Real Estate Cryptocurrency – There are many advantages to indirect real estate ownership. There are also some pitfalls. DirtiCoin helps you avoid those pitfalls.
Fractionalized Real Estate Ownership
A lot of companies are jumping on the crypto bandwagon by offering crypto-based fractionalized ownership of real estate. To the uninitiated, fractional ownership looks like indirect real estate ownership. In some instances they are interchangeable. Most of the time they are very different.
When you are a real estate investor and you have a deal you can’t fund yourself you have several options:
- Get a loan
- Get a partner who has the money
- Do both
Your options come down to the same thing. You need to use other people’s money to make the deal happen. You get that money either through a lender, or from friends, family, and associates.
Real Estate Syndicates
When you get a few partners into a deal you may have a partnership. When you get several involved it quickly becomes a syndication. In either case, the Securities and Exchange Commission (SEC) may say the ownership share is a security. When that happens you need to comply with securities laws.
In partnerships, each partner owns a percentage of the property. With a syndication, you create a company to own the property and everyone gets an ownership share of the company.
Real Estate Cryptocurrency – Loan Syndicates
When you want to borrow a lot of money from a bank often they will involve other banks and syndicate your loan. This is usually invisible to you, but each bank involved owns a piece of the returns on the loan.
Syndicates are Expensive
Syndicates to do large deals are pretty common. However, they usually aren’t worth the effort for deals less than $50 million dollars. There is a lot of administrative effort and costs involved. Small loans and small real estate deals don’t have enough money involved to support the costs of syndication.
Real Estate Cryptocurrency – Crowds and Crypto
Many investors are using crowd funding or crypto to fill the gap below the $50 million threshold. Both of these financial tools offer streamlined ways to attract money and to manage the administrative burden. The differences between direct and indirect ownership in this space are important.
If ownership is indirect, then you have a claim on the company that owns the real estate. However, you don’t have any legal claim to the actual real estate. Direct ownership means you have a legal claim to a portion of the ownership interests in the real estate.
No Ownership
The offering of fractionalized ownership of real estate is increasingly being carried out with the use of cryptocurrencies. These fractional ownerships are securities. The cryptocurrencies used for these offerings are typically based on the ERC-721 Ethereum protocol and are non-fungible tokens (NFT). This means that one token is not precisely as valuable as any other and are not readily interchangeable.
Many view this as indirect ownership. Functionally it is not. Legally, it isn’t ownership of any kind.
Legal ownership of a property is documented with a deed or deed of trust that is registered and recorded by a sovereign authority. Your local County Registrar is the agent of the County. The County government is the sovereign in most cases. Sometimes the sovereign is a city, state, or federal government.
Today there is no sovereign in the world that recognizes an NFT as a legal claim on property rights. This means your NFT isn’t protecting your rights.
Real Estate Cryptocurrency – Non-Deal-Specific Funding
You might get together with a group of like-minded people and pool your cash. Then you go looking for real estate deals and use the pool of cash to buy them. Usually, the pool of cash is deposited in a company. The company buys the real estate and you own a piece of the company. This is a lot like a syndication, but it isn’t built with a specific property in mind.
The most common funding pool for most people is a called a REIT.
Real Estate Investment Trusts (REITs)
When you invest in a REIT you are buying a share in a trust fund. The trust fund owns the underlying real estate. The REIT take their cut off the top of the cash flows and passes along to you some of the positive cash flow. Or they pass along losses when the cash flow is negative. When they sell the property, any gains are split up among the investors.
Pitfalls of Indirect Ownership
The biggest pitfall of indirect ownership is believing you have ownership of a property when you don’t. At the worst case, an NFT, you have no claim on the real estate. You might not even have a legal claim against the company. Understanding your ownership position is paramount for protecting your wealth.
Real Estate Cryptocurrency – DirtiCoin is a Horse of a Different Color
Some people may look at DirtiCoin and assume it is a funding pool. It isn’t. If it were a funding pool you would have an ownership stake in the company that manages the pool.
Others will look at DirtiCoin and think it is a REIT. It isn’t. If it were a REIT you would have an ownership share in the REIT. Also, REITS are securities with very strict regulatory requirements.
Some will look at DirtiCoin and think it is a real estate syndicate, a loan syndicate, or a crowd-funding scheme. It is none of those. In each of those you would either own a part of a property, a company, or a loan.
In all of the above cases you are promised a variety of returns based upon the risks you take on. Those returns may be paid along the way, at the end, or both.
DirtiCoin isn’t any of those investment vehicles. It doesn’t offer you periodic returns and you don’t have any ownership share.
DirtiCoin is a virtual currency. Its value is backed by investments that DirtiCoinMinting (the Company) makes in real estate. The value of DirtiCoin increases as the value of the real estate increases through appreciation.
No Direct or Indirect Real Estate Ownership
The DirtiCoinDAO (the DAO) will not directly own any real estate. If the DAO were to directly own real estate, it would not be a currency. Instead, it would correctly be categorized as some form of real estate investment syndication, fractional ownership, or real estate investment trust, all of which qualify as securities under current US law.
When you buy DirtiCoin you are storing your wealth to protect it from inflation and volatility. Your wealth buys you membership in a decentralized autonomous organization (DAO). The DirtiCoinDAO (the DAO) allows the Company to protect your wealth. To give you that protection, we acquire real estate with your wealth. The Company owns the real estate, either outright or through partnerships.
We recognize the liability owed to the DAO. The Asset Ledger of the Company is a subset of the corporate balance sheet. It balances the values in the Asset Ledger with the liabilities owed to the DAO.
Conclusions
DirtiCoin is a wonderful way for you to use real estate to protect your wealth against volatility and inflation without all the complications of direct or indirect real estate ownership.
