Real estate cryptocurrency facilitates indirect real estate ownership. There are many advantages to indirect real estate ownership. There are also some pitfalls. CuBit™ 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, however, most of the time they are very different. In this article, we explore those differences.
Investors
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 (OPM) to make the deal happen. You get that money either through a lender, or from friends, family, and associates.
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.
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.
Below the Range of Syndications
Syndicates doing large deals is common practice. However, for deals worth less than $50 million, banks don’t consider them worth the effort. There is a lot of administrative support and costs involved. Small loans and small real estate deals don’t have enough profit to support the costs of syndication.
Crowds and Crypto
Many investors are using crowd funding or crypto to ll 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
Offering fractionalized ownership of real estate is increasingly being carried out with cryptocurrencies. It is often called “tokenizing” real estate. 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 is not readily interchangeable.
Many view this as indirect ownership. Functionally it is not. Legally, it isn’t ownership of any kind.
Legal property ownership is documented with a deed of trust 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.
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 investors is a called a REIT.
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 of the top of the cash flows. The REIT then passes along some of the positive cash flow to you. 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, when the investment is an NFT tokenized ownership, you have no enforceable, legal, 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.
Pitfalls of Indirect Ownership
The real estate cryptocurrency CuBit™ is a “Horse of a Different Color.” Some people may look at CuBit™ 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 CuBit™ 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 CuBit™ 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 each 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.
CuBit™ isn’t any of those investment vehicles. It doesn’t offer you periodic returns and you don’t have any ownership share.
CuBit™ is a receipt cryptocurrency. Its value is backed by investments that Universal Real Estate Wealth Protection Solutions, LLC™ (UREWPS™, the CuBitDAO™ Administrator), makes in real estate. The value of CuBit™ increases as the value of the real estate increases through appreciation.
No Direct, or Indirect Real Estate Ownership
The CuBitDAO™ (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 CuBit™ you are storing your wealth to protect it from inflation and volatility. Your wealth buys you membership in a decentralized autonomous organization (DAO). The CuBitDAO™ (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 CuBitDAO™ Asset Ledger (the Ledger) is a subset of the corporate balance sheet. It balances the values in the Ledger with the liabilities owed to the .
Conclusion
CuBit™ 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.
Although the design of CuBit™ incorporates inherent protections against volatility and Universal Real Estate Wealth Protection Solutions, LLC™ (UREWPS™, the Company) is committed to support the asset-based valuation of CuBit™, as with any currency there is nothing to prevent speculators from taking unforeseen actions which might cause the price of CuBit™ to vary without reference to the underlying value proposition. The Company cannot prevent and is not responsible for the actions or results of such speculative behaviors.
