What is Lofty and how does it work?

Lofty is an online marketplace that facilitates the fractional investment in rental properties located in the United States. The platform allows individuals to begin investing with $50.

Unlike a traditional real estate fund, Lofty does not engage in purchasing and flipping properties. Instead, it operates similarly to online marketplaces such as Airbnb, eBay, or Amazon, by connecting buyers, who are token investors, with sellers wanting to list their properties.

Properties on the Lofty marketplace are sourced from various parties, including real estate agents, turnkey providers, wholesalers, and home flippers. Each property must go through a vetting process, which includes obtaining an inspection report, appraisal, and a signed purchase agreement. The documentation related to this process is made publicly available in the "Documents" tab on the property page.

Investors earn daily rental income, which can be withdrawn at any time, and benefit from property appreciation as the value of the real estate increases. There is no lock-up period, allowing investors to list their ownership stake for sale on the marketplace whenever they choose. Additional benefits include potential tax advantages and the ability to vote on key property decisions. All voted decisions and property management tasks are executed by a property manager.

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How risky is Lofty?

3/5
— Moderate Risk

Investing in fractional real estate through Lofty would likely involve certain risks such as market fluctuations, economic shifts, property management issues, and potential changes in property values.

Legal and regulatory risks, especially pertaining to tokenized assets and the use of cryptocurrency, could also affect the stability and accessibility of investments on the platform.

How liquid is Lofty?

2/5
— Moderate Liquidity

On the Lofty Marketplace, property tokens owned by investors can be listed for sale at any time, providing liquidity to users. The process for selling tokens is streamlined, allowing a listing to be created in under a minute. The platform charges a fee of 2.5% for token sales.

Investors can list their tokens by selecting the property within the marketplace, choosing the quantity of tokens to sell, the wallet from which tokens will be sold, and setting a limit price per token, which can be based on the recommended valuation or a custom price. Orders have a fixed expiration of 30 days and are held in escrow until a match with a buyer is found, or the order expires, at which point unsold tokens are returned to the investor's Lofty Wallet. Transactions are conducted using cryptocurrencies, and sellers must initially accept all crypto payment methods offered on the platform.

How volatile is Lofty?

3/5
— Moderate Volatility

The assets on Lofty's platform, like any real estate investments, are subject to market volatility.

Property valuations can fluctuate due to a variety of factors including economic conditions, interest rates, and local real estate market trends. These fluctuations can impact the value of tokenized property shares, potentially leading to financial gains or losses.

What is the average rate of return for Lofty?

5 %
— Low Return

Investors on Lofty can expect a 5% cash on cash return from their investment.

The value of tokens appreciates or depreciates monthly, starting one month after the property sale is recorded on the MLS, based on the HouseCanary Automated Valuation Model (AVM). This model's valuation is considered industry-standard and is updated monthly, influencing the principal value of the tokens accordingly.

What is the minimum investment amount for Lofty?

$ 50

The minimum investment amount with Lofty is $50, allowing investors to buy a fraction of cash-flowing rental properties.

What is the investment time horizon for Lofty?

1 year

The investment time horizon on Lofty is determined by the property owners through its governance system.

Property owners collectively decide when to sell the property, and upon sale, they receive returns proportional to their ownership stake, after deducting selling fees from the total sale price.

Who can invest in Lofty?

International

Both US and non-US investors are eligible to purchase tokens on Lofty, with the exception of individuals from countries sanctioned by the Office of Foreign Assets Control (OFAC).

Sanctioned countries currently include the Balkans, Belarus, Burma, Côte D'Ivoire (Ivory Coast), Cuba, Democratic Republic of Congo, Iran, Iraq, Liberia, North Korea, Russia, Sudan, Syria, and Zimbabwe.

Is Lofty regulated or audited?

Audited

Lofty's marketplace uses a smart contract for trading, which has been audited by CertiK, a blockchain security firm.

This smart contract is built on the Algorand blockchain, ensuring that every transaction is executed securely and transparently.

Is Lofty insured?

No

Lofty's specific insurance details are not provided.

Generally, real estate investment platforms insure properties to safeguard against physical damage or losses. This coverage typically includes standard risks like fire, theft, and natural disasters, but may not encompass all possible events, such as market downturns, economic shifts, or fraudulent activities that could impact property values.

Additionally, insurance coverage limits may not always match the full market value of the properties.

Does Lofty distribute payouts?

Rental Income

Lofty distributes rental income to investors on a daily basis, which is credited to their accounts at around midnight UTC.

This income can be viewed in the Assets Overview section of the investor's Lofty Dashboard under the Current Balance and can be withdrawn at any time by clicking the "Withdraw" button. The withdrawal options include Bank Transfer (ACH), PayPal, Algorand, USDC (Algorand), and STBL (Algorand).

What are the annual fees for Lofty?

Lofty generates revenue through a 2.5% marketplace fee on both buy and sell orders for traded properties on the Lofty Marketplace. This fee is applied to each transaction conducted on the platform.

How do I handle my investments in Lofty?

Investors on Lofty can manage and track the performance of their property investments through a dashboard known as Assets Overview.

This dashboard displays the number of tokens an investor holds, their current principal value—which adjusts automatically each month after the token offering is complete—and the income added to their account, including a record of historical transactions.

How does Lofty get taxed?

For US residents, Lofty automatically generates and sends a pre-filled 1099 form for each property invested in, which is also submitted to the IRS. Investors receive these forms to assist with their personal income tax filings. Rental income is reported as nominal income, and standard capital gains taxes apply upon selling tokens at a gain.

Non-US residents are subject to US withholding taxes on gains from token sales or rental income withdrawals. To potentially reduce withholding taxes, non-US residents from countries with tax treaties with the USA can submit Form W-8BEN (for individuals) or Form W-8BEN-E (for business entities) to Lofty, provided they have a US SSN or ITIN.

Lofty's Tax Dashboard is available for investors to download their 1099 tax forms once they are ready. The dashboard can be accessed via the Lofty account, and past tax forms are also available for download.

How many investors are on Lofty?

As of September 2023, Lofty reports having approximately 7,000 monthly active users.

The platform has tokenized 148 properties spanning 11 US states. With an average of 231 buyers per home, the platform has facilitated a diverse range of investments, with portfolio values ranging from as little as $50 to about $2,221,000.

Additionally, Lofty has generated $2 million in rental income for its users to date.

Who is the CEO of Lofty?

The CEO and founder of Lofty is Jerry Chu. He co-founded the company alongside Max Ball in May of 2018.

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