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As of 2019, RealT’s vision is to revolutionize the real estate market and be a major player in building the finance of the future. This real estate blockchain use case is simple: Let anyone create a passive income by buying fractional real estate for $50.
In previous articles, we have examined the process and strategy used by RealT :
- RealT founders’ background
- How Tokenized Securities started
- RealT’s vision for US Real Estate in 2022
- How RealT pioneered DeFi for Security tokens
In this series, we haven’t yet mentioned the all-important key success factor: disintermediation. RealT tries to eliminate as many middlemen in the value chain at every stage as possible. These savings allow us to offer a property at the lowest price and the highest possible return.
So how does tokenized real estate work in practice?
Disintermediating Real Estate Investment
Today, RealT negotiates directly with property sellers. We do not deal with middlemen or brokers who might take a commission on the transaction or inflate the sale price. Other competitors go even further: they find a property at $50,000, buy it with company X, and a few weeks later, sell it to their community for $90,000. They take a commission of $40,000 and a listing commission of about $4,500. To continue to justify attractive returns, these platforms include different parameters to inflate the return artificially. You can read our article to learn more about how RealT properly structures property investment returns.
RealT does not engage in this kind of practice. We maximize value to our investors by charging a flat 10% commission when tokenizing the property.
As we explained in previous episodes, RealT decided to focus on a specific region, the Rust Belt, and more specifically on Detroit. This property management strategy allows the company to optimize its costs and staff. For example, having over 200 properties in the same area allows for in-house staffing instead of having different managers in different cities, which would cost much more.
Revenue collection and distribution
We also find this disintermediation optimization in income distribution to token holders. Thanks to the blockchain, RealT can distribute your income every Monday. One day, Michael wants to be able to distribute your payment to you every block. This consistency is possible because of blockchain technology which establishes a transparent, immutable, instantaneous, and disintermediated register making it unnecessary to trust a third party financial institution or local registrar. RealT would never have been able to offer you the distribution of an income so frequently by staying in the traditional banking system because the costs would have been too high.
Financial disintermediation: DeFi
RealT realized synergies with major protocols to create the finance of tomorrow by cutting out many intermediaries.
RMM: DeFi for Real estate
Launched by the company “Commutatio Holding Limited” on April 14, 2022, the RMM is a decentralized mortgage protocol. This innovation revolutionizes the mortgage market. You can take out a loan in two clicks and pay it back at the rate you want without having to go through all the administrative paperwork.
The banking intermediary is eliminated, as this protocol was created in partnership with the AAVE version 2 protocol. It allows lenders to deposit liquidity in two clicks and be paid by users wishing to borrow. Borrowers pay their interest directly to lenders without going through intermediaries who would charge a commission.
Opium Network: decentralized insurance
This decentralized protocol ensures token holders against potential rental vacancies on their real estate portfolio. By giving up a 1% return, this protocol allows you to insure against 9 consecutive months of rental vacancies on a property. Again, you don’t need to put together a tedious file to take out this insurance. Especially in the case of a rental vacancy, you don’t have to spend hours claiming your benefits, as would probably be the case with a traditional insurer. This protocol directly connects users wishing to provide liquidity (by becoming insurers) with policyholders (who want to cover themselves against this risk). Thanks to this disintermediation, the insured only loses one point of return on his real estate assets. The insurer obtains, on average, a 10% return on the liquidity he has provided.
This decentralized protocol allows token holders to exchange their USDC distributions for other synthetic currencies (jCHF, jEUR, jCAD…) to build a balanced and diversified currency portfolio. Again, thanks to disintermediation, this protocol allows you to swap two synthetic currencies at a better rate than going through a traditional bank.
This decentralized protocol allows invoices to be paid directly on the blockchain. Thanks to this technology, the buyer transfers funds directly to the sellers. This service allows sellers to pay only 0.1% in fees. If you want to know more, Request.Network has made a case study about us; you can find it here.
Enter the future of finance with RealT
Today, if you are a token holder, it is because you believe, like RealT, in this finance of tomorrow and in this disintermediated world where value is redistributed to the right players. However, our sales are still financed between 45% and 50% by credit cards. RealT understands that some of our token holders are not comfortable with our other payment methods (Coinbase Commerce & Request.Network) or that others prefer to continue paying by credit card to receive cashback. However, you must understand that this choice directly impacts RealT.
Constraints limiting the growth of RealT
Today we have token holders in over 130 different countries. Depending on the country, the number of intermediaries varies when an investor pays by credit card, and RealT has to pay a 3.5%/4% fee on each order. RealT has stabilized its sales in recent months at around 4 million per month, so these fees represent about $70,000 per month for RealT. As we have seen above, RealT tries to cut out as many middlemen as possible to give you the best deal. Of the 10% RealT takes from the sale, 3.5%/4% evaporates directly into non-value-added intermediaries.
Dependence on a trusted third party
By going through these intermediaries, we are regularly faced with challenges such as :
- limitations on the amount of cash to be collected, which must not be exceeded
- reporting requirements
- funds sometimes taking up to 2 weeks to be deposited in bank accounts
Recently, as explained in a community call, we had to implement new internal processes because of fraudulent behavior. All these challenges mobilize human and financial resources that we could allocate to other projects bringing real added value to our community (launch of the DAO, tokenization in Europe, and all the other features you ask us for in our community calls).
Our utopian goal is to have all our token holders use our decentralized partner Request.Network. This protocol charges a fee of 0.1%, largely absorbable by RealT. In such a scenario, RealT would save more than $68,000 that could be used to hire, for example, at least 4 more employees.
Coinbase would be the intermediate solution since, for several months now, this intermediary has been taking 1% of the funds collected. This amount is much lower than the credit card fees.
These two solutions also help to eliminate fraudulent behavior. Indeed, it is impossible to modify the ledger when you make a transaction on a blockchain. This technology is immutable and unfalsifiable. With a banking institution, though, it is always possible to make a fraudulent complaint.
To begin with, RealT has decided that these fees should be shared between RealT and the token holders. Starting Monday, July 11, an additional 2% fee will be charged for investors who wish to pay by credit card.
The optimal solution: Request.Network
Request.Network has benefits for both parties, and the savings it creates will allow RealT to redeploy that cash toward growth and the development of much-requested features.
There’s an aspect of convenience to consider as well. Token holders using Request.Network have a few hours to complete payment of their orders. However, credit card payments must be made immediately, which can slow down the checkout process and lead to missed opportunities.
Thanks to the RealT ecosystem, our investors can learn and get a step-by-step foothold in decentralized finance and the finance of the future.
In the next article, which we will publish on Sunday, July 10, we will explain how to use the triptych Mt Pelerin X Jarvis X Request.