Comparison between Real Estate Investment Trusts (REITs) & Real Estate Tokens (RETs)
Primer: This article seeks to illuminate the differences between Real Estate Investment Trusts (REITS) and Real Estate Tokens (RETs). REITs are popular investment vehicles for investors to get exposure to properties without actually having to own one directly. How about RETs?
Introduction
We’re back with CitaDAO! For those who can’t remember, here’s a quick refresher:
CitaDAO is a decentralized platform to create sustainable yield farms powered by real estate globally. There are some issues with the existing real estate ecosystem, such as the lack of liquidity, access limitations and lack of composability. They intend to solve this by creating composability with other DeFi primitives and projects that increase the use cases for real estate tokens.
We’ve covered CitaDAO in the past with different articles:
CitaDAO AMA with CRE8R DAO
Conversations with the Coop - Joel Lin - CitaDAO
Blockchain Real Estate: CitaDAO on DeFi Powered by Chainlink
CitaDAO AMA with BTA Ventures
In this article, we’re going to cover the differences between the more traditional investment vehicle for real estate - REITS - and the innovative RETs by CitaDAO. Let’s take a look.
Real Estate Investment Trusts (REITs)
As an asset class, real estate is often out of reach for retail investors. In the 1960s, the US Congress established Real Estate Investment Trusts (REITs) as a way for investors to gain access to income-producing real estate at a much more affordable level.
REITs comprise of a bundle of properties that are selected and managed by REIT managers. The initial purchase of the properties is funded by a mix of equity and debt. The debt comes with interest and it is up to the REIT manager’s skill to navigate the REIT through times of interest rate changes.
The properties in a REIT produce rental income and this is distributed to shareholders at fixed intervals. REITs are publicly traded on exchanges and a brokerage account is required to trade/hold them.
REIT managers are paid a fraction of the Assets Under Management (AUM) of their property portfolio. There have been cases where unscrupulous REIT managers acquire properties that do not accrue value to shareholders just to boost the remuneration they receive. This is known as the Principal-Agent Problem.
Real Estate Tokens (RETs)
Blockchain technology has plenty of use cases. One of the applications of blockchain technology in the real estate industry is real estate tokenization. This involves the creation of Real Estate Tokens (RETs) that are backed by physical real estate.
The introduction of these RETs into the burgeoning Decentralized Finance (DeFi) ecosystem adds breadth to the system. Traders and investors are now able to permissionlessly own real estate on-chain. In a similar vein, these tokens could be used as “money legos” by other projects, further amplifying the composability of the entire DeFi ecosystem.
From a temporal perspective, RETs are created to address some of the shortfalls of REITs, its predecessor. Check out our infographics below for more on the differences between REITs and RETs!
Infographic
Conclusion
We hope this will at least clarify the main differences between REITs and RETs. Perhaps RET represents the next evolution in which retail investors like you and me can get exposure to real estate through the innovative use of blockchain technologies.
If you’re interested to know how this works, join the knights of CitaDAO in their Discord.
All information presented above is for educational purposes only and should not be taken as investment advice. Summaries are prepared by The Reading Ape. While reasonable efforts are made to provide accurate content, any errors in interpreting and summarizing the source material are ours alone. We disclaim any liability associated with the use of our content.