on your view. On the one hand, it allows for a free market with less bureaucracy. On the other, it could also lead to more scams and fraud.

Compare this to getting a traditional home equity loan. It’s much like the original home purchase process, with only a few less steps. It’s long, there’s still a ton of paperwork and plenty of fees and required middlemen to take their cut along the way.

Straddling the virtual and physical worlds

Using NFTs to unlock your home’s equity is done by creating a digital representation of a home and selling it as an NFT in an online marketplace. What’s more, the actual sale can potentially be done in minutes. The proceeds can be used as a down payment on a new home, investment property, or anything else the homeowner desires.

The downside is that there are still some risks involved. The biggest risk is the value of the NFT could drop. This leaves the homeowners with less money than they started with.

Compare this to the physical world. When your home value drops below its outstanding debt (primary mortgage plus equity loan), you’re upside down. But with the equity loan money already in your hands, you’re putting off that debt with the hope the future value rises enough to recoup it.

Do your homework!

NFTs are still in their early days, but they hold a lot of promise to offer peer-to-peer, streamlined transactions. For real estate investors and homeowners alike, they offer a new way to tap into the equity of their property. And as technology matures, we can only expect more innovation in this space.

The most important thing is to educate yourself and be sure to first seek legal advice from those who specialize in NFT transactions. Remember, you and your house still live and operate in the real world.

This article is not intended as investment or legal advice.