Tokenised property investing in UK

[22s]

Hi everyone - I came across these guys in the US and thought it was an interesting concept: https://www.lofty.ai/ and https://realt.co/

Does anyone know if there's a UK equivalent? Or something similar?

I know of Property Partner and a few other property crowdfunding platforms, but they all seem to have pretty weak returns and high fees, and also seems hard to sell the properties to release cash when required. They also generally at least £500 to £1,000 minimums and lock the money up for a long time. I like the concept of splitting the property into tokens so they can be more easily traded.

I actually think Lofty actually take international investors so I'm thinking of investing directly with them - is there anything to look out for? (apart from the fact they only offer US properties).

Thanks!

[LooneyTunes]

Looking at Lofty, have you thought through the implications of:

A closed ecosystem
Payment in crypto
AI based property selection
Their FMV determination approach
The transparency (or lack of) around management costs etc

I like property as an asset class but this has me thinking “rather you than me”.

[Noel]

I had a quick look. Their listing fee is 10% gross, inc. all fees, not just the purchase price. So I can see how they make money whether the investment is good or bad.

Property is a physical asset. Unless they can provide detailed reports on the condition of the building how can you establish if the maintenance budget is enough.

Do they already own the asset or is it held under some kind of option? How is the listing price established?

Are all costs passed back to tenants or do you bear future maintenance? What about voids? You will have to cover costs for vacant space.

How good is the local market? Can you expect capital appreciation or just the income?

What about changes in legislation? I have no idea what is on the cards in the US.

I would suggest you do a lot more research about how the market functions before considering something like this.

[CharlesElliott]

There was a number of these a few years ago, but I seem to remember that most of them ended badly. The model itself could work if executed properly, but I think it attracted a lot of chancers.

[CharlesElliott]

I am no expert on the US property market, but yields of 11-12%+ don't seem realistic over the medium term.

[Percy Cushion]

If you're looking for tokenised property investment, maybe consider investing in a UK property fund like a Real Estate Investment Trust (REIT)?

[22s]

LooneyTunes said:

Looking at Lofty, have you thought through the implications of:

A closed ecosystem
Payment in crypto
AI based property selection
Their FMV determination approach
The transparency (or lack of) around management costs etc

I like property as an asset class but this has me thinking “rather you than me”.

Interesting points... thank you... especially on the crypto front...

Noel said:

I had a quick look. Their listing fee is 10% gross, inc. all fees, not just the purchase price. So I can see how they make money whether the investment is good or bad.

1 - Property is a physical asset. Unless they can provide detailed reports on the condition of the building how can you establish if the maintenance budget is enough.

2 - Do they already own the asset or is it held under some kind of option? How is the listing price established?

3 - Are all costs passed back to tenants or do you bear future maintenance? What about voids? You will have to cover costs for vacant space.

4 - How good is the local market? Can you expect capital appreciation or just the income?

5 - What about changes in legislation? I have no idea what is on the cards in the US.

I would suggest you do a lot more research about how the market functions before considering something like this.

All good questions... Thank you. Interestingly Qs 1-4 are all things I would want them to transparently share upfront!

CharlesElliott said:

There was a number of these a few years ago, but I seem to remember that most of them ended badly. The model itself could work if executed properly, but I think it attracted a lot of chancers.

Any ideas why they didn't work?

Percy Cushion said:

If you're looking for tokenised property investment, maybe consider investing in a UK property fund like a Real Estate Investment Trust (REIT)?

Thanks for the suggestion. I've looked at these, but most seem to be targeting highly populated urban areas and I also don't like it's a big fund where I can't really track what's happening with each investment without tonnes and tonnes of time poring over docs.

[LooneyTunes]

22s said:

hanks for the suggestion. I've looked at these, but most seem to be targeting highly populated urban areas and I also don't like it's a big fund where I can't really track what's happening with each investment without tonnes and tonnes of time poring over docs.

