A real estate token is usually a membership interest in a company that owns one building, sold under a securities-law exemption. Here is how the structure works, how rent reaches you, what the fees and US investor rules are, and how it compares with a REIT.
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Usually a share of a company, not a share of a building. The common structure puts one property into its own limited liability company or special-purpose vehicle (SPV). The LLC holds the deed and any mortgage, and its ownership is split into membership interests. Each token is one of those interests, recorded on a blockchain instead of only in the company’s books. The token gives you the economic rights the operating agreement grants: a share of net rent and of the sale proceeds. Voting rights, if any, are usually narrow; a manager runs the property.
Because the token is an investment in a company run by others, it is a security, and US securities law applies however it is recorded. A dated example of the structure: RealT’s 2019 offering memorandum for one house in Detroit offered 1,000 membership interests in a series of a Delaware series LLC, “in the form of cryptographic digital tokens”, at $63.75 each (RealT memorandum, Aug 15, 2019). Later offerings can use different terms; it is shown for the structure, not as a recommendation.
Scope: tokenized interests in income-producing property, compared with REITs and non-token crowdfunding, for a US investor, as of October 26, 2026. It does not cover mortgage tokens, real estate debt funds or buying a home. Education, not advice. How tokens work in general is in tokenization explained.
Rent flows up through the same companies that ownership flows down. Every party on the way can take a fee or a first claim:
The 2019 RealT memorandum shows how this looks in practice: a third-party property manager paid 5% of rents collected and 1.5% of repair costs, and net rent converted to the Dai stablecoin and paid to token wallets daily over the month after each record date. The same document says “No secondary market currently exists” for the tokens and that investors may have to hold them indefinitely.
Tax follows the company, not the token: an LLC with at least two members is taxed as a partnership by default (IRS), so income and expenses pass through to members. Check the offering documents for how the issuer reports to you.
It depends on the exemption the issuer uses, and that is set in each offering, not by the blockchain. The main routes, from the SEC’s own pages:
| Exemption | Who can invest | Size limit | Resale and reporting |
|---|---|---|---|
| Reg D, Rule 506(c) | Accredited investors only, verified by the issuer; advertising allowed | None | Restricted securities; generally a one-year hold for non-reporting issuers (Rule 144) |
| Reg D, Rule 506(b) | Accredited investors plus up to 35 financially sophisticated non-accredited purchasers in any 90-day period; no general advertising | None | Restricted securities, as above |
| Reg A, Tier 2 (“Reg A+”) | Non-accredited individuals: generally capped at 10% of the greater of annual income or net worth, unless the securities will be exchange-listed upon qualification | $75M per 12 months | Annual (Form 1-K) and semiannual (1-SA) reports; resale terms in the offering circular |
| Reg Crowdfunding | Anyone, with investment limits for non-accredited buyers; only through a registered portal or broker-dealer | $5M per 12 months | Generally no resale for one year |
| Reg S | Buyers outside the US, in an offshore transaction, with no selling efforts aimed at the US | None set by Reg S | Resales into the US not covered |
An accredited investor, for an individual, means income over $200,000 ($300,000 with a spouse or partner) in each of the last two years with a reasonable expectation of the same this year, net worth over $1 million excluding the primary residence, or a Series 7, 65 or 82 license in good standing (SEC). Issuers of Reg D offerings file a short notice, Form D, within 15 days of the first sale; the SEC does not approve the offering. The same exemption logic governs tokenized stocks, covered in can US investors buy tokenized stocks?
Yes, in a narrow, legal sense: they can buy a membership interest in the US company that owns the building, if the issuer sells it to them offshore under Regulation S. That safe harbor requires an “offshore transaction” and no selling efforts directed at the US, and it does not cover resales back into the US (SEC). The 2019 RealT memorandum used exactly this split: US persons had to prove accredited status and buy at least 10 tokens ($637.50), while non-US persons under Regulation S could buy one ($63.75).
What the buyer abroad does not get: the deed, a say in running the building, or a US exchange to sell on. They also take on their own country’s securities and tax rules, which the memorandum told investors to check for themselves. So the true version of the claim is “a fractional interest in a company that owns one US property, with limited resale”, not a stake in a building traded like a share.
Hypothetical illustration, not a real offering. A $1,000,000 rental owned by an LLC with no mortgage; you buy $1,000 of tokens, 0.1% of the company. Rent is $7,000 a month. Costs are assumptions in a typical range; your offering’s numbers will differ.
| Line | Arithmetic | Whole property | Your 0.1% |
|---|---|---|---|
| Gross rent | $7,000 × 12 | $84,000 | $84.00 |
| Property manager, 8% of rent | $84,000 × 8% | −$6,720 | −$6.72 |
| Property tax (1.5% of value) | $1,000,000 × 1.5% | −$15,000 | −$15.00 |
| Insurance | assumed | −$4,000 | −$4.00 |
| Maintenance and repairs | assumed | −$6,000 | −$6.00 |
| Platform or asset-management fee (0.5% of value) | $1,000,000 × 0.5% | −$5,000 | −$5.00 |
| Net income to token holders | $84,000 − $36,720 | $47,280 | $47.28 (4.73%) |
| One month vacant | rent $77,000; manager fee $6,160; other costs unchanged | $40,840 | $40.84 (4.08%) |
| Property value falls 10% | $1,000,000 × 0.9 | $900,000 | $900 stake |
Three readings. First, costs take 44% of the rent before you see a dollar. Second, one empty month (8.3% of the rent) cuts your income by 13.6%, because the tax, insurance and fees keep running. Third, a 10% fall in value is a 10% loss on an unlevered LLC; with a $500,000 mortgage the same fall would cut owners’ equity from $500,000 to $400,000, a 20% loss, and interest would come out of the rent first. Fees at purchase matter too: if 5% of what investors pay goes to offering costs rather than the property, the 4.73% becomes 4.73% × 0.95 = 4.49% on your money. The REIT bar is an index dividend yield (Nareit), shown for scale; it is not the same measure as a single property’s net rent.
