If you own cryptocurrency and you own rental property, the odds are pretty good that you do not have to discuss, via the crypto platform, how to manage your rental properties. However, that is changing for a certain number of landlords who have invested in rental properties via digital tokens and conduct their property management via a series of online polls.
In some cases, the process works well and is both innovative and beneficial to the investors who otherwise might not be able to invest in rental property. The tenants often have no idea this is going on at all. In other cases, things can get badly mired down and everyone suffers.
Proponents of the crypto-landlording process say that blockchain makes the entire process much more reliable and improves transaction times.
“The buyer and seller can’t trust each other sometimes, and that is why you have this whole escrow and settlement process. For us, settlement takes four seconds,” explained Jerry Chu, CEO of Lofty AI, an online marketplace that lists about 90 rental properties available for investment via token purchase.
Many investors like the structure because they feel that their investments are more liquid than traditional real estate. They also can invest with small amounts of money – sometimes as little as $100.
For traditional landlords, however, crypto-real estate may not be as appealing. Because several dozen investors may have ownership in a single property, simple decisions like replacing a ceiling fan may become a laborious process. For example, one Lofty AI investor recalled the problems associated with just such an issue, when many of the “landlords” believed the property manager of a property needing a new ceiling fan was “scamming” them because they found inexpensive ceiling fans on Amazon for just $35. If the multiple landlords had not been able to conclusively decide via a supermajority of 60 percent that the ceiling fan should be replaced, the tenant would have been out of luck.
The other potential issue with crypto-real estate and tokenized real estate in many of its forms is that there is a great deal of debate about whether or not these businesses should be classed as securities.
When cryptocurrencies debuted in the popular market, many investors used them as a way to crowdfund deals without having to go through the processes required by the SEC. This led to many real estate investors losing money on what they believed were solid real estate investments but that were, in reality, pools of money being accumulated without supervision for future investments.
At present, most real estate cryptocurrency businesses say that they do not meet the federal legal definition of “securities” and should not be subject to regulation, but that could change as more businesses emerge in the sector.