With a big fund you’re exposure is to the portfolio not each individual investment. That portfolio will likely contain assets that are easier to value on an ongoing basis than the sort of ad hoc properties listed on lofty.

Unless you know an area it’s hard to value a single property with any degree of confidence. That gets harder still if an area is less homogenous and lower density (less standardisation and less data!). In spite of this lofty says they use Zillow for their ongoing valuations.

I own several properties that zoopla (obviously don’t use Zillow over here) doesn’t get close to on valuation because:

1) they’re unique which makes them hard to value using crude data driven approaches
2) they’re in relatively scarcely populated areas where properties remain in the same ownership for extended periods which makes the number of local transactions small
3) properties in the area have generally seen a lot of renovation work at different points in their lives which makes historic pricing data limited in value

In one case zoopla gave a valuation around 1/3 of the market price. Post-purchase zoopla has shown it as increasing at the same % rate as others locally, which fails to into account planning permission that will increase its size by ~25%. Just can’t rely on it for a proper valuation.

If you accept that the platforms are somewhat flawed for valuation purposes then how are you going to track the value of your investments with any degree of confidence? And what are you going to do if you think the platform valuation is wrong?

Buy the tokenised stuff and you could find yourself faced with these sorts of considerations. REITs operating at scale will won’t have the same challenges (but you do still need to understand what you’re buying into, just not necessarily at an individual unit level) and, if there’s a decent traded volume, you can easily find your market price… I know which I’d choose if I wanted a passive investment.

[67Dino]

Another option is to invest in shares in house builders like Persimmon or Barratt which are influenced by the housing market. Article here suggested they might even be undervalued atm…

https://www.sharesmagazine.co.uk/news/shares/as-ho...

[22s]

LooneyTunes said:

22s said:

hanks for the suggestion. I've looked at these, but most seem to be targeting highly populated urban areas and I also don't like it's a big fund where I can't really track what's happening with each investment without tonnes and tonnes of time poring over docs.

With a big fund you’re exposure is to the portfolio not each individual investment. That portfolio will likely contain assets that are easier to value on an ongoing basis than the sort of ad hoc properties listed on lofty.

Unless you know an area it’s hard to value a single property with any degree of confidence. That gets harder still if an area is less homogenous and lower density (less standardisation and less data!). In spite of this lofty says they use Zillow for their ongoing valuations.

I own several properties that zoopla (obviously don’t use Zillow over here) doesn’t get close to on valuation because:

1) they’re unique which makes them hard to value using crude data driven approaches
2) they’re in relatively scarcely populated areas where properties remain in the same ownership for extended periods which makes the number of local transactions small
3) properties in the area have generally seen a lot of renovation work at different points in their lives which makes historic pricing data limited in value

In one case zoopla gave a valuation around 1/3 of the market price. Post-purchase zoopla has shown it as increasing at the same % rate as others locally, which fails to into account planning permission that will increase its size by ~25%. Just can’t rely on it for a proper valuation.

If you accept that the platforms are somewhat flawed for valuation purposes then how are you going to track the value of your investments with any degree of confidence? And what are you going to do if you think the platform valuation is wrong?

Buy the tokenised stuff and you could find yourself faced with these sorts of considerations. REITs operating at scale will won’t have the same challenges (but you do still need to understand what you’re buying into, just not necessarily at an individual unit level) and, if there’s a decent traded volume, you can easily find your market price… I know which I’d choose if I wanted a passive investment.

Hmm all good points. Thanks for taking the time to write all of that out!

REITs do look appealing but the fees just appear to come out at every point in the process. Just read this and quite offputting: https://www.addyinvest.com/2021/01/26/the-hidden-f...

Are there any low fee options out there?!

[Mr Whippy]

Just buy REIT stocks directly.

Why buy via ETF if you’re at the end of the scale where you’d prefer finer control of selection anyway?

I’m guessing a REIT just adds another 1-1.5% for managing the selections etc.