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Traditionally, multifamily investing has been reserved for accredited investors and people with deep pockets due to the tremendous amount of money required to invest.
But cryptocurrency, an exclusively digital currency that is based on a ledger system called blockchain, has the potential to make an extraordinary impact on multifamily.
During the 2021 AIM session Personal Finance: Cryptocurrency Workshop, panelists discussed cryptocurrency and its emergence into the arena of multifamily investments, demystifying the often confusing components that accompany this new way of doing business.
To make it understandable for everyday people, panelists shared the basics of cryptocurrency and how it will affect the multifamily industry.
For starters, transactions made with bitcoin or ethereum, common types of cryptocurrency, are done via a blockchain platform, which is a system of recording information in a way that makes it difficult to hack or alter.
Each block in the chain contains a number of transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is added to every participant's ledger, which is the infrastructure and protocols that allows simultaneous access, validation, and record updating across a network that spans multiple entities or locations.
“Anyone operating on a blockchain platform has access to all of the transactions that have happened on that platform and its whole history,” said Jon Slemp, Co-founder of Rhover. “There’s no single party that can update that blockchain without consensus from the rest of the network, which is a core concept here.”
According to Slemp, this allows for transparent, seamless peer-to-peer transactions. By using blockchain and cryptocurrency, emotions and biases are removed, making investment in multifamily available to more individuals.
Why not just stick with money transactions that have worked for years? What’s the big difference?
“The biggest difference is who’s controlling it,” Slemp said. “Cryptocurrency is issued by internet data blockchain protocols whereas money is issued by central authorities. Cryptocurrency transactions are not only more secure, but they allow for value transfer without an intermediating party.”
Blockchain also allows users to create “smart contracts,” which are digital contracts that reside on the platform. Smart contracts automatically execute, control and document legally relevant events and actions according to the terms of the agreement.
But how is it possible to invest without a banking institution or intermediary?
Decentralized Finance, commonly referred to as DeFi, is a blockchain-based form of finance that does not rely on central financial intermediaries such as brokerages, exchanges or banks to offer traditional financial instruments. Instead, it utilizes the smart contracts on blockchains, the most common being Ethereum, a decentralized, open-source blockchain with smart contract functionality specifically designed for mortgage transactions
“DeFi has transcended what the traditional financial system looks at for credit worthiness, opening up financial services,” Slemp said. “I think this presents a massive opportunity for real estate. These ideas made us question and transform the concept of ownership and value.”
The key to allowing cryptocurrency as a method of investment is based upon a mutual agreement. Meaning that all parties involved have agreed that it’s acceptable per the terms of their contract. And although cryptocurrency is barely entering its teenage years, the benefits of utilizing it are mounting.
Panelists noted that new currencies are now being created that cater to investment-specific transactions, and with more people investing in cryptocurrency, the value has risen. As it stands now, you can make lots of money fairly quickly, which equates to more purchasing power for future investments.
Furthermore, there is greater privacy when dealing in cryptocurrency transactions, which allows users to readily access assets, securing them and simplifying the process every step of the way.
- Jon Slemp, Co-Founder of Rhove
- Greg Lozinak, COO at Hamilton Point Investments