The machine that builds a future
The first accounting of all the land in England was first published in 1086, the ominous name Doom diary, it documented the possessions of the King and how they were distributed among the aristocracy. Almost a thousand years later, the wealth of these families is still visible.
In more recent times, the average US home price in 1963 was $19,300 ($187,982 adjusted) and by the third quarter of 2022 it had climbed to $542,900, which is now up 17% year over year. This makes it one of the best safe returns available, with any downturn quickly correcting.
This brings us to the question: Why haven’t more people taken advantage of this wealth building tool?
The oldest market in the world is slow, inefficient and run by institutions.
Throughout the history of property ownership, there have been institutional motives for controlling access to it. The process known as “Red-lining,” where financial support for homeownership is limited in certain neighborhoods, is responsible for a significant portion of the wealth inequality in the United States today.
Beyond these issues, the barriers to entry in real estate have historically been high, and are getting higher as demand outstrips supply. The upfront capital, creditworthiness and risk still put real estate investing, especially as part of a portfolio, out of reach for many people.
In practical terms, linking investments to an immovable object presents challenges of liquidity and exacerbates risk. The average real estate transaction takes 30 days to complete and involves multiple low fees and professional services that can dilute the value of the transaction.
As this happens, the physical property is subject to environmental risk such as damage and deterioration, and shifts in the local economy and real estate market, something that has caused great economic damage to individuals in industrializing areas of the United States.
Alternatives for investors have traditionally included Real Estate Investment Trusts (REITs) that spread their investments across multiple properties and markets to take advantage of the overall uptrend and mitigate local fluctuations. Many can be traded as shares and have a level of liquidity to them above the liquidity of the real estate asset itself.
This can work well for some types of investors who are willing to sacrifice control of their capital and lose some of its liquidity in exchange for security and convenience. It may also come with upfront investments that clients may not have available or feel comfortable committing to.
Fractional Real Estate Investment
As we have seen with investment retail in recent years, advances in technology have begun to disrupt and change this market. EstateX is an organization developing investment and payment tools that will use blockchain technology to produce their own real estate-backed digital assets.
Blockchain is a system for distributing a collective ledger that tracks ownership through a decentralized system of transactions. It can be used to track the movement of things like ownership rights of works of art, digital currency and the digital trading of securities. It can be bought and sold through exchanges that operate 24/7.
Fractional investing allows investors to own portions of multiple properties through a single digital asset that can be stored, traded and liquidated at speeds closer to minutes than the weeks required for traditional investment assets. The liquidation channels and choice of portfolio options left to the investor, rather than a fund manager, allow for the migration of the significant risk associated with single property investment.
EstateX has developed their EstateX Pay platform which will give investors a physical Mastercard
of Equity and Equality
Large investment institutions, similar to most forms of banking, have typically catered to retail investors as a secondary market because of their relatively small capital offerings. Consequently, the available utilities are geared towards the convenience of these larger customers. In contrast, young retail investors who are more interested in high liquidity assets and direct access to their returns are underserved.
Platforms like EstateX aim to support smaller investors by allowing entry for as low as $100 and paying dividends on a daily basis from the first day of investment. Regular and easily accessible dividends also cater to investors working to build a passive income lifestyle.
With the high returns possible in the real estate sector enabling a hedge against and above inflation, new platforms such as EstateX may have the potential to create opportunities for previously marginalized communities by giving them access to wealth building tools from which they have historically been limited.