Sep 12, 2023

Tokenized real estate platform Roofstock OnChain recently sold another home through its NFT marketplace for more than $200,000 worth of USDC.

Video transcript

To real estate platform. Roofs Stock on chain just sold another home through its NFT marketplace for just over $200,000 worth of us DC. Joining us now to discuss is Roofs stock on chain head of web three initiatives, Sanjay Ragavan, welcome to the show, Sanjay. Thanks for having me. All right, this is the third home. I believe that's been sold via the NFT marketplace. Just give us a brief overview of roof stock on chain uh what it does and where you see it going in the future. Sure. Um So roofs Stock on chain is the web subsidiary of uh roof Stocking, which is a market leader in the single family rental space, uh single family rentals in the US uh represent about 20 million rental units and about $4 trillion in GMV. So it's one of the largest investable asset classes. Um Historically, uh rental properties have been owned by uh retail uh owners that live within close proximity of these central properties and roofs stock as a company uh has been working on trying to make it more accessible as a as an investable asset class. So you could uh remotely uh underwrite and source and underwrite and purchase properties on chain tries to extend that by making both the sale and settlement a lot easier using battery technologies. But more interestingly, uh you know, we've been able to bring in D I uh lending opportunities uh to combine with the NFT offering so that it's really easy for people to um get leverage on these assets as opposed to going through the weeks it takes in the traditional model to try and get financing. Ok. So I, I'm, I'm gonna do a disclosure here. I'm a licensed real estate broker in three states. I'm a member of the board of realtors and, and uh a, a proud realtor since uh I was uh before I knew how to drive actually. Uh So with that said, uh one thing that I do know is that when you do transact in uh real estate, you, there's a, there are a lot of taxes involved. So how are you calculating the taxes in the transactions? Are, are dollars when you, when you sell a house for us DC are actual dollars changing hands because a lot of states frown on uh uh in like there, there's always got to be like some dollar transaction for it to be uh you know, valid et cetera. So what happens? What's the process going on here? Yeah. No, that's a great question. Um So everything is done in a compliant manner in order to really make this work on the web three rails. What we've done is essentially title the rental property itself in a single purpose limited liability company. And, uh, what is associated with the NFT, uh, on the Ethereum Blockchain is the, uh single membership of that LLC. So in other words, really, all the NFT is doing is, uh, the operating agreement of the LLC is written such that the wallet that holds the NFT, um, essentially becomes the legal owner uh of the, uh LLC itself. And therefore through that, uh they have ownership into the single family asset, right? So, uh when the NFT changes, uh hands on the Ethereum Blockchain, it's really an instruction to the LLC to change its books and records. So by doing it that way, there's actually no, um um, you know, t conveyance of title taking place through this transaction. It's just uh the LLC that's changing house. That's a key point because states kind of, they get smart to this stuff and they see it as, ok, so you're selling a house. He said, well, I'm not telling, I didn't list it, but you're selling a house and you're not paying transfer tax and things like that. Correct? You're getting around paying the transfer tax. I wouldn't say it's getting around. I think these are. So, uh as you are aware as a realtor, um it's a 50 state analysis in some states. Uh even if you sell the house that's titled in see, you still have transfer taxes uh that get assessed in other states uh for uh a, a transfer of a controlling interest in an entity that has real estate underneath it. There's no uh transfer taxes associated with that sale, right? So we're looking at each state where we are offering this and then we are trying to comply to the applicable state laws, other states that you won't operate in, uh like California, for example, we haven't decided nobody wants to go to California's real estates are, our laws are nuts. But, um, but like, but, but that said, I mean, are there any other states besides the obvious California, let's just say, right? I mean, primarily the smile states or the, you know, sunbelt states because those are good for generally, um, income producing rental properties where the, uh, cap rates are still reasonable even though they're not anywhere close to what they were a couple of years back. Um So, yeah, it really depends on the investment, there's uh objective. Are they looking for a growth market or an income market? And then depending on that, uh, and then in which states are the, um, uh, laws, uh, will the laws allow a transfer to take place um through this NFD model uh