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In my previous article on real estate tokenization, I discussed how this promising innovation has struggled despite early enthusiasm. Tokenization without a clear economic purpose is likely to remain niche. Broad adoption has not materialized because the economic rationale is lacking.

Introducing the Fourth Way: IVVIA

Traditionally, real estate can be acquired through cash, mortgages, or leasing. Each method has its drawbacks. Cash purchases are often unattainable, mortgages come with long-term commitments and high fees, and leasing offers no path to ownership. IVVIA provides a fourth way, combining the benefits of ownership and investment with the flexibility of tokenization.

IVVIA allows a property buyer, termed an “ivviator,” to gradually purchase their home by acquiring tokens that represent fractions of the property. Similar to a mortgage, buyers can make monthly payments. However, they partner with real estate investors—called “ivviatees”—who hold the tokens. The ivviators buy these tokens over time at market value, offering more flexibility and fewer fees.

Unlike a mortgage, which involves a long-term financial commitment, IVVIA allows ivviators to buy out tokens at their own pace. If the ivviator needs to move, they can sell their accrued tokens at market value. Investors also benefit from liquidity, as they can sell their tokens to the ivviator or on the open market at any time.

The relations are governed by a smart contract, automating routine transactions such as token sales and monthly rent payments. This model offers flexibility and transparency, powered by blockchain technology.

The Economics of IVVIA: A Real-World Scenario

To test the feasibility of this concept, I reviewed two decades of historical market data from the Australian Bureau of Statistics, including property prices, mortgage rates, rent, and bank deposit rates. I modeled potential outcomes for both traditional mortgages and the IVVIA system, yielding striking results.

Consider Alice, who bought a two-bedroom house in Sydney’s Auburn suburb in 2004 for $520,000. With a 20% down payment of $104,000, she took out a 20-year mortgage with an average interest rate of 6.44%, resulting in monthly repayments of $3,175. Over 20 years, her total expenses amounted to $866,000. By 2024, the property’s value rose to $1,400,000, giving Alice a net profit of $533,000 ($1.4M minus $866K in total costs).

In the IVVIA system, Alice would partner with four investors—each contributing $104,000. They form a unit trust, purchase the house, and tokenize it, with each member receiving an equivalent share of tokens.

Alice continues to pay $3,175 per month, referred to as her Expenditure Cap. Instead of repaying a bank loan, she allocates this amount between renting and buying out her investors’ tokens. Initially, Alice pays rent to her co-investors based on their ownership of the property. With Alice owning 20% of the tokens, she pays 80% of the rent to the other investors. Assuming an initial market rent of $1,216 per month, Alice’s share of the rent would be $973. The remaining $2,202 from her Expenditure Cap would be used to buy tokens from her co-investors at a price reflecting the current market value of the property.

In the first month, Alice could afford to buy 1.30 tokens at the property’s new value of $521,000, increasing her ownership to 20.44%. Over time, as Alice’s ownership share increases, her rent decreases. After ten years, she would own nearly 79% of the property, reducing her rent payments to just $368 per month. By this time, the house’s value would have risen to $745,000, and Alice would be buying around 1.1 tokens monthly.

After 15.5 years, Alice would fully own the property, having spent a total of $700,000, including the initial down payment, rent, and token buyouts. This represents a saving of approximately $166,000 compared to the traditional mortgage route.

The Investor’s Perspective

For investors, the basic scenario mirrors Alice’s mortgage. In IVVIA, investors earn profits from both rent and the difference between the initial token price and the selling price. An investment of $104,000 could yield a total return of $44,000.

To make this comparable to a mortgage, we assume investors don’t spend their rental profits or token sale income but accrue it, similar to how a homeowner accrues equity. After 20 years, this accrual could result in a total of $1,200,000—140% more than the $533,000 earned in the traditional mortgage scenario.

From Naïve to a Real-World Solution

While IVVIA offers a real solution to real estate tokenization challenges, there are hurdles to consider. Long-term investments can run into legal complications such as disputes, bankruptcies, or deaths of the ivviatees. Simple smart contracts may not easily resolve these issues.

For IVVIA to scale, we’ll likely need professional smart contract administrators to manage the system impartially, handle legal complexities, and ensure compliance with evolving regulatory frameworks. Despite these challenges, the advantages of automation and decentralization make this system more efficient than traditional real estate finance.

The idea of tokenizing real estate isn’t new, but IVVIA offers a true economic solution. By merging the flexibility of tokenization with the stability of real estate, IVVIA addresses the barriers that have kept property tokenization from going mainstream. This isn’t just another blockchain use case; it’s a change in how we think about property ownership and investment.

IVVIA aligns the incentives of buyers and investors, turning property into a dynamic, tradable asset while offering individuals a flexible path to homeownership. Leveraging smart contracts, DeFi, and fractional ownership, IVVIA could represent the future of real estate—a fourth way that might become the new norm.

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