Each Tangible Custody-curated and Tangible Custody-managed property sits within a local Special Purpose Vehicle, (SPV) a legal entity created solely for this purpose. For example UK Tangible properties are each held in an individual UK SPV. TNFT holders have beneficial ownership to the SPV, either in full or fraction, based on their holdings. All properties are leased and rental yield is paid to the TNFT holder(s) in USDC. It’s possible to purchase both an entire property as a TNFT, or just a fraction of one. This means that anyone in the world, with any ticket size, can become a buy-to-let landlord in just 15 seconds.
Whenever the property TNFT changes hands, the beneficial ownership also changes hands.
Tangible is marketing various rates of return in an effort to accurately represent the investment opportunity, as well as the expected annual return of USDC to the TNFT holders.
Gross Returns are calculated using only the selling price of the house, paired with either an estimate of the capital appreciation, an estimate of annual rental income, or both.
Net Returns are calculated using the selling price of the house plus all additional closing costs, fees, and reserve budgets, as detailed in these docs. We’re referring to this total, all-in sales price as the Total Tokenized Selling Price. As a result, Net Returns are lower than Gross Returns.
The Total Tokenized Selling Price includes, but is not limited to: Property Cost, the Management Fee, the Vacancy Reserve, the Maintenance Reserve, and all legal costs, insurance, and taxes.
Below is a summary of the various rates of return. These figures assume the property is leased, the rent is paid on time, capital appreciation maintains past performance, and maintenance fees are negligible.
Gross Capital Appreciation:
The average annual capital appreciation, calculated using valuation data from the previous five years. Example using a home value of $57,500 in 2022, and $42,500 in 2018, a five year stretch:
((57,500 - 42,500)/42,500 in 2018)/5 = 7.1%
Gross Rental Yield:
The annual rent collected from the tenant, divided by the property cost. Example using an annual rent of $5,820, and a property selling price of $60,625:
5,820/60,625 = 9.6%
Expected Total Gross Yield:
The total of the gross capital appreciation and gross rental yield, assuming capital appreciation continues along its five-year historical trend, property is leased, and rent is paid monthly, with no maintenance costs incurred.
Net Rental Yield:
The expected amount of cash to be returned to the buyer in USDC, based on the TNFT purchase price. It’s calculated using the annual rent collected from the tenant, divided by the total tokenized selling price of the property. Example using an annual rent figure of $5,820, and a total tokenized selling price of $72,061 ($60,625 property selling price + legal costs, fees and reserves of $11,436):
5,820/72,061 = 8.1%
Expected Total Annual Net Yield:
This is the expected total return on the buyer’s investment, accounting for the total tokenized selling price, annual collected rent, and expected one-year capital appreciation. Example using a tokenized selling price of $72,061, annual collected rent of $5,820, and expected one-year capital appreciation of $4,280:
(5,820 + 4,280)/72,061 = 14%
After signing a sales memorandum and placing a deposit on the property, Tangible Custody lists each property for sale on Tangible. The sale is open to all users for two weeks, or until all fractions are sold out. During this sale, each user who purchases a fraction of the property will receive an “In Escrow” TNFT, which cannot be transferred, sold, or traded, but represents their share of ownership of the SPV, and identical share of the In Escrow property. Once the initial sale ends, the TNFT will be unlocked, and rent distributions will start within seven business days.
Should the property-backed TNFT almost sell out, but not to 100%, the sale may be extended by a limited number of days. Should the property-backed TNFT not sell out by the sale end date, the sale will be canceled, and all initial purchasers will be refunded 100% of their investment, including all fees, within five business days.
Tangible Custody collects rent from the tenants, and pays the rent to the Tangible DAO, which places the rent in smart contracts that allow all token holders to collect. Rent distributions start within two business days of the initial property sale being completed.
Rental yield will be disbursed daily to all TNFT owners, minus the below management fee collected by Tangible Custody. Fractionalized TNFT’s rental yield will be split proportionally between fraction owners. Tangible Custody endeavors to lease all TNFT-backing properties, whenever possible.
At initial purchase of a Real Estate TNFT, 2% of the purchase is moved into a vacancy reserve, to support continued rental disbursement during periods without an active lease. Should the reserve capital fall below 2% of the property valuation, a recurring 20% of rental yield will be held back until the vacancy reserve is replenished. Should the reserve become completely drained, rental yield will be paused until the property is again leased. Should a property fail to rent, Tangible Custody may decrease the rent to find a tenant. (Conversely, should market demand grow, Tangible Custody may increase the rent.) Should an owner take possession of and redeem the TNFT, all capital in the vacancy reserve would revert to the owner with the property.
Yield estimates include Capital Appreciation, the portion of the investment where the gains in the property’s market price exceed the original investment's purchase price. This figure is an estimate, based on the local average over the last five years.
Tangible Custody manages the properties for an annual fee of 2% of the property value. This includes ensuring the property is leased as consistently as possible, informing owners of any repairs required (when relevant), overseeing any repairs required. Tangible Custody will also manage redemption requests, transferring ownership to a named person or new legal entity, for an additional fee.
At initial purchase of a Real Estate TNFT, 5% of the purchase is moved into a maintenance reserve. This reserve will be accessed should any repairs or maintenance, including possible major costs both planned and unanticipated, become necessary. (Repairs and maintenance covered by property insurance will not affect the maintenance reserve.) Should the reserve capital fall below 5% of the property valuation, a recurring 20% of rental yield will be held back until the maintenance reserve is replenished. Should the reserve become completely drained, 100% of rental yield will be put towards replenishing the reserve. Invoices and quotes for repairs above $100 will be uploaded to the real estate owner’s portal.
Should an owner take possession of and redeem the TNFT, all capital in the maintenance reserve would revert to the owner with the property.
Upon listing in the marketplace, all new real estate TNFTs will include a 5% tokenization fee added on top of the house price. This fee will be charged to all buyers and is used to cover legal fees, other costs associated with sourcing and closing properties and miscellaneous protocol overhead.
All TNFT properties are fully insured. Insurance costs will reduce monthly yield, although the advertised TNFT yields are adjusted to reflect this cost.
It is each TNFT-owner’s responsibility to report their yield income to their domestic taxation body or country of residence.