Real Estate Investing using Blockchain

Disclaimer: This is not financial advice, I am not a financial advisor. Always Do Your Own Research before investing in anything blockchain related or not. I am an innovation maximalist and avid software developer, and I find blockchain development and projects within the space especially intriguing, and I write about them both as a user and someone trying to grok the intricacies of how existing and novel applications are living in a blockchain, and hopefully build a few of these myself.

With the brutal days of lowered token prices at the time of writing, but knowing this is part and parcel of the volatility inherent in the crypto-investment space, non-crypto asset holding using blockchains was an area I started looking into a few months ago. Many people are now realising, as I did back when I started this research, that the power of NFTs to tokenise literally anything, and not just artworks. This meant that any physical asset that could be verified with a tokenised equivalent was fair game for a blockchain-based token market and trading. Specifically real estate was my target when I started this research as one day I’d hope to own my own home myself, and if I could see a path there that married with my interests in blockchain, of course that was a double whammy win for me.

To that end, I am fond of Algorand’s blockchain and came across a very interesting tokenised real estate application known as Lofty.AI. Lofty uses an AI algorithm (Deep Learning is also another interest area of mine) to identify prospective properties that it predicts will appreciate in value over time. Lofty’s team then uses this in projections for a rental income stream and overall return income for these, and offering a set number of tokens working like the equivalent of shares in the individual legal entity that would act as the management for the property on behalf of all token holders. Token holders are distributed rent equivalent to their proportionate number of tokens for each property held, credited daily into their holding account. Rents accumulated into their account can either be redeemed to your bank account via bank transfer or applied towards the purchase of further tokens available for that or other properties listed.**

Lofty’s gained awesome traction not just by grabbing the prestigious “YCombinator-backed” title as a startup, but for overcoming the legal barriers that surround investment in a token-based ecosystem on a blockchain. Their website has a good block with a primer article on tokenised real estate and is transparent by having an active top level link to the whitepaper on how the Lofty AI algorithm works to curate and identify high-potential property areas in which they target for property acquisitions.

The token price for each property listed is set at $50. The property purchase price is then divided by this to create an equal number of tokens which are then offered for sale to general audiences. The estimated yield per token is given by subtracting the total costs for upkeep and maintenance by the established property management agency against the rental yield to give an average daily yield. From the time a property is occupied, the proportional rent accumulated is reflected in your account balance as a token holder, and you’re not limited to only one token, although there is a cap of about 15% I believe to any one owner. They use independent valuation verification site data to continuously value the properties and that’s reflected in the token prices sometimes being valued north or south of $50 as time passes. The target investments, if their thesis and algorithm are correct, should see the listed properties prices going up over time, which in turn should lead to older tokens being priced consistently higher than the $50 initial sell price. Viewing the properties available, they actively have multiple “sold out” properties, as well as a healthy number with still available tokens as well as new properties added frequently.

A really nice feature is that you can use the accumulated balance of rents paid in your account towards buying additional tokens in other properties. This is a nice alternative if long term wealth is the goal as having to pay the fiat bank transfer fees to have these remitted to your own bank account is never fun. **

For me, this brings up a good path for building a “portfolio” similar to what a Real Estate Exchange Traded Fund would do on your behalf, except you’re not all or nothing with the entire property portfolio selected on your behalf, just the portions of properties you pick for the proportion you wish to invest. I think this would make a good balance of portfolio even better if the overall geography for the properties was diversified as well, so I’m looking forward to when they bring the properties offered to more states and even outside the US territory.

The real estate properties available on its website can be purchased with very little knowledge of blockchain at all, although I’ve definitely done a Google Maps satellite view of the properties and locations just to understand what sort of area they were located in and doing my own layman’s assessment of if I thought it was a worthwhile investment their algorithm was giving them the heads up on as appreciating in value over time.

As mentioned, at this time the team have focused only on specific US property submarkets, as this is where their AI algorithm has been measured as most successful in its predictions, and makes sense given the Lofty.AI team is US based, backed and funded. Their founder Max Ball did indicate on their Discord server that their intention is to move globally with real estate offerings eventually. Hopefully they choose Australia soon as a candidate for this.

They require a few bits of personal information for KYC and AML purposes to comply with US laws, but I think that would be expected for any real-world asset that moves its ownership and trading markets into a blockchain architecture to comply with local legislation in most countries. What’s really nice is that purchases are available even if you’re not a US Citizen or Resident. You’re expected to pay with US dollars for tokens though, either via credit/debit card or bank transfer. The ability to pay with crypto is listed as “coming soon” but has been this way for a few months so I guess the legal barriers to that are still challenging the team to find workarounds for.

The easiest web wallet to setup for Algorand I’ve seen to date is My Algo Web Wallet, and there’s a video from their initial Hackathon launch, which even though it says its targeted at developers, is easy enough for anyone who’s used cryptocurrency self-custody wallets before. As a sidenote, while finding the links for My Algo Web Wallet, I saw it now also supports wAlgo, a fully-collaterised, interest bearing, wrapped synthetic version of Algorand meant to support DeFi use cases, so that I’ll be looking at more later on as well.

Algorand isn’t the exclusive territory for blockchain Real Estate investing. There’s also RealT on the Ethereum network. They’ve taken the approach of using the Gnosis Chain (formerly known as xDai prior to the merger with Gnosis) to overcome the high gas costs on mainnet Ethereum, but do allow you to move your tokens back to Ethereum mainnet if you are more secure keeping your tokens there. They also allow you to direct funds generated from rents towards new properties, but require a new e-signature for each property, and it’s a little confusing how this happens from their site usage.

If you want comparisons to both blockchain and non-blockchain equivalents for shared asset ownership (tokenised and non-tokenised) the following list was shared with me on Lofty’s discord by a fellow member, which I did some initial looks at but nothing deep yet:

  • Arrived Homes (only for US citizens, or persons with a US Tax ID)
  • GroundFloor - This app did allow a non-US signup, but scared me away when I read “International users must fund their account via wire with a minimum transfer amount of $5,000.00 USD.*”. I’m a $50 investment kinda guy, so sorry, not for me.
  • Rally Road - for investing in tokenised assets in general, they have a mobile app so that’s cool to note, but I couldn’t get past it requiring a US Phone Number in the KYC details to see more of the site
  • Collectable - for sport collectables, also required a US number for me to download the app, so didn’t get to look too much into it
  • Republic - a startup investment platform, details on how it works make it sound more traditional in nature though as a custodial surface to multiple investments
  • WeFunder - an equity crowdfunding platform. Their tagline “Invest in founders you believe in” sounds promising but not sure how this compares to the GoFundMe or KickStarter or other crowdfunding platforms already in this space
  • Mainvest - similar to WeFunder, tagging “passive income from small business investment across America”
  • NextSeed - again, no big different from MainVest and WeFunder from my layman’s eyes.

Let me know if there’s any other platforms you’ve come across, preferably in the blockchain space, but doesn’t have to be to be interesting, and let me know about it if you’re keen on sharing the insight.

** Update: Non-US investors can now do rent withdrawals in Algorand! I haven’t done this yet myself to verify the experience, but this might be a means to accumulate Algos by “buying the dip” on Algorand if your own thesis is that the current price is lower than you speculate it can reach.

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