efficiently, right? And in some states, uh you may have to redo the title insurance entirely in, in other states. Um, you know, you can actually add an a non imputation endorsement to the existing title policy. So we're still, you know, complying with all of those aspects of real estate sale. It's just that the settlement layer uh happens much more efficiently on Webley rails because we going to a market place paying USB C and uh you know USB C moves over to one wallet, the NFC moves over to the other. Do you have a covenant in any of these? And Jen Jen has a question, but do you have any covenant in anything in your, in these transactions that require the, the owner not to transfer the ownership of the LLC or, or to, to dissolve the LLC and take ownership? Is there anything that's involved in that we will allow if anybody wants to deplatform the NFP and just take control of the LLC, they can request us to do that and we can actually facilitate that. So none of this is meant to, you know, lock it up permanently as an NFP. It's ultimately their property. So they can, you know, decide to keep it as a web three home or if they want to take, uh you know, possession of it through the LLC directly or, or even uh get the uh title of the property conveyed to them directly. Uh They have every right to do that. All right, Eric Sanjay, you can correct me if I'm wrong, but three houses have been sold. I assume that these are crypto native people who participated in this, you know, paying in US DC, there's D lending involved NFTS. How is this something that you scale? How is this something that you get people who are out there every day looking for homes to buy to actually participate in? Yeah. No, this is a great question. Uh By, by the way, this is the fourth home that we sold in three and three were done on the origin marketplace. Um And, and you know, what we really set out to do was two things. One was, can, is there a better way to sell and settle these faster? So, uh you know, you're not going through that three or four week waiting process. Uh And in the process of doing that, are there ways are there ways to uh save on some of the transaction costs? Right? So we set out to do that and we did that. But more importantly, it's really the uh the ability to get very flexible leverage terms on the Blockchain. That makes it uh really interesting because if you look at um mortgage 30 year mortgage rates today, uh they're probably in the 7.3% APR. Uh And uh there's a one in three chance the fed might increase, do another rate increase in November. Uh Of course, everybody is looking at CP I data that's gonna come out tomorrow. Um And that's just for retail investors. If you're going to buy a property and live in it, if you're buying it as an investment property, typically, that's always been 100 or 100 and 50 basis points higher. And so you're looking at something that's close to a 9.5 10% interest rate as a retail investor. Um And even if you're an institutional investor, those are probably uh being right now priced at uh a one month term. So for plus 200 to 250 basis points. So you're sort of looking at um you know, as an institutional investor, you're still in the high sevens maybe. And as a retail investor, you're probably close to 10% on leverage. But as on the, on the, we're able to do interest only loans um that are asset based. So you're looking at the LTV and uh just like you were loan against an NFT, right? Uh an A punk based on the value, the floor value of those collections here, you have the uh value of the property and you can, you can do an L TB loan based on that. And uh really the process of getting lending uh is that much simpler using D five rails. Um And whether it's a single peer to peer type of loan or you're going to do uh set up a pool with one of the D five platforms. Uh and then like, you know, do five or 10 assets together, right? There's all, all those kind of flexible options available and especially as we see sort of um the DEF I markets evolving, right? Like there was the time when everybody was going after the uh under collateralized or un collateralized crypto lending and then sort of people moved away to do private credit. But a lot of those were uh and you know, they were all emerging market transactions. And now some of the larger DEF five platforms have all seen defaults in the last uh couple of months. Uh people will start looking at risk adjusted um returns and us real estate still, you know, is one of the strongest asset classes in the world. So we see that that really is how this is going to evolve. And as more and more people are looking for that risk adjusted yield uh with safer assets, you know, and these assets are tremendous for that type of uh investments. All right, Sanjay, thank you for joining the show and congratulations on that fourth house sold. Thank you. Thanks for having me. That was roof stock on chain head of web three initiatives, Sanjay Ragavan.

Learn more about Consensus 2024, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to to register and buy your pass now.