Real estate is the engine that powers Tangible and the design of Real USD.
Tokenized real estate serves as a unique stablecoin backing, with demonstrable real world value and historic appreciation when priced in fiat. The yield generated from the portfolio is a key ingredient in the design of multiple Tangible products and DeFi ecosystems.
With real estate playing such a critical role in the operations of Tangible, it’s imperative a sound and sustainable strategy inform our portfolio build and management. Tangible Strategy, our global team of seasoned real estate professionals, have built an expert approach taking the following factors into account:
- Yield Generation: Tangible targets an average 8% yield from rental income across the entire portfolio, looking specifically at properties and locals that can sustain this cashflow over time.
- Portfolio Appreciation: We target assets that position our portfolio for maximum upside over the next 5 to 10 years. These gains are critical to optimizations in USDR’s collateralization and yield generation.
- Macro Impact: In this current climate of general economic uncertainty, we have strategies in place to navigate a potential market downturn and capitalize on new opportunities.
The following outlines how Tangible Strategy’s finely-honed roadmap leverages data and market insights to pinpoint lucrative investment properties for our treasury, adeptly navigating troubled waters as we assemble DeFi’s fastest-growing portfolio of tokenized real world assets.
Leveraging Supply & Demand In Sustainable Rental Environments
Tangible Strategy’s objective is to generate consistent, long-term, and above-average returns for Tangible investors by acquiring, managing and optimizing a portfolio of high-yield properties.
Tangible Strategy concentrates on investing in areas with limited rental accommodation supply, prioritizing locations where renters’ incomes significantly exceed market rent, ensuring affordability for tenants and consistent, dependable revenue for Tangible. Housing shortages remain an issue in both the UK and US markets and we believe these governments’ failure to meet the demand for housing will continue to drive rent inflation and subsequent yield improvement within our target regions.
We maintain stringent property selection criteria, emphasizing the acquisition of well-maintained homes with the potential for appreciation over time. Renovation and maintenance efforts are a key component of the strategy. As are our risk mitigation strategies, including thorough due diligence, comprehensive property inspections and maintaining appropriate insurance coverage.
UK:
Within our UK portfolio, the average net yield for investors is 7.65%, outperforming the UK average gross yield of 4.75%.
The firm has been successful by targeting properties in cities such as Nottingham, Birmingham, Manchester, Liverpool, Leeds and Portsmouth, which have all recently witnessed substantial rental growth.
The current economic health of the regions, and evidence to support future growth, are critical indicators in our process. These priority regions have benefited from recent infrastructure projects and feature robust public transport links, proximity to city centers. The locales also clearly demonstrate growing local employment and corporate activity.
US:
Our primary focus in the US is on secondary and tertiary metropolitan statistical areas (MSAs) in the “Sunbelt” and Southeastern United States which offer a unique blend of economic and robust job growth, population growth and favorable investment fundamentals due to demographic shifts and a lower tax environment. In addition to this diverse set economic drivers, other key factors we consider include school districts, proximity to amenities and transportation infrastructure.
As we grow, the firm will continue to acquire quality assets meeting the criteria above, focused on states such as South Carolina, North Carolina, Georgia, Tennessee, Alabama, and Arkansas. We are intentionally avoiding the Florida and Texas markets due to overheated growth and valuations, as well as avoidance of excessively high property insurance premiums due to the catastrophic risks associated with hurricanes, all factors which are constraining the yield opportunities in these markets.
Maximizing Buying Power in Target Markets
With central banks maintaining their plan of interest rate hikes to curb soaring inflation, the cost to finance home purchases has skyrocketed. Consequently this has slowed property appreciation in many markets and opened up new opportunities for cash buyers like Tangible Strategy.
As covered above, Tangible Strategy targets properties in key markets we’ve identified to have the optimal blend of capital growth potential and strong to increasing rental yields. Currently this includes the UK Midlands and North as well as the Southeastern US/Sunbelt region.
With the market set identified, we narrow down our target properties to assets at or below current market value as priced by independent, third-party valuations. Tangible Strategy will not purchase individual properties or portfolios priced above market rate.
Factoring in the market stress resulting from interest rate hikes, there is clear opportunity for Tangible to acquire new assets at significant value. These discounted entries have the potential to maximize future portfolio appreciation while also insulating the assets from the potential of future declines in value.
UK:
Property interest rates in the UK are not 30-year fixed as they are in the US. SRV mortgage rates can change at any time and fixed rate mortgages may last just 2–5 years, after which time rates update meet the market.
This presents an opportunity to purchase properties from finance-leveraged landlords and retiring landlords who are selling due to negative cash flow and the lack of mortgage availability. Private individuals are also leaving the market due to higher debt costs and tax issues. With current owners looking to sell, Tangible is well positioned to acquire assets at a potential discount to market.
Reviewing the assets already held by Tangible, the average house price in our UK portfolio is £162,000, lower than the UK average of £279,500 reported as of Aug 20231. Entry at these lower levels provides a strong potential for capital growth and asset resilience in a downturn.
Further, over the past year, our target regions in the Northeast, Northwest, and East Midlands regions have outperformed the overall UK market. The last 12 months to August 2023 has seen an average price fall in the UK of 4.6%. However our key regions of investment have seen an average price increase of 3.2–4.7%.
US:
The investment environment in the US housing market is challenging. However, with housing affordability at its worst in over 30 years, this does create some opportunities for all cash buyers and long-term rental strategies.
Despite mortgage rates at over 7% percent, there is only 1.1 months of housing supply available, creating a very tight market. Homeowners are hesitant to move and trade-in their current low-interest mortgage for a new higher-rate home. Along with an undersupply of new construction coming to market since the 2008 housing crisis, there is still very limited supply in the US housing sector. This supply-demand imbalance has contributed to the continued strength of the housing market despite the historic moves by the Federal Reserve Board to raise interests, hoping to soften demand.
With the expiration of the student loan forgiveness plan this month and ongoing home affordability/availability issues, potential buyers continue to find themselves priced out of the market. This creates more rental demand and higher rents, while reducing some pressure in the for-sale housing market. This market set-up provides opportunities for long-term rental investors like Tangible Strategy, cash buyers seeking yield-producing assets.
Macro Environment and Risk Management
In this current climate of general economic uncertainty, the housing market has become a focal point of concern and anticipation. The specter of the 2008–2009 housing crisis looms large, when average house prices in the UK and US plummeted by nearly 20%.
Zoopla, the UK’s leading home valuation service, projects a market decline of 5% in 2023. On the other hand, Zillow’s forecast of U.S. home prices was revised upward in August, with values predicted to rise 6.5% from July 2023 through July 2024, driven upward by the tight inventory conditions we’ve covered above.
Regardless of the forecasts, Tangible Strategy manages risk by maintaining a well-diversified portfolio, investing in multiple locations across the UK and US. No specific location represents more than 20% of the entire portfolio. We also consider niche properties with unique features that provide additional liquidity in the market, including luxury properties catering to HNWIs that offer higher than average returns.
By actively managing and optimizing the portfolio, we aim to deliver consistent and above-average returns while prioritizing risk management and investor transparency. Through our focus on locations of economic growth, affordability and cash buying opportunities, we can navigate potential house price falls and position for future capital growth. This strategy aligns with our commitment to creating value and long-term wealth for Tangible investors.
Tangible Strategy remains optimistic about the long-term performance of the real estate market, with increasing yields and capital growth. The housing market has been historically resilient, as seen by the consistent recovery since the 2008 crisis. Ongoing population growth and limited housing supply in locations we actively target are key trends that will continue to support our strategy in the long run.
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