Blockchain technology and the cryptocurrencies they enable have spawned an entirely new world of assets and opportunities. With potential in both the realms of investing as well as real-world utility, these assets have made headlines across the world for their explosive growth, dramatic volatility, and unprecedented innovation.
One exciting new group among these new crypto assets represents both speculation and utility in a way that’s never been seen before: NFT real estate. Although still extremely new, NFT real estate has already made huge waves in the crypto community.
Are you considering an NFT real estate purchase? If you are, there are 5 important things you should consider first. This article aims to cover each of these things in detail so that you can make the best, most informed decision possible.
1. Do you truly understand NFT Real Estate?
Any smart investment decision requires a thorough understanding of the entity in question. Especially considering how new and complicated many blockchain and cryptocurrency-related assets are, the (possibly) shocking truth is that many of the individuals who invest in them don’t even understand them past a surface level. If you’re considering an NFT real estate purchase, the first thing to consider is if you actually comprehend NFT real estate. If you don’t, that’s OK. We’ll get you there.
First, we should touch on NFTs. Despite the fact that they’re mentioned often, even in mainstream media, many people don’t know what NFTs really are.
NFTs: Non-Fungible Tokens
The acronym NFT comes from the phrase “Non-Fungible Tokens.” This phrase is precisely what distinguishes NFTs from other currencies.
Fungibility is a word that most people don’t come across too often; it simply refers to whether or not an asset can be replaced by an identical asset of the same type. For example, US dollars are “fungible” because any single dollar is the exact same as any other dollar, practically speaking. Cryptocurrencies are almost always fungible, too. Any single BTC is the same as any other BTC. Any ETH is the same as any other 1 ETH. You get the idea.
NFTs, on the other hand, are not all created equal. Instead, they are unique. This is the idea behind using NFTs for things like artwork. If an NFT is created for a specific one-of-a-kind painting, that NFT is an entirely unique entity that cannot be replaced by any other NFT or currency.
One way of looking at NFTs is to see them as digital receipts for assets. When you purchase an NFT for a painting or a song or a tweet (yes, NFTs for tweets have been sold), what you’re really purchasing is ownership of that painting, song, or tweet.
NFT Real Estate
With the knowledge that NFTs are non-fungible and that they represent ownership of assets, the groundwork is laid for an intuitive, albeit simplistic, idea of what NFT real estate is all about. It works like this:
- A property is selected to be “tokenized”
- That property has an NFT made for it, including ownership details
- The NFT for that property can now be sold
2. “NFT Real Estate” Can Refer to Both Real-World and Virtual Properties
One of the hurdles to understanding NFT real estate starts with a simple and extremely important question: “Are we talking about physical properties or metaverse properties?” Actually, both physical properties and metaverse properties can be made into NFTs and transferred virtually. Depending on your personal situation and your goals, both options might be viable for different reasons.
NFT Metaverse Real Estate
Virtual, metaverse properties experienced a surge of attention earlier this year, partly thanks to celebrities like Paris Hilton and Snoop Dogg showing considerable investment in metaverse real estate. In fact, one individual paid nearly half a million US dollars to be Snoop’s virtual neighbor.
While people often refer to cryptocurrency, in general, as highly speculative, metaverse real estate is perhaps even more speculative. At this point, it’s obvious that there’s a significant amount of interest in metaverse real estate, but it’s unclear how the situation will pan out.
Questions about the utility and long-term value of properties in the metaverse remain unanswered. Regardless, metaverse real estate properties are being bought and sold – and they could end up being tremendous investments for the brave buyers of today.
Real World NFT Real Estate
Those who place higher value on physical items – that you can touch, feel, and even live in – are likely to be more interested in real world NFT real estate than metaverse NFT real estate.
Properties that are sold and transferred with NFTs are the very same properties that you might purchase through the traditional process of getting a mortgage. The difference is that rather than the necessity of dealing with banks, agents, and brokers, the task of buying an NFT real world property can be done in mere minutes. In fact, a studio apartment that is often touted as the first NFT real estate property to be sold had its ownership transferred in 22 minutes.
Aside from the obvious benefit of quick and easy transfer of ownership, NFTs bring a host of other advantages to real estate. Transparency, for instance, may be greatly improved through the usage of blockchain technology. Any property that is transferred as an NFT will have records of ownership and other details recorded and available on its host blockchain.
Another advantage that must be mentioned is reduction in costs. The same improvements to the ownership transfer process that make it faster to buy NFT real estate properties than traditional real estate properties may also make it cheaper; cutting out the “middlemen” – like real estate agents and brokers – may save homebuyers quite a bit of cash.
One of the less obvious benefits is something that makes NFT real estate truly revolutionary. It is so important, in fact, that it deserves its own section…
3. NFT Real Estate Enables and Facilitates Fractional Ownership
While reduced costs, increased transparency, and highly enhanced ease of transfer are all significant benefits that NFT real estate offers when compared to traditional real estate buying processes, fractional ownership is arguably the most interesting.
Fractional ownership means that an asset can be split amongst two or more owners rather than just one. While fractional ownership has existed in traditional real estate properties, it is immensely difficult and complicated to set up. With NFTs, fractionalizing the ownership of any given property is extremely simple. Furthermore, the possibilities that fractional ownership opens up may be revolutionary in the real estate industry.
One of the most obvious and noteworthy possibilities of fractional ownership through NFT real estate is crowdfunding. Giving real world properties NFTs and making them available for fractional ownership allows individuals across the world to support, invest in, and profit from all sorts of opportunities that were completely impossible previously.
4. Due Diligence is Still Critical
Although this point may seem obvious, it still needs to be stated. Purchasing real estate – whether through traditional processes or with NFTs – is a complicated and often extremely expensive matter that needs to be taken seriously. Regardless of the fact that NFTs allow digital transfer of ownership that can be accomplished without costly middlemen and seemingly endless paperwork, you’ll still want to inspect any property you’re investing in and do any additional due diligence to protect yourself.
Especially in the advanced age of fractional ownership and crowdfunding that NFT real estate makes possible, “due diligence” may look vastly different depending on the situation. If you’re buying your own home that you intend on living in, for example, your due diligence will be far different from if you’re participating in the crowdfunding of a new NFT resort in which you will claim 1% ownership.
Whatever the circumstances are, however, do not let enthusiasm, fear of missing out, and trust in technology cloud your judgment. In fact, part of your due diligence may very well go beyond doing your own research to hiring a professional. Discussing this point takes us to our final thing to consider:
5. Consulting a Lawyer May Be Very Wise
While cryptocurrencies can and do streamline processes, making things faster, easier, and even cheaper, the same freedom and lack of regulation that allows them to reduce friction in processes like buying real estate may open the door for nefarious activity. It is an unfortunate truth that the crypto and NFT spaces have seen more than their fair shares of hacking, scamming, and fraud.
Even without any malicious intent involved, purchasing any NFT real estate property may not be as simple or as clear cut as it seems. Yes, there have been many successful NFT real estate purchases already, but the fact remains that laws and regulations have not caught up to this advanced state of technology and innovation that NFT real estate resides in.
If you decide to purchase NFT real estate, an attorney with specialized knowledge and experience in NFTs, cryptocurrency, and real estate will bring so much value to the table that any fees charged will seem minimal. Even if the process does end up going simply and smoothly, the peace of mind that comes from a qualified professional ensuring you that everything is above board can be invaluable.