Introduction
Lofty.ai is a platform that combines Real World Assets (RWA) and Web3. It aims to transform how investors approach the real estate market by introducing Real Estate Tokens. With this innovative technology, Lofty.ai makes real estate investment more accessible to everyone, even those with limited funds. It leverages blockchain technology to enable fractional real estate investing, allowing you to start with as little as $50. This platform is a game-changer because it utilizes tokenization to break down the traditional barriers that make real estate investment difficult. In this article, we explore how Lofty.ai is leveraging blockchain technology to revolutionize the real estate industry and create new opportunities that are more accessible to everyone.
What is an RWA (Real World Asset)?
Real World Assets (RWAs) are tangible or physical assets with value in the real world and can be represented digitally for investment purposes. These assets may include real estate, commodities, and even intellectual property. The digitization of RWAs through blockchain technology enables fractional ownership, increased liquidity, and broader accessibility, making it easier for investors to participate in markets that were previously out of reach due to high entry barriers.
What is Lofty?
Lofty is an online platform founded in 2018 by Jerry Chu, Mark Keane, and Max Ball to introduce a simplified path to real estate investment. The platform offers blockchain-based fractional property tokens starting from as low as $50, which opens up access to real estate profits and rental income to those traditionally priced out of the market. Lofty leverages Algorand’s blockchain for secure and transparent transactions to foster trust in its community. This innovative platform makes real estate investment accessible to everyone without requiring hefty initial costs. By enabling fractional ownership, Lofty revolutionizes property investment.
Investors can enjoy passive income from rent, appreciation in property value, and portfolio diversification benefits.
Lofty follows a rigorous property selection and tokenization process to give users access to a curated and viable investment portfolio. The platform simplifies the buying and selling of tokens, making it easy for everyone to invest in real estate.
To qualify for the $20 credit, you must invest at least $250 in property on Lofty within 30 days of signing up.
What is the Algorand blockchain, and why did Lofty choose it?
The Algorand blockchain claims to be the most powerful and sustainable in the world. It uses proof-of-stake, which is more efficient than proof-of-work. Lofty has chosen the Algorand blockchain because it offers faster transaction speeds and lower fees than Ethereum, Solana, and other popular blockchains. The only inconvenience for users is that they can only store their Lofty property tokens in an Algorand-compatible wallet. Lofty automatically provides an Algorand-compatible wallet inside your account upon signup.
How does Lofty work?
Lofty buys homes quickly by offering cash to those interested in selling their properties. Like other competitors such as Opendoor and Offerpad, Lofty aims to give investors the best return on their investment. However, unlike others, Lofty uses an AI-driven, proprietary method to evaluate each property they buy and determine its potential for appreciation and rental income. The AI favors properties that are already rentable or have tenants, which allows token-holders to collect rent.
Before a property is listed on Lofty’s marketplace, it is thoroughly evaluated by the company’s investment team. Once approved, a DAO (Decentralized Autonomous Organization) LLC is created, and the property is acquired. Individual tokens are created on the Algorand blockchain, each worth $50, providing fractional property ownership to token holders.
A professional inspection company inspects the property and provides a report to assess its quality. Once the property is fully funded, the DAO LLC purchases it and transfers the deed to the new DAO LLC. Token holders start earning a rental yield immediately, paid out daily, and may also benefit from increased property value. Tokens of fully funded properties can be traded on the Lofty marketplace.
How can I make passive income with Lofty?
Lofty enables you to invest in a fraction of a property’s equity through digital tokens. These tokens are kept on the blockchain. When you buy tokens for a particular Lofty property, you become a member of the DAO LLC that owns that property. This also entitles you to a share of the monthly rent payment. For example, if you want to invest in a $300,000 property, you can buy 100 tokens worth $50 each. This means you will own a 1.67% stake in the property. If the tenant pays $2,000 in monthly rent, you will earn $0.33 monthly for every $50 token you own.
