Let me get straight to the point, some of you must be wondering how can someone sell their home as an NFT? Or maybe you are curious how NFTs could revolutionize the real estate industry? Well in February 2022, a house in the United States was sold as an NFT. A 2,164-square-foot home in Gulfport, Florida was sold at auction for $ 653,000 (210 ETH), and the winning bidder received an NFT as proof of homeownership. Amazing right?
Well, you have come to the right place as we will help you demystify the world of NFT real estate and explain the fundamental difference between virtual real estate and physical real estate sold via NFT. In this guide, you will learn how NFT real estate works today and how it can potentially introduce new business models to the world.
Table of Contents
1. What Is NFT Real Estate?
2. What is Virtual real estate in the virtual world?
3. What is NFT in Physical Real Estate?
4. How does it actually work?
5. Concluding Thoughts
Part 1. What Is NFT Real Estate?
There are two types of NFT real estate, physical and virtual. Ownership of physical real estate (such as a Virginia home) can be linked to NFTs through tokenization. However, virtual real estate is usually the land of the digital world, such as The Sandbox and Decentraland (also known as the “Metaverse”).
When people talk about NFT real estate or real estate NFTs, it’s important to note that not everyone is talking about the same thing. Some refer to a physical real estate sold as NFTs, while others refer to digital real estate in the virtual world (also known as the “Metaverse”). This is an important difference as the motives associated with NFT house and in-game plots are fundamentally different. Let me clarify how these different types of real estate NFTs work and what the benefits of each are.
Part 2. What is Virtual real estate in the virtual world?
Virtual real estate is a piece of land or building in a virtual world where people spend most of their free time. These properties can be obtained by purchasing the relevant NFTs in exchange for cryptocurrencies. Depending on the type of land, these properties can have monetary value advantages. The main focus of this article is NFTs related to physical real estate.
For many people, social interaction in like-minded online communities is much easier than in the real world. Opinions about the metaverse vary, but it is no exaggeration to say that these online virtual worlds continue to evolve as humans try to communicate with others.
Popular platforms in such virtual worlds include Minecraft, Roblox, Decentraland, The Sandbox, and NFTWorlds. Believe it or not, you can get land in these worlds. For example, Decentraland has 90,601 individual lands that can be acquired using its home currency, $MANA. And The Sandbox fully embraces the idea of the metaverse as a continuous shared digital space where worlds and brands collide to make magic and create real utility and economy. HSBC joins over 200 existing partnerships including Gucci, Warner Music Group, Ubisoft and swath of other big brands. All of them following The Sandbox’s vision of empowering players to create their own experiences using both original and well-known characters and worlds.
I know this may sound crazy to some of you, but don’t underestimate how many people have spent time in these virtual worlds. In fact, you can even buy digital ad space there, and some people make money from NFT by purchasing valuable ad space.
Part 3. What is NFT in Physical Real Estate?
Physical real estate can be tokenized as an entire asset or through part of ownership. This is achieved by “wrapping” the asset into a legal entity. Corporate ownership is represented by an NFT or a specific number of tokens. Real estate NFTs work like any other NFT. You buy them in cryptocurrencies and they are stored in your digital wallet. However, many are wondering you must be wondering how are we gonna link physical assets to NFTs. As purchasing an NFT will only acquire digital assets on the blockchain. Real estate can be tokenized in two ways, through(EA) Entire Assets Tokenization or (FO) Fractional Ownership.
- Fractional Ownership
Tokenization of split ownership is as simple as crowdfunding. Depending on the structure of the investment, each owner may hold one or more partial shares of the underlying real estate. These shares can also be represented in the form of NFTs or regular tokens.
Sites like JuiceBox already allow large numbers of people (such as DAOs) to pool funds and bid together on assets. This is done with well-known artwork such as Assange DAO and Constitution DAO, but it’s also easy to do with real estate. It may be necessary to put it together in some form of legal entity, but this is not uncommon and requires the token to be registered with the SEC.
- Entire Assets Tokenization
However, the overall tokenization of assets is a bit more complicated. Today, most developed countries build and record real estate ownership through certificate offices. This only works if the actual real estate certificate becomes an NFT. Legislators can pass a bill that creates a newly regulated asset class that allows contracts to exist in the form of NFTs. But for now, it’s not easy. Currently the only way to do this is to “wrap” the property into a legal entity and create an NFT token that represents ownership of that entity.
Part 4. How does it actually work?
The first step in selling real estate as an NFT is to make the necessary legal preparations to ensure that it complies with the regulations. This requires the participation of a lawyer with experience in blockchain technology. Compliance with the law has always been a priority, but the introduction of new technologies presents challenges. Think about how far it has gone since online banking and the advent of the Internet.
When you’re ready to move on, you can create an NFT with descriptive and legal data about the property. Minting is a process that anyone can do by uploading JPEGs and smart contracts to the NFT Marketplace, a website that provides a secure environment for NFT creators and buyers to buy and sell NFTs. This injects all the paperwork, disclosure, and reporting required by the NFT and gives the NFT legal authority to represent proof of ownership.
Once you have created an NFT, you can enter it into the NFT Marketplace and sell it to potential buyers. The buyer bids on the property and the winner of the auction pays for the property in fiat or cryptocurrency. Once the funds have been released to you and the NFT has been transferred to the buyer’s wallet, the buyer will complete the paperwork to complete the transfer. When a buyer owns an NFT, he owns that property.
As the use cases of NFTs in real estate increase, the industry will surely change. Overall, the process of transferring ownership should take only a few minutes. This is revolutionary compared to the time it currently takes to buy real estate. It’s only a matter of time before NFTs and real estate work together, as they tend to require “one-click” buying and selling options.
Part 5. Concluding Thoughts
Many quickly argued that NFTs could not be fixed to physical assets. Indeed, there is still much work to be done by law to provide a strong regulatory framework for asset tokenization. Tokenization is possible but additional structures are needed to be compatible with the “real” world. I personally believe that real estate is one of the industries that will benefit most from NFTs and that some incredibly innovative business models will surprise many.
Having an in-depth understanding about NFT space is key. Without a basic understanding of blockchain technology and NFTs, it is difficult to understand all the benefits these technologies bring to commercial real estate. There is a learning curve in buying and selling NFTs. The only way to learn is to practice. Buy and sell NFTs. Familiarity with the process can be profitable in the long run.
Disclaimer:
This article is for educational purposes only. We have no relationship to these projects, and there is no endorsement for these projects. The information provided through The Oasians does not constitute advice or recommendation of investment or trading. The Oasians does not take responsibility for any of your investment decisions. Please seek professional advice before taking financial risks.
Sources:
https://blockworks.co/a-real-estate-backed-nft-sold-for-653000/
https://tokenizedhq.com/nft-real-estate/
https://www.forbes.com/sites/forbesbusinesscouncil/2022/02/16/nfts-and-the-future-of-commercial-real-estate/
https://blockworks.co/hsbc-buys-virtual-real-estate-in-sandbox-metaverse/
