If the RealT platform has enabled the tokenization of real estate, the RMM protocol integrates it directly into decentralized finance (DeFi). Find out how it is possible to invest in real estate from $50 for an annual return of around 10% thanks to the blockchain with our complete tutorial and our opinion on RealT.
- The problem of real estate for a small portfolio
- The solution provided by RealT thanks to the blockchain
- Use RealT’s RMM to Generate Extra Earnings
- Our opinion on the RealT platform
The problem of real estate for a small portfolio
With a view to diversifying your portfolio, real estate can be an interesting choice. However, like any investment vehicle, it has certain constraints that are important to be aware of.
The first being the price barrier to entry . Of course, it is theoretically possible for anyone to buy a physical property, even without having a large wallet, it will nevertheless require a lot of work to build a financing file. Without forgetting the management of the property itself, which can quickly prove to be time-consuming.
In addition, physical real estate is by definition very illiquid compared to shares on the stock market or cryptocurrencies for example, which results in a lack of agility, which, depending on your investor profile, can present a brake.
Physical real estate is therefore an investment vector requiring real expertise , if one wishes to do this in a professional and profitable manner.
There is an alternative solution called “paper real estate”, through which we delegate all the operational part to be content with providing liquidity and collecting returns. This will result, for example, in the purchase of Exchange Traded Funds (ETFs) on a securities account on the stock exchange, or in the subscription to different types of booklets.
The limit of these solutions is that very often, we do not know what we are buying . And even if we can find the information in the technical documentation, we have no control over the content of the product.
In addition, the fees for this type of investment will generally be so high that they will limit the performance of your portfolio over the long term. This overview therefore makes real estate difficult to access for a small portfolio or someone new to the industry.
The solution provided by RealT thanks to the blockchain
Introduction to RealT
Faced with this observation, the RealT company has set itself the challenge of making real estate accessible from 50 dollars with an annual return of between 9 and 11% net per year . Moreover, all this happens on the blockchain thanks to a tokenization system .
The company behind the platform buys physical property in the United States in the real world, and thanks to a local law recognizing security tokens as shares of a company, it is therefore possible to buy fractions of real estate.
For each property offered for sale on the platform, a limited liability company (LCC) is created . It is this LCC that directly owns the asset and each user of the platform actually buys a share of this company.
Such a mode of operation guarantees independence between each property and if, in an extreme case, the parent company of RealT were to file for bankruptcy, the assets of investors would not be endangered.
Note that to buy tokenized real estate on RealT, a Know Your Customer (KYC) verification process is mandatory upon registration.
The RealT Marketplace
Thus, the platform has a marketplace on which it offers various properties for sale while enriching its offer over time.
One of the strengths of the platform is its transparency, here for example, the 11.16% annual returns displayed are to be considered as net, all charges and possible costs are already deducted in the calculation .
For this particular good, you can thus buy a maximum of 50 tokens of 50.25 dollars for an annual return of 5.61 dollars per token. Like any financial asset, it is worth remembering that once in your possession, its price can go up or down. Here, on the other hand, its appreciation will be correlated to the real estate market , and not to that of cryptocurrencies.
When RealT offers a property for sale, the platform embellishes it with numerous photos, both of the interior and exterior of the building.
Just below the photos, we will then find 3 tabs giving more information about the property:
- Highlights / Important information;
- Financials / Financial projections;
- Details / General information.
We find in the “Highlights” tab the essential information such as the yield or the date on which the property will be rented, for example.
Figure 4: Financials tab
The “Financials” tab provides accounting information, including expenses, works and net profitability.
Figure 5: Details tab
For its part, the “Details” tab offers more general information such as surface area, type of construction or heating energy.
Finally, we will find below a section “About the property / About the property”, which will present the investment as well as its geographical location:
Figure 6: About Property
Buy a fraction of a property and receive returns
When your identity verification is validated, you are then able to buy real estate shares in the form of tokens thanks to RealT . When you have chosen a particular good and the quantity of tokens to buy, you will have to go to your basket to finalize the payment:
Figure 7: Cart on RealT
There are several means of payment , namely, different cryptocurrencies via the Ethereum (ETH) network and the Gnosis Chain/xDai, as well as payment by credit card.
You can then track the status of your order in “My Account → Orders”:
Figure 8: Order History
Once your payment has been validated, you will receive by email an act to sign, authenticating you as the owner of a fraction of the LCC which owns the property in question:
Figure 9: Signature of the acquisition of the property
When the signature is made, the tokens then appear awaiting delivery in the “Orders” menu, while the RealT teams finalize the administrative operations on their side. This is usually done within 24 hours:
Figure 10: Tokens awaiting delivery
Then go to “My Account → Portfolio”, from there you can choose to receive your tokens either on the Ethereum blockchain or on the Gnosis Chain .
Rental payments are made weekly . You can also choose the network on which these will be paid.
In addition, there are sometimes so-called reinvestment properties that are offered. When this is the case, you can choose to invest your returns directly in fractions of tokens, which will in turn generate interest.
