Crypto Bros Want to Create Micro Landlords

You might expect crypto enthusiasts to look down their noses at landlording as an antiquated way to earn a fortune, not worth their time when they are busy democratizing money. But in finance, everything old is new again.

“Fractional ownership” of “tokenized real estate,” the latest crypto scheme, works like this: a company sells investors tiny shares of a property, then represents the purchases on the blockchain. Investors profit when the company pays a dividend funded by the property’s rent, when the company sells the building, or when the investor sells the holding.

These activities are “utilizing blockchain technology to break down the traditional barriers of traditional real estate investment,” as United States Property, Inc. characterized it for the Securities and Exchange Commission. “This allows token holders to become a fractional landlord by owning a piece of a multi-million dollar real estate portfolio.”

If that sounds familiar, you might be thinking of every other property-related security already on offer. Real estate investment trusts (REITs), which have been around since 1960, pool money from many investors to fund the purchase of income-producing properties, like apartment buildings. Investors draw income generated by rent, and as with the tokenized strategy, don’t have to manage the property themselves. Mortgage-backed securities similarly allow investors to buy a portion of residential mortgages and earn money off monthly payments.

There is one major difference, however. Traditional real estate investments are regulated (or at least they’re supposed to be). The on-chain ones definitively aren’t. Crypto executives are arguing that all the rules mortgage-backed securities and REITs have to comply with shouldn’t apply to tokenized real estate, because they’ve slapped the word “blockchain” into marketing material and use distributed ledger tech to create a redundant trading record. It’s part of a “very, very diligent movement” to argue that laws and regulations shouldn’t apply if you’re operating on the blockchain, said Amanda Fischer, policy director and chief operating officer for Better Markets.

“Right now I would say it’s dumb. It’s big dumb,” she said.

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