How to end rent
Defi and Crypto will be the death of landlords and rent.
The rent-or-own decision is a tough one. On the one hand, owning means you are building equity and have more control over your living space. But on the other hand, renting can be cheaper and less stressful. It is a shame that you are forced between two bad options to be able to live in a home. Web3 has the potential to add a third option that humanity has never seen before which bridges the flexibility of renting and the ownership of mortgages.
Why do we rent in the first place?
It's obvious why we purchase a home. We do so because we are paying into an asset in which we get ownership. It is an asset that grows in value over time and one that is necessary to live. When the home is fully paid off it is yours and you could sell it to capture back the money you spent on it.
The core reasons we rent:
- You don’t know where you’ll settle down. As a renter, you’re not tied down by location and can move anywhere in the world if your job requires it. Renting also allows you to live in many different neighborhoods and experience them before deciding on one for good.
- You can’t afford a down payment on a home (or build equity). It’s true that homeowners reap the benefits of building equity over time, but let’s be honest: The average American doesn’t have enough money saved up for even a 20% down payment on their first home! Homeownership is out of reach for so many people — but renting isn’t!
- Real estate is illiquid; housing markets move slowly and sometimes unpredictably, making buying an investment property after selling another one difficult or impossible at times
While the first two reasons could be the reason you decided to rent. We believe the core issue is illiquid real estate. If something is illiquid it means that it is not easily converted into cash.
As of 2022, the average homeownership duration has risen to roughly 10.5–13 years.
What makes real estate illiquid?
- Lack of Public Markets: Contrary to most securities, most real estate transactions are done in private markets. Whereas public markets offer daily pricing and extensive consumer knowledge, private markets are priced on a “as-needed” basis and lack transparency. Private markets are harder to access as well, as many private markets require a degree of credibility or status to enter into.
- Difficulty of Transacting: As you may be aware, real estate closings require several interested parties, and a lot of paperwork. Between structuring an offering, arranging financing, and gathering necessary due diligence items, the process could take weeks, only contributing to lack of ability to turn real estate into cash quickly.
- Access to Capital: There is no question that real estate can be expensive. When transactions require significant pooling of capital, in the form of both equity and debt, transactions move slower. During the operational phase, while equity owners may have difficulty finding a buyer for their respective interest, lenders may put covenants on how the property is managed financially.
These reasons and many more such as transaction costs, demand pressure and inventory risk, and inability to find buyers and sellers all add to the illiquid nature of real estate.
Why liquidity is the cause of renting
Why would you rent a home if you could purchase and sell one instantly like a stock, you could purchase one as easily as you purchase an item on amazon, and you only needed a down payment of a month's rent? The clear answer is you wouldn't rent.
Renting is a premium charged by landlords for going through the ownership process of a home.
The power of cryptocurrency is that it enables transactions that fix many of the problems that plague the real estate industry.
How Crypto and Defi will kill rent
Cryptocurrencies and decentralized finance(Defi) have the potential to automate nearly the entire real estate ecosystem. It can remove the middlemen of real estate that currently exist while making transaction speeds nearly instant. Without any of these middlemen, ownership can be transferred in seconds, not months or even years. All while bringing the barrier to entry to a month's rent, not 20% a downpayment.
The future is coming.
The future is coming, and it’s not far off, either. The future of real estate will be based on the blockchain and smart contracts. There are a lot of cryptocurrency projects in the real estate space that are starting to bring real estate to the blockchain. Propy is selling homes through crypto and providing NFT titles to represent ownership. We will begin to see other sectors of the real estate industry also being built on the blockchain such as mortgages, insurance, etc. Gypsy.city is creating a global network of homes and implementing the ideas discussed in this article. We are building an ecosystem to enable remote workers to become global citizens so that they can travel the world.
Renting level flexibility and getting ownership of real estate will help Gen Z and millennials finally start to capture ownership in real estate. These innovations will make it possible for everyone to be a homeowner.
Gypsy is building the next-gen infrastructure to enable remote workers to become global citizens. Stop living in a box. Break your lease and travel the world.
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