Since the summer, it seems like NFTs, blockchain, and the metaverse have just been everywhere. Searches for all of these things are up, way up, and more people are looking for new applications for this not-entirely new technology group. And although we've been doing a lot of exploration of how virtual real estate is moving and shaking with the help of NFTs, we've not explored what's going on with NFTs and physical real estate as much.
Will NFTs be a thing in real estate and real estate investing in 2022? Absolutely, without a doubt, yes, but maybe not in the way you think.
Selling individual real estate using NFTs
NFTs can be hard to wrap a brain around, since they're not physical and, often, people writing about them don't really explain them well. You can think of an NFT as a digital deed, recorded in a storage system that's made to keep them very, very safe. Like a deed, an individual NFT refers to an individual thing, even if that thing is one of a series, or parts of a whole. But it doesn't have to be a virtual thing; it can be a real thing, too. You can create an NFT that grants the entire rights to your grandmother's wedding ring to the holder of the NFT, or one that gives exclusive access to the dog park from 1 PM to 3 PM on Wednesdays.
It gets a bit dodgy when it comes to real estate, believe it or not. Real estate law hasn't quite caught up to the new technology that makes NFTs a thing, so we still have physical deeds and recorder's offices, and all of that. A lot of people heard about an apartment in Kyiv, Ukraine, that was "sold as an NFT." The quotes are there because it was... and it wasn't.
What actually happened was that the ownership to a small corporation was recorded as an NFT and subsequently sold using that technology. It just so happened that the corporation had one -- and only one -- asset. Yes, it was that apartment. So, the corporation, and its assets, were sold using the NFT to get around the technicality that it's currently not super viable to sell a whole piece of real estate using NFTs.
Fractional real estate sales as NFTs
Now, buying a whole property using an NFT is not something I anticipate anyone being able to do for a while. Real estate law moves slowly and changes take a long time to make. However, tokenized ownership of real estate projects is absolutely a thing that is happening here and there. And it's absolutely awesome.
Sure, you can already buy shares in development companies, or in REITs, but being able to directly buy shares of individual projects is often very cost prohibitive for everyone, allowing only deep-pocketed, long-term investors entry into projects with wide margins. Actual fractional ownership via something like tenancy-in-common or joint tenancy requires a lot of paperwork and time, and every time an owner swaps out, it has to be all done all over again.
But let's pretend you could take a corporation that owns a particular property or project and sell shares as NFTs. Each NFT represents a percentage share of the property, whatever is designated at the time of the creation of the NFT (a process known as "minting"). Your NFT in Real Estate Project Alpha, for example, gives you a 5% buy-in, with all that goes with that, stipulated by your contract.
To close on your share, you simply hold the money it takes to make the purchase (often as a stable cryptocurrency to make the process easier on the recording end) in a digital wallet, you click the "buy" button, sign the paperwork digitally, and within minutes, become an owner. Your ownership is recorded on the blockchain for that NFT, and you and the other owners have a permanent record of your buy, without having to go through the traditional closing process.
The same happens on the reverse, if you were to decide you wanted to sell your share (under the rules stipulated in your contract). A few clicks to victory, everything is recorded to the same NFT (remember, it's basically a virtual deed), and you're out of that investment. This can give people faster, easier, and cheaper outs, regardless of their reason for divestment.
NFTs will absolutely be a thing in 2022
We can't keep doing real estate the way we're doing it. Paperwork is so 1950. So much happens in any given day in the real-world real estate market that automation is required to keep the pace up, and frankly, using NFTs as a way to generate shares in real estate projects was the obviously genius solution to a time-consuming process. Just like with any investment, though, you need to understand what you're buying into as well as the technology that's being used to record it all.
NFTs absolutely will be a thing in 2022. NFTs should have already been a thing in real estate, we just didn't realize it. So, the next time you see a great real estate project you'd like to be a part of, don't be afraid to buy an NFT that gives you an ownership stake, if everything else looks solid. It's really just a digital version of the deeds we already use every day.