RealT | Fractional Tokenized Real Estate on Ethereum | Ivan on Tech
Welcome to this blockchain and crypto video by Ivan on Tech. Ivan talks about how an exciting new project called RealT is turning ownership of US homes into digital tokens on the Ethereum blockchain, allowing token holders to earn daily rental income.
Highlights of the Ivan on Tech video coverage above:
- RealT tokenizes rent-producing real estate properties into ERC20 tokens
- RealT pays out rent to token holders every 24 hours
- Properties on RealT are specifically curated to be high ROI properties; high rental rates for low property price tags
- RealT’s property management company maintains the property so owning property through RealT is extremely low-maintenance
- If you’ve ever wanted to be a landlord, but don’t have enough capital to buy a whole property, tokens on RealT start at just $63
- Only available to non U.S. citizens
- Properties on RealT are curated by RealT’s team of real estate experts. RealT has specifically chosen properties with a high rent ratio to property cost, meaning that you will receive proportionally more in rental payments than the cost of the property, in comparison to the U.S. Average.
- Properties on RealT are currently distributing between 9.5% and 13.9% return on their cost, which is a higher return than the current supply rates for USDC or Dai.
RealT has announced its first exchange pair on Uniswap!
The flagship property, 9943 Marlowe, has been seeded with $5,000 of liquidity on the Uniswap exchange!
9943 Marlowe RealToken holders can now go to Uniswap.Exchange and instantly buy or sell Marlowe RealTokens with ETH. The current 9943 Marlowe Uniswap pool is seeded with 15% of the total value of the property. As more and more 9943 Marlowe tokens are distributed across Ethereum, RealT will grow the liquidity inside of the Uniswap exchange as well.
This should come in stark contrast to traditional real estate, where the costs of illiquidity can reduce the price of an asset up to 20–30%. Not only that, but traditional real estate sales can take 30 days or more to settle, often much longer for higher valued assets.
Thanks to the power of Open Finance, the exchange of real estate is undergoing a paradigm shift.
A New Asset: 9943 Marlowe RealToken Pool Share Token
Uniswap Exchange operates by holding two assets inside a trading pair. The valuation of each asset is a function of the total value in each pool. For example, if Tokens A is worth $100, and Token B is worth $2, then there will be 50x the number of token in Pool A and Pool B, in order to keep two pools of assets that are equally valued.
Uniswap liquidity grows by liquidity providers submitting an equal-value amount of both assets to the pools. The larger the pools, the more the liquidity, and the less slippage for traders.
Read more on this here - https://realt.co/uniswap-liquidity-for-real-estate/
To tokenize U.S. real estate properties, RealT puts each property on inside of its own unique LLC. The purpose of the LLC is to do one thing, and one thing only: Own one single piece of real estate property. The ownership of each LLC is defined by its own unique set of tokens on Ethereum, called RealTokens. The specific RealTokens are shares for a single specific LLC, which ones one property. The LLC is the legal vehicle which bridges ownership of the token, to the ownership of the real estate property.
Because the sole purpose of the LLC is to bridge the RealToken to the property, the LLC can be abstracted away, and the RealToken effectively viewed as a digital deed.
Ownership of the RealTokens is bridged to the ownership of the property.
Real Estate: The Inefficient Market
Three significant factors play into the difficulty of the real estate market:
Real Estate is Expensive
The median U.S. home price is $200,000. The typical 30-year, 4.5% APR mortgage, at $200,000 will cost $365,000, after interest. For a strong ROI, mortgage-based real estate investments make no sense.
As a result, investing in real estate has become exclusively available for wealthy individuals, who have access to the significant capital required to make real estate an attractive investment.
The low-cost alternative for investment into real estate is with REITs. However, a REIT offers no ownership of any property and insufficient exposure to rental revenue.
Expensive Real Estate = Only Wealthy Market Participants
Real Estate has High Transaction Costs
The typical exchange of a U.S. home pays 6% to realtors. The settlement of funds takes 30 days, minimum. Every exchange requires a laborious documentation process of agreements, disclosures, insurance policies and deed transfers.
All of these things contribute to the opportunity costs of capital, as the friction of selling a property increases the barrier one has to overcome to access their capital.
High Transaction Costs = Low Market Participation
Real Estate is a Siloed Marketplace
Selling a house requires manually finding a buyer. Buyers typically must be in the same region as the property being sold, significantly reducing the number of potential buyers.
International investments in real estate are difficult. Capital controls by restrictive governments make investing in U.S. properties nearly impossible. Additionally, the complexity and bureaucracy of international capital transfer in the banking system barres the most typical investor in purchasing property abroad.
Siloed Marketplace= Only Local Market Participants
Illiquidity: Real Estate’s Achilles Heel
Illiquidity: The state of an asset that cannot easily be sold or exchanged for cash, without a substantial loss in value
Real estate’s illiquidity comes from:
- The low number of buyers
- High costs of exchange
To offload an illiquid asset, asset owners must wait for the right buyer to come along, or to reduce their price to attract sufficient interest.
This “illiquidity tax” can remove between 20%-30% of the value of illiquid assets.
Solving Real Estate Illiquidity with Tokenization
- Transferring a token is a push-button experience
- Exchange costs the price of gas
- Instant settlement
- Furthest market reach
- The largest market participant pool
- Minimum costs of ownership
- Inclusionary to all investor types
- Enables new financial tools built using the tokens
Receiving Rental Payments
For the first phase of RealT, all listed properties will be rented properties. To prove the reality of tokenized real estate in its fullest, it is important to illustrate the full rights of RealTokens owners. Receiving rental payments from tenants is one of the most salient mechanisms in which full rights over the property are conveyed. While ownership of property via a token is noteworthy; adding in rights to the cash flows generated by the rent from tenants makes things far more interesting.
Daily Rent Payments
With the advent of smart-contracts, there is no reason to retain the archaic system of payment every 30 days. Instead of one lump sum paid out every month, a RealToken Rent Contract will manage the dispersal of funds to RealToken owners, so that they can collect rent daily.
But, how can RealToken Holders be Landlords?
It is unrealistic to expect numerous individuals from across the world will be able to coordinate property management decisions. Instead, a property management company is required to upkeep the property and manage all landlord responsibilities. Property management companies are paid by the rent collected from the tenant and are responsible for converting fiat to USD Stablecoin to send to RealToken holders. Using a property management company allows for minimum necessary involvement on behalf of the RealToken owners. In the most ideal scenario, nothing of significance will ever be asked of RealToken owners, and ownership of the property is as simple as owning a RealToken.
The property management service provider will be paid a cash fee equal to 5% of rents collected on the real property asset held by an LLC and a cash fee equal to 1.5% of the cost of all repairs to a RealT property while the asset is owned by the LLC.
RealT Affiliate Program
Investors in any RealT property on the market get special perks:
- 2% cashback on all RealTokens sold
- VIP access to events and special promotions
- Early notification of new property listings
Anyone who owns just one RealToken is invited to join the Affiliate Program. Begin your real estate investment portfolio, and start earning rental payments and referral rewards to your wallet daily.