In 1990, my parents landed in Brighton Beach, NY after a 20 hour flight from Karachi. They were fresh off the Bush immigration lottery and excited to climb the ladder of the American Dream. That dream started with finding a safe, affordable home, but, like many prospective homeowners, my parents faced daunting and unanticipated financial barriers — credit approvals, employment verification, transaction costs, low liquidity.

Now, almost thirty years later, buying an affordable home in a timely fashion is just as difficult: creditors are increasingly stringent, intermediaries continue to take large cuts throughout the transaction lifecycle, and working and middle class families are locked up in long-term rentals rather than building equity. The only other experience that’s as painstaking, inefficient, and deceptive as buying a home is buying a car. The frustrations that buyers face in our current real estate markets are the result of three main problems concerning accessibility, transaction costs, and liquidity. Meridio aims to alleviate these issues by leveraging Ethereum’s cutting edge smart contract technology.

Accessibility

Real estate ownership and investment has historically been reserved for the wealthy. Since the financial crisis, banks have buckled down to further restrict access to credit for the 99%. To buy the average-priced US home at $370,000, an individual may be required to provide at least 20% down, or almost $75,000. Moreover, home buyers must have excellent credit and be able to demonstrate the financial capability to be locked into a long-term investment — in other words, they must have a reserve of assets, a good job, and not have fallen on hard times in the past seven years. It is challenging enough to get investment exposure to the potential upside of real estate assets without large capital reserves and connections in the industry. Furthermore, most people wouldn’t consider investing in real estate when they can’t afford a home to live in. When potential home buyers are cut off from credit, financing a home becomes virtually impossible.

Transaction Costs

The second barrier to entry are the enormous fees related to purchasing and owning a home, which are brokered by middling middlemen. For the few middle class folks who have the capacity to swim upstream to home ownership, they are faced with significant fees to close the transaction. In 2017, brokers made an estimated $158 billion in revenue on real estate sales in the US alone (IBIS). On average, there are at least eight middlemen involved in a given real estate transaction, who altogether siphon off up to 5% of the home’s value. Amortize that into a loan for single family home and you could be working another 2–5 years just to pay those middlemen off, not to mention insurance and property tax costs. Investing in real estate is no different: REIT brokers usually take 9–10% for commissions and fees, significantly lowering the value of the investment.

Liquidity

Liquidity, the ease to get in and out of an asset, is the last and perhaps most significant barrier to entering the real estate market. For many people who need a home but don’t want to be locked into a property for decades, rent payments are the most liquidity they have available. Renters sign a short term lease and are locked-in for a period, but still face penalties if they exit early. Renters also receive no equity in return for their payments, and all while padding the pockets of the landlord and property owner who can afford to withstand the lack of liquidity. For investors, it can sometimes take years to find a buyer for real estate assets, especially when there is no option to sell or buy a fraction of a property. Additionally, the process of finding real estate investors can be severely limited by the geographical location of the asset. Real estate investment trusts (REITs) are one option for generating liquidity, but there’s always a catch: investors not only face more fee structures, but they’re also subjected to the REIT manager and his or her ability to invest in a portfolio that may not necessarily follow one’s investment ideas, values, and goals.

Stats from EY, Savills, and Forbes

Using Blockchain to Expand Access

The real estate sector is no doubt bound for a disruption — a new way of doing things that makes pricing transparent and that helps working and middle class people not only find shelter, but build wealth. At ConsenSys Real Estate’s Meridio, we firmly believe blockchain technology is that new way.

Simply put, blockchain is a distributed database. It secures user assets and identities through cutting-edge cryptography, so that each transaction in the blockchain system cannot be modified or altered. Blockchain is secure and fraud-resistant by design, and does not need a middleman or third party to moderate and verify transactions. Recently, Bitcoin, Ethereum, and other cryptocurrencies have captivated the world with the increasing price run-up and the promise of high returns. Companies like ConsenSys, however, have long been exploring applications of blockchain technology far beyond currencies or investment mechanisms.

In 2008, Bitcoin emerged as the first blockchain application, introducing the world to a distributed ledger technology that enables a secure and transparent peer-to-peer payment protocol. In 2015, Ethereum was launched as the first generic, programmable, Turing complete blockchain, able to host an endless variety of decentralized applications. As developers realized the ease with which they could program financial logic on the Ethereum blockchain, more and more business models have emerged aiming to tokenize real world assets, including real estate.

Meridio: Inclusive Real Estate Investing

The Meridio team is creating a blockchain platform to improve the dynamics of real estate investing through lower minimums and greater transparency. Our mission is to leverage smart contracts on the Ethereum blockchain to support the investing and trading of real estate assets. By taking traditional assets like real estate, tokenizing them, and storing ownership data on the Ethereum blockchain, we hope to make real estate more accessible and liquid for the average person.

For homeowners and property managers, Meridio will allow them to list their properties on the platform and crowdfund ownership either partially or in whole using tokens. For investors, Meridio will reduce the overhead in investing in property and enable ample liquidity for users to enter and exit the market as they please.

The real estate sector’s major inefficiencies — surrounding access, transaction costs, and liquidity — are pain points for investors and property owners, regardless of class. Industry experts and thought leaders in the blockchain space have already identified the various ways blockchain technology can revolutionize the real estate market. At ConsenSys, we obsess over these problems and possibilities every day. Most recently, we helped implement a digital document signing solution on the Ethereum blockchain to expedite and optimize the title and deed transfer process. Our team is bringing substantial experience and thought leadership in blockchain and real estate to tackle issues including real estate private equity and technology deployments. Meridio is committed to empowering end consumers by increasing accessibility, transparency, and profitability, and minimizing the need for fee-seeking middlemen.

Stay tuned for updates on our progress as we venture into new use-cases. 2018 is the year to make the dream of owning real estate more attainable again for everyone.