Turning Real Estate Into A Liquid Asset in 4 Steps

To demonstrate how the platform works, we will run through a theoretical scenario. Let’s say you find an apartment building that is for sale for $5,000,000 and has a historic 10% cap rate. Instead of getting a loan to purchase the property you decide to put it on LiquidRE.com as the Sponsor.

Step 1: Run an IREO Crowdsale

First, you make an offer on the property contingent on financing. After the seller accepts your offer, you list the property on LiquidRE.com. Once approved, you are able to start an IREO (Initial Real Estate Offering) on the platform.

For each IREO you will input all the available property information, the cap rate, proof of income, pictures, videos, and any due diligence. Our platform allows you to easily upload the required documentation and property stats.

You will set a “funding goal” — which is the amount you need to fund the purchase and get the property on the platform. We’ll say it’s $6,000,000. Based on the Net Operating Income of $500,000, you predict the property will be worth $6,250,000 based on an 8% cap rate, and investors should see it as a favorable investment.

Trustees will bid against each other for the opportunity to manage the property for a management fee that will be paid out of the income produced by the property.

After picking the Trustee of your choice you can then you launch your IREO.

Step 2: Funding

After your IREO launches it will go into the “Active” section of the IREO Crowdsales. Investors will have the opportunity to check it out. They will see the funding goal (which is effectively the price), as well as all the information you’ve entered about it, such as documents, pictures, videos, and due diligence.

Investors will have the opportunity to buy as many LRETs of that property as they want for $1 each. We do not have any minimum investment requirements and we do not restrict the amount of investors that would like to participate in the opportunities on our platform. Like a crowdsale, as investors buy in, you will see the progress toward the funding goal increase. When you hit 100%, the IREO will be fully funded and move on to the next stage. If the IREO fails to fund, all investments will revert to the investors.

Step 3: Funds Dispersed

After an IREO is fully funded, the property must be purchased (remember that it currently only had an accepted offer and is under contract) and a few other things need to happen. In our example, here’s the breakdown:

• $5m + closing costs will be sent directly to the escrow company to close the deal
• $600k (10%) will be put into a reserve account that becomes part of the asset. This is the key to offering liquidity and true price discovery as this account will be used as a connector utilizing the Bancor protocol.
• 0.25% platform fee
• You stand to make ~$300,000k as the sponsor after paying for the due diligence and making the deal happen.
• The trustees will receive a residual commission based on the income of property to manage the property. e

At this point the Sponsor is free from the property. If he didn’t buy any LRETs during his sale he has no ownership and the property becomes “owned” by all the investors who purchased LRETs during the IREO. (Technically, they are the beneficiaries and the property is owned by the Trust.)

Step 4: Property Is Now Tradeable

This is where it gets fun! Now that the property has been successfully put on the platform, it is now a tradable asset, similar to stocks. Investors can buy and sell LRETs on this property at any time.

After a successful IREO, the LRET price will be set at $1.00 each. Investors can buy or sell their LRETs at any time, even if there is no one to buy or sell to!

This is all accomplished using the Bancor protocol with a 10% reserve. Stable tokens (worth $1 each) will be held in a reserve facilitating the liquidity and price discovery of each LRET token. When someone buys more tokens, SPEGs will be added to the reserve and the LRETs bought are created (LRET price goes up). When someone sells tokens, SPEGs are removed from the reserve and the LRETs sold are destroyed (LRET price goes down).

We would encourage you to learn more about Bancor protocol to understand how this works. For more information on the Bancor protocol please visit https://about.bancor.network/protocol.

Here’s a quick example:

After the successful IREO let’s say 600 investors funded it evenly across the board, each buying 10,000 LRETs. Let’s say it was an amazing deal and everyone wanted in on it. But no one wanted to sell. Traditionally, it would be impossible to buy any.

With the Bancor protocol, if you wanted to buy 10,000 LRETs yourself, it’s possible. It will cost you a little more though, as every LRET that is bought or sold changes the price just a little bit. The smart contract will create the new tokens and put the money used to buy them into the reserve. As the reserve increases so does the market cap on the property.

If you bought 10,000 LRETs it would cost you around $10,075 and the new price per token would be $1.015. If someone else bought 10,000 more it would cost them $10,227, increasing the price to $1.03.

When an investor sells tokens the reverse happens. The tokens sold are destroyed and money is taken from the reserve and given to the seller.

Real Estate Income

One of the most attractive things about owning real estate assets is the passive income produced from them.

Instead of paying dividends to all the investors and incurring a large amount of fees, all real estate income is reinvested into the reserve balance of the asset’s bancor protocol. This raises the price of the LRET, pushing values up.

To capture gains in cash, LRETs can be sold and cashed out. If you hold onto your LRETs while other investors sell you will slowly own more and more of the property and get paid a higher percentage of the income disbursement. The LRET’s value becomes tied to the asset’s fiscal performance.