How it Works

How A Real Estate NFT Works

Real estate is different from other forms of property like cars and collectibles in that it doesn’t require physical delivery for a sale.  When you transact real estate, you’re simply transacting records.  Buying a house is transacting the deed and renting a house is transacting a lease. 

Fundamentally, an NFT represents a right granted to the NFT holder by its creator or previous holder.  In real estate, a buyer or renter pays to get a contract granting property rights.  With an NFT, that contract is digital instead of on paper and payment is done with cryptocurrency instead of fiat.  

The NFT doesn’t replace anything currently required for traditional real estate transactions, i.e. getting a broker, signing paper contracts, paying taxes, forming a company,  etc.  At minimum, NFTs are an additional layer that can make transactions easier.  At best, NFTs enable custom contracts that open up a way for people to innovate on real estate products, uses and transactions.  

NFTs act as a custom listing for a property.  For example, an owner can create and sell an NFT that represents a 999-year lease on land, or a week’s stay in their home, or a right to use the property for storage. NFTs could also break ownership into component rights (or meta-rights) that can be sold separately.  For example, one could sell appreciation rights to someone buying for appreciation and sell usage rights on the same property to someone needing a home. 

Benefits of NFT

  • – Complements existing transaction process, not replace
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  • – Immediate resale ability through all NFT marketplace 
 

– Instant or lower-friction transactions

  • – Enables auctions
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  • – Voting and current ownership ledger
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Rights

    • – NFT represents any right to the property 
 
– Rights agreed upon by property owner and NFT holders
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    • – NFT can contains operating agreement language 
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    • – Agreement is on public blockchain instead of on paper

LEgal

  • – Works with legal and regulatory framework
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  • – Compliance responsibility of the project owner or designated members
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  • – The property owner can be unchanged from official records
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Benefits

Property listings as NFT have advantages over traditional listings: they are cross-platform, multi-purpose, and can last for as long as the property itself.  Chances are, you’ve created a property listing before but it was for a single platform, single use, and temporary.  

When you make an Airbnb listing, all that information is “centralized” or owned by Airbnb and no other service can access it.  By using an NFT to list your property, you make it public or “decentralized” on a blockchain that can be seen by anyone in the world, massively broadening your market.  

Platforms and marketplaces for property like Airbnb are also single-purpose, i.e. only for short term vacation rentals.  Because the NFT can be changed by the owner, it could represent the deed when bought, and resold as representing a lease, or both.  

The decentralized and changeable nature of NFTs means your property could automatically go into MLS, Zillow, Craigslist, Airbnb, VRBO and every possible real estate marketplace in the world that choses to integrate NFT listings.  As new marketplaces emerge, your listing could be automatically included.  As is, if you have an NFT for your property, it could be discovered on most major NFT sites like OpenSea, Rarible, Mintable, etc.

The listing/NFT just needs to be created once (most property details don’t change) and can be relisted right away.  Say you’re looking at buying a property.  You can create the NFT from that existing listing.  And as soon as you end up buying it, you can immediately sell the NFT for a higher value.  The NFT can be resold again and again, potentially generating a royalty to you, the original NFT creator, on every resale.  Say you currently lease out your property to a renter.  An NFT allows that renter to sublease it (effectively what Airbnb does), where you can earn on that sublease.

There’s a chance if you don’t create an NFT for your property, the person after you will.    

Legal & Regulatory Considerations

Anyone can mint an NFT for anything, just like how you can write a contract for anything.  You can mint an NFT or write a contract to rent out the Eiffel Tower but if you don’t have rights to do that, neither have any force or effect, and are equally worthless.  The legal process for a dispute is therefore no different with NFT than it is for any other contract.

In this regard, the NFT acts not as some protection against fraudulent use, but as a tool for marketing or transacting the property by those people who actually have legitimate use.

The regulatory considerations are also the same as if you were to write out a custom contract, or use  use Craigslist or Airbnb to sell or rent out your property.  You’d want to make sure you can do it in the first place and follow applicable regulations.

Sample Types of Real Estate NFTs

Income

Buyers of these NFTs are granted rights to income of properties that occupied/rented.   The benefit of buying these NFTs are the potential for profits to be sent directly to the NFT holder’s wallet address by the project owner.

For an example of an income NFT, click HERE.

Usage

Buyers of these NFTs are granted rights to usage. These properties are not generating income, but come with usage rights.  If the project owner chooses, they can grant rights to income if they property gets rented or leased.

For an example of a usage NFT, click HERE or see the sample project below.