Passive Income Opportunity Breakdown
Here’s a simpler breakdown of the scenario mentioned above:
- Buying Tokens as Investment: If a property is worth $300,000, you can invest by purchasing tokens, each valued at $50. If you buy 100 tokens, your total investment would be $5,000.
- Your Ownership Stake: This investment gives you a 1.67% ownership in the property, calculated by dividing your total investment ($5,000) by the property’s value ($300,000) and multiplying by 100.
- Earning from Rent: You earn a share of the rent as an owner. For example, if the property earns $2,000 in monthly rent, each of your tokens earns $0.33 monthly. So, with 100 tokens, you would earn $33 every month.
To verify the earnings per token:
- Total Tokens for Full Ownership: The property’s full value in tokens is 6,000 (since $300,000 / $50 = 6,000 tokens).
- Monthly Rent Distribution: The monthly rent of $2,000 is divided among all 6,000 tokens, which means each token earns about $0.33 in rent.
Therefore, the calculation confirms that with a total rent of $2,000, each token indeed earns approximately $0.33 per month, aligning with the earlier explanation.
If you happen to own 100 tokens for this particular property, you will receive rent payments worth $33.00 every month, in addition to the property’s appreciated value.
To summarize, Lofty allows you to invest in real estate without buying the entire property. Instead, you can buy tokens representing a fraction of the property’s value. As a token holder, you’ll receive passive rental income (paid daily) proportional to your investment.
To qualify for the $20 credit, you must invest at least $250 in property on Lofty within 30 days of signing up.
Pros & Cons of Lofty
Upon closer examination of Lofty, it becomes evident that it offers unique advantages, but there are also potential drawbacks that investors should consider. This section provides a balanced perspective on Lofty’s innovative investment model, its accessibility, and the challenges that may arise due to the current regulatory environment. Whether you are considering the prospect of generating passive income through fractional ownership or have concerns about regulatory developments, these insights will help you make an informed investment decision.
Pros of Lofty:
- Enables entry into the real estate market with an investment as low as $50.
- Creates opportunities for passive income through daily “micro rent” payments.
- Utilizes blockchain technology for secure, tokenized fractional investing.
- Provides a more stable investment option compared to the volatile cryptocurrency market.
- Investors now have the option to buy fractional real estate using their debit or credit cards on the Lofty platform. This eliminates the need to fund a wallet with cryptocurrency to purchase real estate tokens. Users can purchase tokens with credit or debit cards, although a 2.9% to 3.9% transaction fee will be applied.
Cons of Lofty:
- Lofty offers fractional ownership of assets as Algorand blockchain tokens, which may pose a challenge for investors new to cryptocurrency.
- Absence of a dedicated mobile application for streamlined investment management.
- Restrictions on token trading are solely within Lofty’s marketplace, impacting liquidity.
- The regulatory framework for tokenized real estate is in flux, presenting potential challenges.
What fees does Lofty charge?
Lofty charges a fee of 2.5% for every purchase and sale made through the Lofty marketplace. However, you will not face platform fees while depositing funds into your Lofty wallet. But, depending on the funding method you use, you may incur the following fees:
- Credit or debit card users based in the U.S. will be charged 2.9% of the transaction value plus $0.30 per transaction. Non-U.S.-based card users will be charged 3.9% plus $0.30 per transaction.
- Bank transfer fees will vary depending on the provider and the user’s geographic location.
- Cryptocurrency transfers will cost approximately $0.01, the Algorand blockchain fee.
Conclusion
The emergence of Web3 technologies in platforms like Lofty.ai represents a significant change in real estate investment, promising a more efficient and inclusive market. By utilizing blockchain technology, Lofty.ai can facilitate fractional ownership, reducing entry barriers and improving transparency and liquidity in the real estate sector. This allows investors to access real estate opportunities that were previously unavailable and creates a more democratic investment landscape.
To qualify for the $20 credit, you must invest at least $250 in property on Lofty within 30 days of signing up.