| Property token (Reg D or Reg S) | Reg A+ or crowdfunding platform | Listed REIT fund (e.g. VNQ) | Owning a rental yourself | |
|---|---|---|---|---|
| What you own | Membership interest in one property’s LLC | Shares in an LLC or fund, often one property each | Shares of a fund holding listed REITs (VNQ: 139 stocks) | The deed |
| Who can buy | Usually accredited (US) or non-US buyers | Anyone, within investment limits | Anyone with a brokerage account | Anyone with the cash or a mortgage |
| Diversification | One building | One building per offering, unless you buy many | 139 REIT and real estate stocks, each owning many buildings | One building |
| Selling | Restricted; approved wallets; thin or no market | Limited; resale rules and platform terms | Any trading day at a market price | Weeks to months, with sale costs |
| Price you see | Offering price or the manager’s appraisal | Manager’s valuation | Market price during trading hours | An appraisal when you sell |
| Costs | Property manager, platform and offering fees per memorandum | Fees set in each offering circular | 0.13% a year (VNQ) | All costs and your time |
| Reporting | Whatever the operating agreement promises | Reg A Tier 2: annual and semiannual reports | SEC-registered fund and listed REIT filings | Your own books |
| Tax | Partnership pass-through by default (multi-member LLC) | Depends on the vehicle | REIT dividends: 78% ordinary income in 2024 (Nareit) | Rental income, depreciation |
A diversified listed REIT fund offers exchange liquidity and broader property exposure; its fund fee is additional to costs borne inside the underlying REITs, so this table does not establish a total-cost winner; the token offers a single chosen property, smaller minimums than a private deal, and on-chain payouts. Listed REITs carry their own trade-off: the FTSE Nareit All Equity REITs index returned 10.82% a year from 1972 to 2025 against 11.15% for the S&P 500, but only 5.77% against 14.82% over the last 10 years, and it fell 24.95% in 2022 (Nareit). A private token shows no such daily drop because it has no daily price, which hides risk rather than removing it. Fund details are in VNQ vs SCHH and the VNQ page.
Token holders are owners of the company, so they are last in line. Cash goes to the lender, taxes and running costs before any distribution. What each failure usually means:
| If this happens | What it means for token holders |
|---|---|
| Vacancy or unpaid rent | Distributions shrink or stop while costs continue; the LLC may draw on reserves or ask for more money if the agreement allows |
| Mortgage default | The lender can foreclose; equity, which is what tokens represent, is wiped out first |
| Big repair or code problems | Paid from rent or reserves; local authorities can act against the owner |
| Manager or platform fails | The LLC still owns the deed, but someone must run it; the operating agreement decides how a manager is replaced |
| Token platform or smart contract fails | Ownership depends on whether the LLC keeps an off-chain register of members |
| You need to sell | Restricted period, approved buyers only, possibly no market: plan to hold for years |
Local code enforcement or a court order can redirect or stop rent at a property. Token-holder distributions depend on the cash legally available after property costs and any court restrictions: when rent stops at the property, it stops on the blockchain too.
It can fit an accredited or non-US investor who wants a specific property, accepts years of illiquidity, reads the operating agreement, and already holds crypto wallets for the payouts. It is a small, concentrated bet on one building and one manager.
Counterexample: a homeowner with a $300,000 portfolio who wants “some real estate”. Their house is already a large real estate position, and a US total-market fund already held 2.1% in real estate stocks (Vanguard VTI, Sep 30, 2026); a token adds one more building in one town, plus manager and platform risk, with money they may not be able to get back for years. For them the useful question comes first: how much real estate they already own, worked through in how much of my portfolio should be in real estate?
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Yes, as a securities offering. Issuers sell property tokens under SEC exemptions such as Regulation D (usually accredited investors), Regulation A (up to $75 million a year in Tier 2) or Regulation Crowdfunding (up to $5 million), each with its own investor and resale rules.
Usually not directly. The token is typically a membership interest in an LLC that holds the deed, so you own part of the company and its income, under the terms of its operating agreement.
Only in offerings that allow it: Regulation A Tier 2 deals cap non-accredited buyers at 10% of the greater of income or net worth, and crowdfunding deals have investment limits. Rule 506(c) deals are for verified accredited investors only.
The property manager collects rent, the LLC pays costs and fees, and the rest is paid to token holders pro rata. In RealT’s 2019 memorandum, net rent was converted to the Dai stablecoin and paid daily after a 5% property-management fee.
Rarely. Tokens from Reg D private placements are restricted securities, generally held one year before public resale for non-reporting issuers; they move only between approved wallets, and there may be no market.
It is different. A listed REIT fund such as VNQ holds 139 stocks, trades daily and costs 0.13% a year; a token is one property with fees per offering and limited resale. REITs swing with stocks: −24.95% in 2022 (Nareit).
Payouts shrink or stop while costs continue. In a foreclosure the lender is paid first, and the owners’ equity that tokens represent can be wiped out.
Yes, if an issuer sells to them offshore under Regulation S; RealT’s 2019 memorandum allowed non-US persons to buy a single $63.75 token. Their own country’s rules and taxes also apply, and resales into the US are not covered.
It depends on the vehicle. An LLC with at least two members is taxed as a partnership by default, so income passes through to members; check each offering’s documents and a tax adviser.
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Educational content, not investment advice. Examples are illustrative; past performance does not guarantee future results.