Tokenizing Real Estate
Last updated
Last updated
Auditor contracts can be used to tokenize any piece of real estate. The tokenization process consists in legally transferring ones rights over a piece of real estate to a trusted entity (an auditor) and in exchange, getting an NFT token representing the underlying real estate.
Assets can also be tokenized into ARPs or Bills using the same exact process as NFTs.
A real estate NFT token is always worth the same price as the underlying real estate and represents a guarantee of ownership of the underlying estate. This means, whomever buys a real estate NFT token can get the auditor of the NFT to legally transfer the rights of the underlying real estate to him/her.
Whomever owns an NFT token has all rights to the underlying real estate asset. Claiming legal ownership to the underlying asset triggers the burning of the NFT token since one cannot have both an NFT token of a real estate property and legal ownership to it at the same time.
One triggers the end of the other. You can transfer your legal ownership to a trusted auditor in exchange for an NFT token or you can transfer your NFT token to the trusted auditor (that minted it so he/she can burn it) in exchange for legal ownership.
The main motivations behind real estate tokenization are financial:
You can use your real estate token as a collateral to borrow money. You might be able to do this without tokenizing your real estate, but the blockchain gives you access to the whole world and you might be able to get much cheaper lending rates than with a normal bank.
You can use it as a guarantee of trust in a trust bounty: PaySwap enables businesses to create trust through trust bounties which are mechanisms through which they put a certain amount of value on the line and take the risk of all/part of that value being taken away by the PaySwap community in the event they were ever to violate certain terms they promise not to violate. You can learn more about trust bounties on the page below:
You can use your real estate token as a symbol of status.
You can transfer it to your Will contract in order to leave the underlying real estate to your heirs whenever you die
You can use it to claim your rights to purchase the equivalent piece of the Red Pill Metaverse. You can learn more about the Red Pill Metaverse on the page below:
You can avoid paying property taxes
etc.
Like previously stated, it is all about transferring your legal rights to the real estate property over to a trusted party which should be a real estate auditor on PaySwap. In exchange for that transfer, you get an NFT minted from the auditor helper contract. Whenever a real estate NFT holder wishes to legally transfer the rights to the underlying property from the auditor to him/her, that NFT would have to be burnt before the transfer.
An auditor willing to help users tokenize their real estate properties will need to associate with or become a trusted party in which users will be confident enough to trust that properties tokenized by such party will be legally transferred to whomever holds their NFT tokens whenever he/she wishes.
There are multiple ways an auditor can create such a trust:
An auditor creates a company to which all the tokenized real estate properties are transferred over to and in exchange those properties' former legal owners would get a share of the company equivalent to their properties' shares in the total portfolio owned by the company.
For instance, if an auditor tokenized a portfolio of properties worth a total of 1 million USD, that would be done through a legal transfer of ownership of each of those properties to a company created by the auditor. In exchange, each former legal owner of those properties would get a token representing their properties as well as their legal partnerships with the company created by the auditor. The auditor should not own any share of the company unless he/she has also transferred legal ownership of a previous property over to the company. A user that owns a token to a property worth 100,000 USD in such a portfolio, would have a share in the company worth 10% since his/her property's price is equivalent to 10% of the portfolio of the company.
In this model, users that tokenize their real estate can trust to have their properties legal rights transferred over to whomever holds the NFTs of those properties and wishes the rights transferred over to them. Also, users who buy NFTs minted by such an entity would also trust they can claim legal ownership of the underlying properties whenever they want.
We consider this model to be the most trustworthy since each of the partners of the company that legally owns the entire portfolio of real estate properties, is also a property NFT holder and therefore has a huge incentive to not prevent any NFT owner to claim legal ownership of his/her NFT's underlying property.
We recommend the legal entity created by the real estate auditor to be a non profit in order to avoid having to pay any property taxes of the tokenized properties.
Auditors transfer the legal ownership to their own companies in exchange for an NFT token that they mint to the users from the auditor helper contract. Trust is created through a collateral in the trust bounties contract. The higher the collateral, the more trust it creates for the users.
Auditors would have to make themselves legally liable in such a way that they would face serious jail time in the event they were ever to steal users' properties and render those users' NFT tokens worthless
In order to receive tokenization requests, you would have to deploy your auditor contract and set it up as a real estate auditor contract. Here is a step by step guide to doing that:
Follow the guide on the page below to update your auditor's category and application link
Once you've transferred your user's property legal ownership to a trusted entity, the next step is to deliver him/her the token of that property. To do so:
Go to your auditor contract, make sure you select a currency (we picked the USD currency for our example) and then go to the contract's control panel menu. Click on the Create/Update Account button
In the form above, we requiring a one time payment of 1000 USD from the user (so we set the Amount Receivable field to 1000 and the Period Receivable field to 0 to signify to the contract that this is not a recurring payment), we inputted the date of the mint, ESG rating of the property as well as our valuation of the property in USD in the Core Ratings field. The Description field contains further explanation about how we got to that estimated valuation and the link field contains a link to photos/videos/3D renderings of the property. Validate the form and reload the page.
Congratulations! This will mint the NFT token to the user. To view the NFT of the account you just created, click on the View NFTs button at the bottom left of your auditor contract's panel.
In case the user fails to pay for your commission, you can delete his/her account which will burn the NFT token.
Also, users can bring back the NFT token to receive legal ownership of the underlying property. Before transferring them the legal ownership, make sure to burn the NFT token first by deleting its account in your auditor contract. To delete an account, click on its ID at the bottom left of your auditor contract's panel like in the image above, then go to your control panel's menu. Click on the Delete Protocol button and confirm the transaction. This will delete the account from your auditor contract and burn its NFT token
