RealT Rent Payments V2: Increasing Yields with Compound
RealT is passing all rental income through Compound in order to increase yields to property owners!
RealT Pays Rental Income Every 24 Hours to Property Owners
With Ethereum, there’s no need to wait for the 1st of the month in order to receive your rental income. The rules established by the antiquated banking system are not found on Ethereum. It doesn’t take 3–5 days to make a bank transfer, and the elimination of banking fees makes micro-transactions a reality. With these two obstacles removed, RealT is enabled to send the rental income from all of our properties to their respective owners every 24 hours.
…But Tenants Still Pay Rent Monthly
At RealT, a frequent question we receive is “are the tenants paying rent every day?” The answer is no; tenants in RealT properties have a very typical tenant/landlord relationship. The fact that their rental income goes through RealT and is converted to Dai, and sent to hundreds of different owners in over 50 different countries makes no difference to them. Like most tenants, they just write a check by the first of the month.
RealT takes this rental income, converts it to DAI, and simply sends 1/30th of it out every single day.
We do this for a number of reasons:
- Daily rental payments are cooler than monthly payments. You receive your first rental payment just 24 hours after purchase!
- RealT is an attempt to make property liquid. If you have to wait for the end of the month to collect your income and sell, that is an obstacle to liquidity.
- With Ethereum, it costs $.006 per person to send rent. So why not?
- Daily rental income stabilizes RealToken secondary market prices. Smooth distribution of rent keeps the secondary market valuations of these tokens stable because no one is trying to move in-and-out of the asset as the day of the rental payment comes and goes.
The Float
So RealT collects a full month’s rent, and then it sends it out to RealToken holders over the next 30 days. This means that over the course of the month, there is a supply of DAI sitting in RealT accounts waiting to be sent. Collectively, all RealT properties are pushing ~16,000 Dai per month to property owners, but this capital is only effectively deployed once it is in the hands of the property owners. The 16,000 DAI does nothing for anyone sitting in RealT wallets, waiting to be distributed. What to do with that DAI?
Stick it in Compound!
Obviously, this article is about how we are sticking that DAI inside of Compound. Dai that is stagnant in RealT wallets waiting to be distributed is unproductive. Frankly, it’s a disservice to all RealT investors to be holding onto their DAI without earning an interest on it, when DAI is always one transaction away from accruing interest.
How much extra income will this net for RealToken holders?
16,000 Dai is the current number of Dai collectively generated from the monthly rental income of every RealT property. On Day 0, 0% of this Dai is distributed, and on the last day of the month, 100% of the Dai is distributed. To keep things simple, we can treat the average balance in RealT’s rent wallet as 8,000 Dai — it goes up at the beginning of the month and down at the end, but 8,000 is the monthly average.
Given a Compound supply rate of 8%, that 8,000 average will earn an extra 53.33 Dai over the course of the month. That’s 640 more Dai over the course of the year that gets paid directly to token holders. On a rental income of 16,000 Dai, that’s a 4% increase!
Through this method, RealT is able to increase the rental revenue to RealToken holders by roughly 50% of the Compound supply rate. At the time of writing, that rate is 7.58%, and would be resulting in RealToken holders receiving 3.79% more Dai per year on their real estate investments.
Historically, Compound Dai supply rates have fluctuated between 2% and 18% APR, while spending most of its recent history between 8% and 15%. The Compound supply rates vary as a function of the Maker DSR rate, as well as the market demand for Dai. The measure of how much extra Dai is generated for RealToken holders will be a function of all of these things.
If MakerDAO is doing a good job in generating Dai demand, RealToken holders will receive more total income!
Not Just Rental Income
Every property on RealT comes with a Maintenance Reserve. This is the reserve of funds that is used whenever there is a maintenance or repair event for the property. This is the buffer of funds that protects any disruption in rental income to RealToken holders. All repairs and maintenance costs comes from this reserve, before any subtraction in rental income.
Ideally, the Compound interest rate increases the Maintenance Reserve faster than any maintenance or repairs costs depletes it!
Ethereum is Efficient
The ability to quickly enter and exit interest-bearing positions is unique to Ethereum. This is an example of how a company like RealT is able to leverage Ethereum’s composability to add value (literally!) to the RealT product. For this reason, and many more, we believe that the real estate industry will slowly but surely be migrating its financial components to Ethereum.
“Why Do You Need A Blockchain?”
At RealT, we are frequently asked “why do you need a blockchain to do this?”. The answer is because of composability. RealT and its suite of products and services are always 1 transaction away from every other product and service on Ethereum. Because RealT uses Ethereum for asset management and compliance, we can take advantage of all the other applications on Ethereum for financial services. Uniswap built an exchange for us. Compound built an interest-bearing platform for us. All other projects on Ethereum are building financial infrastructure for RealT and our RealToken holders!
The goal of RealT is to connect our product to as many other applications on Ethereum as possible!
Join us in breaking down barriers!
Join the global set of RealT users who are receiving rental payments from U.S. real estate properties every day!
