Fractional Ownership
Democratizing Ownership: How The Future of Real Estate Investing Is In Tokenization
Oct 07, 2021
By Dan Simerman, Head of Financial Relations at IOTA Foundation
Owning property, especially property that produces income, has long been one of the fastest paths to generational wealth. Though the barrier to entry is high, those who can afford to play the game reap substantial rewards.
Tokenization levels the playing field to some degree, allowing even those among us with less capital to leverage the concept of fractional ownership to own a portion of an expensive asset - whether that be a condominium, vehicle, business, or piece of art. The impact of tokenization is broad and applies to just about anything of value, but today we’re going to focus solely on one of those investments: real estate.
Let’s start with an example. Imagine a 100,000-square-foot office complex, subdivided into numerous co-working spaces and small office units for startups. Let’s assign this fictional building an estimated value of $1,000,000.
Traditionally, there are three ways to acquire this asset:
1) Pay $1,000,000 in cash
2) Put down 20% (or more) and take out a bank loan
3) Find investors willing to fund your venture
With tokenization, we can add a fourth method, one that serves as both a tool for investment and acquisition, affording individuals the opportunity to participate in investments that would otherwise have been impossible in the past.
Using tokenization, we can split ownership by thinking of the 100,000 square feet as 100 equal parts, or shares, each of which is 1,000 square feet. Now, the office building requires only 100 people willing to invest $10,000 for an equal share of the monthly rents. There’s some flexibility here. Those who want to take a chance on even bigger profits can buy more shares. $100,000, for example, buys you 10 shares of the office building, and 10x the profits, potentially.
These numbers work regardless of how you decide to split up ownership. Instead of 100 people willing to invest $10,000, for example, maybe you find 1,000 people willing to invest $1,000. Or 10,000 people willing to invest $100. You can break this down as far as you want, leading to micro-investments of $1, or less.
This is a powerful concept. Once priced out of the investing game, even those with less capital would have opportunities to grow their wealth with fractional investments in income-producing properties. For the first time in history, we’re on the verge of a world where anyone can invest in assets that were once out of reach. Compounding their returns, they can then invest more into other assets, an opportunity that didn’t exist even a decade ago.
A $40 allocation into a property, for example, might not seem like much to most of us, but for a lot of investors, it’s a reasonable and achievable investment.
It’s not life-changing wealth, by any means, but investing has numerous benefits that aren’t immediately recognizable. What separates the wealthy from the rest of us is in the opportunities made available to them that aren’t readily available to the majority of the population. The vast majority of their money is tied up in investments designed to increase their wealth that produce higher yields than parking your cash in an interest-bearing bank account. For them, their money is always working, even when they aren’t.
But it’s not just income. Owning assets brings additional benefits, such as those that reduce your tax liability, or increase your ability to get a loan by acting as collateral. Most of all, it acts as a store of wealth that can be passed from one generation to the next.
Read more...
About Capital Engine®
Capital Engine® facilitates the creation of efficient, trusted and scalable online private capital and alternative investment marketplaces for traditional and digital assets, through our tiered business technology ecosystem: private label platforms, strategic partnerships and inhouse marketplace for private placements.
Our clients include broker dealers, family offices, wealth managers, incubators, accelerators, social impact and real estate funds, in providing customized SaaS solutions to power private capital and alternative investment platforms, with a strong focus on investor management services.
Capital Engine® provides a comprehensive, integrated suite of digital investment tools, back office technology and distribution platform to connect private capital with HNW individuals and family office capital.
Our software helps leverage the opportunity to better originate and showcase a diverse selection of private investment deals and offer these to investors i.e. a deal’s potential viability can be better assessed, market appetite determined and transaction promptly closed.
Interested in raising capital https://capitalengine.io/raise-capital
Interested in a demo https://capitalengine.io/request-a-demo
Owning property, especially property that produces income, has long been one of the fastest paths to generational wealth. Though the barrier to entry is high, those who can afford to play the game reap substantial rewards.
Tokenization levels the playing field to some degree, allowing even those among us with less capital to leverage the concept of fractional ownership to own a portion of an expensive asset - whether that be a condominium, vehicle, business, or piece of art. The impact of tokenization is broad and applies to just about anything of value, but today we’re going to focus solely on one of those investments: real estate.
Let’s start with an example. Imagine a 100,000-square-foot office complex, subdivided into numerous co-working spaces and small office units for startups. Let’s assign this fictional building an estimated value of $1,000,000.
Traditionally, there are three ways to acquire this asset:
1) Pay $1,000,000 in cash
2) Put down 20% (or more) and take out a bank loan
3) Find investors willing to fund your venture
With tokenization, we can add a fourth method, one that serves as both a tool for investment and acquisition, affording individuals the opportunity to participate in investments that would otherwise have been impossible in the past.
Using tokenization, we can split ownership by thinking of the 100,000 square feet as 100 equal parts, or shares, each of which is 1,000 square feet. Now, the office building requires only 100 people willing to invest $10,000 for an equal share of the monthly rents. There’s some flexibility here. Those who want to take a chance on even bigger profits can buy more shares. $100,000, for example, buys you 10 shares of the office building, and 10x the profits, potentially.
These numbers work regardless of how you decide to split up ownership. Instead of 100 people willing to invest $10,000, for example, maybe you find 1,000 people willing to invest $1,000. Or 10,000 people willing to invest $100. You can break this down as far as you want, leading to micro-investments of $1, or less.
This is a powerful concept. Once priced out of the investing game, even those with less capital would have opportunities to grow their wealth with fractional investments in income-producing properties. For the first time in history, we’re on the verge of a world where anyone can invest in assets that were once out of reach. Compounding their returns, they can then invest more into other assets, an opportunity that didn’t exist even a decade ago.
A $40 allocation into a property, for example, might not seem like much to most of us, but for a lot of investors, it’s a reasonable and achievable investment.
It’s not life-changing wealth, by any means, but investing has numerous benefits that aren’t immediately recognizable. What separates the wealthy from the rest of us is in the opportunities made available to them that aren’t readily available to the majority of the population. The vast majority of their money is tied up in investments designed to increase their wealth that produce higher yields than parking your cash in an interest-bearing bank account. For them, their money is always working, even when they aren’t.
But it’s not just income. Owning assets brings additional benefits, such as those that reduce your tax liability, or increase your ability to get a loan by acting as collateral. Most of all, it acts as a store of wealth that can be passed from one generation to the next.
Read more...
About Capital Engine®
Capital Engine® facilitates the creation of efficient, trusted and scalable online private capital and alternative investment marketplaces for traditional and digital assets, through our tiered business technology ecosystem: private label platforms, strategic partnerships and inhouse marketplace for private placements.
Our clients include broker dealers, family offices, wealth managers, incubators, accelerators, social impact and real estate funds, in providing customized SaaS solutions to power private capital and alternative investment platforms, with a strong focus on investor management services.
Capital Engine® provides a comprehensive, integrated suite of digital investment tools, back office technology and distribution platform to connect private capital with HNW individuals and family office capital.
Our software helps leverage the opportunity to better originate and showcase a diverse selection of private investment deals and offer these to investors i.e. a deal’s potential viability can be better assessed, market appetite determined and transaction promptly closed.
Interested in raising capital https://capitalengine.io/raise-capital
Interested in a demo https://capitalengine.io/request-a-demo
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