Figure 11: Choice of network for the delivery of RealT tokens and interest
Every Monday, you will then receive a report by email detailing all of your returns based on the assets in your possession:
Figure 12: Weekly performance report
Sell your RealT tokens
If you would like to part with your tokens, you can do so in the “ Sell Tokens ” menu in the top banner. RealT can redeem up to $2,000 in assets every 10 business days for a small processing fee totaling 3%:
Figure 13: Example of a token sale via the RealT platform
In its documentation , RealT also describes how to sell its tokens through decentralized platforms like Uniswap or SwapCat . Be careful despite everything, this way of selling your tokens can lead you to collect a significant slippage due to a lack of liquidity and lose value against the first method.
Use RealT’s RMM to Generate Extra Earnings
If the solution proposed so far by RealT has made real estate much more liquid and accessible, it is possible to go even further.https://www.youtube.com/embed/5sv9PANQc9Q
Indeed, the RMM protocol makes it possible to directly integrate real estate into the heart of decentralized finance . In other words, it is possible to use its assets as collateral to borrow liquidity. To do this, go to the top banner, then follow the path “DeFi → RealT RMM”:
Once there, the design may seem familiar to you, which is completely normal if you have used the Aave (AAVE) protocol under its version 2. The two teams have indeed worked together in order to propose a solution making the collateralizable real estate .
Figure 15: RMM platform home
Our fractions of properties can then be used as collateral on the RMM protocol, to be able to borrow up to 75% of their value in XDAI , the stablecoin of the Gnosis Chain. If the tokens you have are not yet usable, rest assured, RealT adds new options regularly .
Let’s see the mechanics of contributing and borrowing with XDAI, it will remain the same for any RealT token.
You must therefore click on “Deposit” in the upper banner:
After depositing collateral, we can borrow liquidity in the form of XDAI. To do this, go to the “Borrow” tab of the upper menu:
Thus, it is possible to borrow a maximum of 75% of the value of its collateral. As on Aave, the health of your loan is symbolized by a Health Factor . This must remain greater than 1 under penalty of liquidation and a penalty on what you have deposited:
The “Dashboard” menu offers an overview of the cash you have deposited and borrowed:
If for this example, XDAI was used, all the interest of this platform will be its use with RealT tokens . Thanks to this, liquidity can be raised to, for example, buy other tokens from the platform and thus create a virtuous loop.
With such a method, the average annual return of 10% per token is then considerably increased. Let’s take a more concrete example to detail this strategy:
Here, we see in Figure 20 that the annual rate for borrowing XDAI is 5.25%. Let’s now say that you have 1000 dollars of RealT tokens earning you 10% per year , without RMM it therefore amounts to 100 dollars of annuities .
You decide to place these tokens as collateral, this gives you the right to borrow 750 dollars from XDAI, but for money management reasons, you are limited to 500 dollars . This will cost you $26.25 in interest per year. With this 500 dollars, you buy RealT tokens again at 10% per year, after deducting interest, you will be left with 23.75 dollars in return .
By adding these annuities to the initial $100, your $1,000 investment no longer earns you 10% per year, but 12.375% . In addition, you can redo other loops by placing these new tokens as collateral according to your own risk tolerance.
If an additional 2.375% may seem insignificant, by reinvesting your accumulated interest, in 10 years, you have multiplied your capital by approximately 3.21 in the second case, against 2.59 in the first, i.e. an outperformance of nearly 24% .
However, it will be necessary to monitor your Health Factor, even if, due to the low volatility of real estate, it will decrease in a more reasonable way than with cryptocurrencies in the event of a drop.
While RealT had already enabled a disruptive change in its initial value proposition through the tokenization of real estate, the company is repeating the performance with RMM.
Of course, there is still a long way to go before democratizing such practices, and mentalities as well as the legal framework must still evolve . But we still see that this new investment model, for a sector as old as real estate, is possible .
From now on, everyone can start saving their savings “in stone”, not only from reasonable sums, but also freeing themselves from most of the constraints inherent in real estate .
In addition, if the returns are certainly lower than what can be found elsewhere in cryptocurrencies, they are nevertheless very interesting if we put this in the context of this type of investment. Namely around 10% for a relatively stable financial vehicle .
Added to this is RMM, which makes it possible to set up additional leverage through borrowing, thus optimizing the assets in our possession, allowing financial arrangements that were previously impossible for an individual.
We then see here all the power of the blockchain where, for the investors that we are, intermediaries such as banks and notaries are eliminated, thus allowing more fluidity in our operations and an agility that was previously impossible.
Faced with the popularity of its solution, RealT is seeing its new properties put up for sale go very quickly . To be able to invest in real estate from the platform, it will therefore be necessary to follow their various social networks and to carry out monitoring work on the site’s marketplace.
Regarding RMM, the properties that can be placed as collateral are being added little by little, it will also be necessary to monitor the protocol regularly until it ramps up and allows you to fully use your future assets in your investment strategies.