Nate Gipson got a notice back in February that one of his rental homes in Memphis, Tennessee, needed a new ceiling fan. As a landlord, he thought the request was reasonable enough.
But before the work could go forward, he had to hash it out with a group of other people who, like him, had purchased a stake in the property through a cryptocurrency website called Lofty AI. And some of them needed convincing.
“There was a large discussion of ‘Is the property manager scamming us?’” Gipson said. “They said, ‘I can go on Amazon and buy one for $35.’”
Like many decisions on Lofty AI, it came down to a vote of the owners, and the bylaws required a 60 percent supermajority for approval.
Welcome to the next phase of the crypto economy, in which ownership of faraway rental properties is divvied up into digital tokens that are sold around the world and the token-holders transform the business of being a landlord into a series of online polls — a system tenants may not even know about.
Lofty AI is one of several tech startups aiming to use blockchain technology to create a new form of investment in real estate. They add to a growing movement built around shared ownership and cooperation, often called distributed autonomous organizations, or DAOs.
The concept of real estate investing for the average person isn’t new. Websites such as Fundrise and RoofStock have for years offered the chance to buy shares of homes and commercial developments in distant places, but they often require minimum investments of $1,000 or more and restrict how quickly investors may cash out.
Lofty AI is going further, creating a mostly unregulated online marketplace in which almost any adult in the world can invest as little as $50 to buy a digital token equivalent to a stake in a single-property rental business. Each token represents a share of ownership in the Delaware-based limited liability company.
“Real estate has historically been seen as a stodgy industry that’s resistant to change, and now we’re seeing all kinds of tech and real-estate ventures,” said Desiree Fields, an assistant professor of geography and global metropolitan studies at the University of California, Berkeley.
She said the emergence of new real estate marketplaces reflects how hot the housing market has become, attracting ever more investors while pricing out many would-be homeowners.
“You can’t afford to buy a home yourself, but maybe you can become 1/50th of a landlord,” Fields said.
Lofty AI is still small. Its online marketplace, which began last year, so far lists about 90 rental properties, most of them in Rust Belt states such as Illinois, Michigan, Missouri and Ohio. Property management companies handle the day-to-day rental operations.
“We just thought, ‘Is there any way we can make real estate investing more accessible, so that anyone with an internet connection would be able to start building an investment portfolio of rental properties?’” said Jerry Chu, Lofty AI’s CEO. The startup got funding from Y Combinator, a well-known Silicon Valley investment company.
“What we want is to bring the benefit of acquiring these individual properties yourself without having to deal with the problems,” he said.
Gipson, 24, isn’t a typical Memphis landlord. A student in the San Francisco Bay Area, he also owns tokenized shares of rental properties in Chicago, and he regularly votes on subjects that come up for his properties — such as the new ceiling fan, which owners did approve.
“I feel like a landlord making those decisions,” he said. He plans to sell his tokens eventually for a down payment on a home of his own.
The buying and selling of tokens are recorded on a blockchain, a system in which many computers contribute to a shared database or ledger that no single entity controls. Chu said the blockchain ledgers are fit to take the place of old-fashioned record-keeping in real estate because the transactions are transparent.
“The buyer and seller can’t trust each other sometimes, and that’s why you have this whole escrow and settlement process,” he said. “For us, settlement takes four seconds.”
Gipson said the startup began telling investors not to reach out to their tenants directly after an experience early on when a tenant learned about Lofty AI and thought it was so unusual that it must have been a scam.
“It would be bad etiquette if a tenant was reached out to by 30, 40 different people saying, ‘Oh, I own the property,’” he said.
Single-family home rentals have historically been informal arrangements, as individual landlords rented out their second homes or properties they inherited. But that changed during the Great Recession that began in 2007, when large investment firms started to buy up foreclosed houses.
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