Property Coin – Cash Flow Token
Starting this week, it is time to have a deeper look into Property Coin and the company behind it; Aperture. In this post, we will discuss the cash flow that comes from the tokens, what the returns are and how these returns are created.
If you haven’t read the first installment of the series of articles about Property Coin, follow the link below:
Property Coin is a cashflow token, since 50% of the company’s net profits are paid to token holders. The other 50% is reinvested to continuously expand the total value of assets behind the tokens, which means that there is also compounding in play. So there are three value driving characteristics behind the token:
- Cash flow,
- Assets to back the token, and
- Price change due to supply and demand of the token.
Let’s get into where the company makes its money, which is from flipping properties and providing loans to investors. Aperture has developed a selection tool named Sherlock that picks the perfect deals out on the market. The tool goes through thousands of property listings per day, and generally 1 in 500 is selected to be purchased for a flip. In this selection liquidity of the property is key. Aperture targets properties in liquid price points within the market they operate in and prefers to acquire properties that are affordable and attractive to a large audience of potential buyers in their target markets.
Below two graphs of the effect of the compounding potential returns of Property Coin token holders. Property coin has made several estimates based on low, base and high returns for the years. These estimates are based on linear bad/normal/high performance, though it would have been good to see the outcome of a combination of years with the three levels of performance.
The Flips Business
Property Coin attempts to acquire properties for less than the market value at time of acquisition. During acquisition Property Coin engages independent contractors to repair and renovate the properties. A typical project will see 10-20% of the purchase value invested in repairs that increase the value of the home upon resale.
See below for an example of an actual flip trade:
The properties are selected, acquired, renovated and then sold again, meaning that they will not spend much time in the portfolio of the company (target holding period including renovation and resale is 180 days). A high velocity with the properties means that the same funds can be used more often to purchase and fix a house, which will lead to higher returns.
The Loan Business:
Next to acquiring, renovating and selling (flipping) properties, Property coin has another way of generating profits, namely, lending money to third parties for acquiring properties.
Compared to flips, lending is lower risk, lower return. This is a good way of diversifying their portfolio. The lower risk is primarily because the loan amount is less than the market value of the property (approximately 75% LTV) and the expectation that the vast majority of borrowers pays Property Coin as agreed.
Target borrowers include local real estate investors, real estate agents and contractors who typically acquire between 2 and 20 properties per year.
Below you’ll find an example of how a loan trade would look like:
Property Coin is able to borrow for 6%, and in the current interest rate climate will offer real estate investors loans at 9.5%, leaving an attractive 3.5% spread for Property Coin.
Stay tuned for the next post on Property Coin!
Click below to visit their website