Lofty: Become A Homeowner For $50
Invest in tokenized real estate for only $50 and earn passive income
Owning a home in America has long been considered the safest way to build your net worth. There are over 83 million American homeowners as of 2021 but the dream of homeownership is continuing to be unattainable for many (source). In March the National Association of Realtors (NAR) provided data showing the median home price rose over 15% in a year to $375,000 (source). Between the largest home price increase in over two decades and astronomical inflation affecting mortgage interest rates the prospect of buying a house is becoming more daunting. This coupled with extreme volatility and uncertainty in nearly all markets, from stocks to crypto, leave investors with few places to store their disposable income. Real estate has long been viewed as a safe haven asset against volatility but with the barriers of a large down payment, burgeoning interest rates, and a shortage of homes this option is not pragmatic for many. One of the reasons we are so excited about web3 is due to its ability to democratize investing, provide ownership, and create liquidity from historically inaccessible and illiquid markets. Welcome Lofty to the conversation! Lofty is the future of real estate investing and allows users to invest in tokenized real estate for only $50 and sell at any time they would like. So, how does this work?
Lofty does not purchase properties but instead acts as a marketplace like AirBnb, Uber, or Amazon where they connect buyers and sellers.
Step 1: A seller submits their property to be sold on the Lofty marketplace. The property is either approved or denied based on factors like occupancy status, condition, location, rental history, and more.
Step 2: Once approved, the property is put under contract by a newly formed LLC. The LLC is then tokenized into individual $50 tokens on the Algorand blockchain.
Step 3: A professional property inspection company will inspect the property and provide a report. If repairs are needed, the seller will make the repairs before closing or provide a credit to the LLC.
Step 4: The property is listed on the Lofty marketplace. Once the property is fully funded, the LLC will close on the property with the Title Company and the deed will be transferred to the new LLC.
There are currently less than 5 sellers that can list properties on the marketplace to ensure security for users. “These sellers all have years of experience rehabbing and selling turnkey properties with a great track record.” Users can sift through the Lofty marketplace and filter by location, property type, cash on cash return, projected IRR, and more to find the specific investment class they are looking for. Users can then purchase tokens for whatever property they are interested in with several cryptocurrencies (ALGO, USDCa, and STBL), credit/debit card, and a bank or wire transfer. Once the user purchases tokens they will then be entitled to rental income (which is paid daily), appreciation in the property, tax benefits from depreciation, and governance over property decisions. What would a web3 company be without a component of governance mixed in and that is truly what makes it so special.
How does governance work?
Token holders vote on all decisions of the properties they’re owners of. These decisions may include when to increase rents, when to sell the property, whether to evict a tenant or offer them cash for keys, and more. All co-owners must fill out a survey after their first investment specifying the decisions they’d like to make in certain situations.
The winning decision is decided by a 60% Supermajority vote and the winning vote is sent to the property manager who carries out the decision.
Users can purchase up to 10% of the total tokens in a property and that will increase to 15% if the property has not sold out in three days. This is to ensure a democratic voting structure where no one user has too much power over the outcome of the property.
Additionally, Lofty provides users with a comprehensive dashboard to track their investments and rental income. Token price changes take place on a monthly basis one month after the property sale is recorded on MLS (Multiple Listing Service) and are determined by using the HouseCanary Automated Valuation Model (AVM). “HouseCanary is the largest property valuation company and is used by the majority of single-family hedge funds like Invitation Homes and Amherst Holdings.”
To determine the valuation of a property over time, we take the rate-of-change of the HouseCanary AVM of the property on a monthly basis, then apply that same rate-of-change to the principal value of your tokens on a monthly basis. For example, if HouseCanary’s valuation of your property is $100,000 and then one month later it’s $105,000 – your tokens would increase from $50 each to $52.50 each (a 5% increase).
Don’t worry about flying out to St. Louis or Chicago to manage the properties as Lofty provides a reputable local property manager that sources tenants, collects rent, and manages repairs. “Each property has a 5% Maintenance Reserve to handle any repairs. If any portion of the Maintenance Reserve is used, it will be replenished using 10% of the monthly cash flow until it is full again.”
The days of investing in any stock or cryptocurrency and sitting back to watch the green graph continue to go up and to the right are unfortunately over for now. The economy moves in cycles and due to trillions of dollars printed during the pandemic (21% of all US dollars in circulation were printed in 2020!), the war in Ukraine, and the Fed raising interest rates, the economy is in a fickle place with few safe havens to place your money. This is why companies like Lofty that democratize access to buying real estate are so important. Enabling people, who otherwise would not have access to this asset class, to benefit from appreciation in real estate prices, collect rental income, and gain tax benefits is such an important innovation for society. Web3 and the decentralization of real estate is a trend that is here to stay and we will continue to monitor its development closely. We hope some of our readers will be new homeowners after they are done reading this!
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