Founded in January 2019, RealT is an American company based in Florida that offers fractional investment in real estate in the United States market through the Ethereum blockchain.
a) Fractional real estate: real estate investment for all?
In general, when you buy real estate you own it 100%: it is yours and yours alone. However, with the emergence of blockchain in recent years, a new concept has emerged: fractional real estate.Fractional real estate is based on the tokenization of goods: concretely, this results in the division of a good into token. Each token represents part of the ownership of the asset.Let’s take an example: a house that costs $100,000. To be able to buy it at 100% (classic real estate) you must pay $100,000 (cash or via a bank loan).With fractional real estate you can decide to buy only 10% of this house: in effect, the house has been divided into token. It was arbitrarily decided by the seller that the house would be divided into 1,000 tokens with a unit value of $100.Thus, if you want to own only 10% of the house, you will have to buy 100 tokens for a total value of $10,000. You will then be co-owner of the property and you will receive 10% of the annual rental income.What are the advantages of a fractional real estate investment?
- It’s more affordable: you only invest what you can afford and you don’t need to get a bank loan
- You reduce the risk of non-payment of rent: you can invest in several different properties to reduce the risk of non-payment of rent.
- You become an owner more quickly: during a classic real estate purchase, it takes at least several months before becoming an owner. With fractional real estate on the blockchain, a few hours is enough.
- It’s easier: no need to have a bank account in the United States or to be physically present for the signing of the contract!
- You keep your rights as owners: when a decision has to be made, a vote takes place on the blockchain.
- You can resell your tokens at any time : need liquidity? You can resell your tokens to RealT or resell them on the secondary market using Uniswap.
b) Tokenize real estate
It is this notion that is most often the most complicated to understand for people who are new to cryptocurrencies and blockchain: when I explained the concept of RealT to my mother the first time, she asked me if I had bought the toilet or the living room.In reality, when you buy a token, you are not buying a part of the house, you are buying a part of a company that owns the house: This company will own only one asset: the house or the building that the house is owned by. ‘we want to transform into a token. Thus legally the owner of the property is a company which itself is owned by investors through tokens. Each token represents a small part of the company and therefore by buying tokens you are actually buying a company which gives you back the money it receives from the tenants of the property.
c) Buying your first token
When buying your first token from RealT , you will have to register on the platform and fill out a form to indicate your identity. Once this has been verified, you can buy your tokens on the site.
If you are familiar with how cryptocurrencies work (You know how to create an Ethereum wallet, send and receive ethers, secure your wallet…) then you can go directly to the RealT website .
For beginners and for people who are not yet very comfortable with cryptocurrencies and the Ethereum blockchain, I recorded a video training in which I explain step by step how to invest on this platform .
d) Payment of rent
Rental payments are made in USDC, a stablecoin (ie a cryptocurrency that tracks the price of a fiat currency. Here, the USDC tracks the USD, the US dollar). The rents are sent to your Ethereum wallet. You can then convert your USDC into USD, EUROS or any other classic currency.Originally, rent payments were to be made daily, but due to the increased transaction fees on the Ethereum blockchain it was decided that rent payments would take place once a week on Wednesday. The RealT team is working on a new payment system that will allow them to have more flexibility.
e) Reinvestment of rents and secondary market: Uniswap
When you own at least one token of a real estate then you are part of the whitelist of investors for this good and you have access to the secondary market which uses the Uniswap protocol .Uniswap allows you to create liquidity for a RealToken : some investors may decide to sell their RealToken on Uniswap and therefore allow other whitelisted investors to buy back their tokens at the price of the Uniswap price. Thus, even if all the tokens appear as sold on the RealT site , it is possible to continue buying them on the secondary market as long as you have purchased at least one on the RealT site and that you are therefore on the white list.On the RealT website , you are obliged to buy a whole number of tokens: 1 token, 2 tokens, 10 tokens… This is not the case on Uniswap where you can buy fractions of RealToken : thus, you can buy 0.237366423943342345 or 3.748320394325346346 tokens if you like! In particular, this allows you to reinvest the rents you receive without waiting for the amount needed to buy a full token on the RealT site .
f) The revaluation of the property: the annual audit
Over time, the value of a property changes: to allow investors to follow this development, RealT uses an independent auditor to assess the value of the property each year. This audit is then made available on the property sheet on the RealT site .The evolution of the value of the good also causes another parameter to evolve: the price of the token. Therefore, if the value of the asset increases, the value of your token increases and you can resell it for more.
g) Resale
With classic real estate, the resale of real estate can be long and complicated: this is not the case with fractional real estate because you do not sell all the property, but only the fraction that belongs to you ( your tokens).There are currently three ways to resell your tokens:
- On the RealT site : The company buys back your tokens from you at the price in effect on their site for a sales charge (a small percentage of the total amount). RealT will then release them for free sale on its website.
- On Uniswap: You can put your tokens on Uniswap and wait for someone to buy them back from you. The price is set automatically by Uniswap based on availability and demand.
- By directly finding an investor who is already on the whitelist: Thanks to the Telegram group and the Discord server, you will quite easily find an investor who can buy back your tokens. You will set the price yourself in agreement with the buyer.