The Canadian start-up RealT offers the opportunity to become a landlord for as little as 60 dollars. The owner says quite immodestly: “We have completely smashed the barriers to entry to real estate.”
Dhe big hype about cryptocurrencies has died down. Not that much is talked about the underlying blockchain technology either. But that doesn’t mean that the subject is a thing of the past. In many places around the world, specific applications are being designed – and implemented.
For example in Canada. Remy Jacobson comes from the real estate industry and made his fortune in the 1990s when the Toronto market boomed as part of Québec’s independence movement. “It was then that I learned to appreciate the benefits of home ownership and passive income,” says Jacobson. “I think that young people should know more about building wealth – and that works very well with real estate.”
In 2011 Jacobson came into contact with the cryptocurrency Bitcoin and began mining coins. He found the concept interesting, even if he was not really convinced of its use as a currency and also viewed the numerous offers of tokens, the so-called ICOs of recent years, very critically. “But blockchain technology is the future.”
The barriers to entry shattered
With his latest project “RealT”, the Canadian is now combining both real estate investment and blockchain. The whole thing works in such a way that property in a property is divided into so-called “security tokens”, which can be purchased by investors – at a price of currently 60 dollars. Anyone who owns a token then receives part of the rental income. “We have completely broken the barriers to entry to real estate,” says Jacobson proudly. And does not add immodestly: “We are not the only ones who have tried this. But we are the only ones who have been able to develop a token suitable for this type of property acquisition. “
Jacobson sees the reason that the competitors have concentrated more on creating a token with a view to the interest in cryptocurrencies. But the main focus was on how to turn a token into a legally valid title. In practice, it then looks like a GmbH, i.e. an American LLC, is founded as a special purpose vehicle for each property, whose founding documentation contains the distribution of property on tokens.
Liquidity is an issue
On the one hand, the costs of administration by an external company derive from the gross rental income. On the other hand, RealT currently receives an issue surcharge and around one percent of the rental income for asset management. In addition, reserves are set up to maintain the property. The rest will be distributed to the token holders and property owners.
“The division into tokens also makes real estate very liquid,” says Jacobson. “You can sell the tokens at any time.” Providing the liquidity was a little “tricky”. Because of the experience with the speculative market for cryptocurrencies, security tokens under American law must be held for one year and one day before they can be traded – unless the issuer buys them back. “This is how we ensure liquidity. And it ended up being easier than expected, ”says Jacobson.
Returns of 10 to 14 percent
Currently, however, the model only works in the United States. However, tokens could be bought by investors from any country in the world, says Jacobson. “However, withholding tax can be a problem. If there is no double taxation agreement with a country, the rate is 30 percent. “
On its website, RealT currently shows returns for its projects between 10 and 14 percent. At least 7 to 10 percent of this remains after taxes. The fact that real estate can bring such high returns is due not least to the American real estate market. “The market is going through dramatic ups and downs,” says Jacobson. “In some regions, prices can fall significantly in a recession.”
However, commercial properties are more vulnerable, while home prices remained relatively stable even during the financial crisis ten years ago. “That’s why we’re only investing in residential properties for the time being.”
From Detroit into the world
It all started in Detroit, of all places, which lost its reputation for dying a few years ago due to the crisis in the local automotive industry. But Jacobson also knows how to explain that: “Electromobility is making Detroit grow again – and houses were really very cheap there.” Of course, prices could also fall again, and then the value of the token would of course decrease. But investors would have to assume that their rental income would then continue to flow. “We have to make it clear to them that it is best to wait and collect the rents instead of selling their tokens.”
Jacobson has big plans for the future. RealT is expected to get into property development as early as 2020, then it will also aim to enter commercial real estate. In the future, they also want to expand into other countries and also take over real estate management themselves in three or four years. RealT is currently still baking small rolls: They have an apartment building with 1,337 square meters and seven single-family houses with a total area of 700 square meters. Two of them have already been fully sold to investors.