Purpose of the Article

In this article, I am going to provide an overview of what Lofty.AI is, a walkthrough of what its team does, and what people must do if they want to be involved. 

Disclaimers and Disclosures

I know that people tend to not read the footnotes or get to the very end of articles. Thus, I have put the disclaimers and disclosures at the beginning.

Disclaimer: I am neither a financial advisor nor a cryptocurrency (crypto) expert. Thus,

1. I may not have certain technical aspects properly explained for Lofty.AI or crypto. 
2. This article is for educational purposes only and should not be seen as financial advice. 

Please always do your own research.

Disclosure: I own a few tokens of several properties managed under LLCs formed by Lofty.AI: LFTY0002, LFTY0003, LFTY0004, and LFTY0005.

Table of Contents

I have attempted to make this article as comprehensive as possible on the topic without overloading the readers. This article is split into the following sections: 

• Explaining Lofty.AI: Details what Lofty.AI is and why it is a thing.
• Behind the Scenes: Details what the Lofty.AI team does and will do.
• Getting Started: Details what people must do to invest in Lofty.AI’s tokenized properties.
• Staying in the Loop: Details on how to be notified of upcoming property and where to be connected with the Lofty.AI team and investors.
• Closing Thoughts

Explaining Lofty.AI

The One-Line Description

Lofty.AI is a real estate marketplace that utilizes Artificial Intelligence (AI)-driven processes to identify and present potentially undervalued properties for its team to put under contract with a closing period and, in turn, tokenize on the Algorand (ALGO) blockchain for the public to invest in. 

The AI: Why and how

The Why

AI and Machine Learning (ML) are all the rage these days. It is not a surprise that it’s also getting used in real estate. Through AI/ML, large amounts of data could be analyzed and can empower users to make better, and data-driven, decisions.

The How

Specifics on what sort of data points the team uses is available in their blog post titled, “How we Use Data to Predict Property Appreciation” but, for the TLDR, below is a list directly from the post:

- Ratio of lot size to the property’s square footage
- Ratio of the number of bedrooms to the number of bathrooms
- Types of crimes in the neighborhood
- The variance in temperature
- The change in school ratings
- Sentiment of social media posts

The Tokenization: What, why, how, and future expectations

Lofty.AI has an extensive article titled, “What is Real Estate Tokenization” that goes over this but I will be providing a recap of it all here.

The What

As a refresher, tokenization is the process of dividing an asset into digital tokens. In this case, the Lofty.AI team forms an LLC for each property that it buys. An LLC is fractionalized by the tokens which, symbolically, does the same to the property. NOTE: Currently, there is no legal method to directly tokenized property so LLCs are formed and divided instead. For the purposes of this article, tokenizing a property is equivalent to tokenizing an LLC.

The Why

The Lofty.AI team tokenizes properties because of the benefits this method has to offer. For starters, you are now able to invest in property more securely, quickly, and at a lower minimum. Furthermore, you are able to realize your returns faster by receiving daily rental income. Finally, blockchain offers the ability to decentralize finance (Defi), reducing the reliance on banks and other centralized financial institutions for transactions.

The How

Tokenization is accomplished by determining the price range first. The token price is typically in the 50s range in USD, consisting of the underlying asset price, administrative fees, a 5% listing fee, and a 3–5% maintenance reserve. NOTE: The Lofty.AI team only receives the 5% listing fee for selling tokens.

Following the determination of the price range, the total token supply is determined simply by multiplying the token price by the total cost of the property (including the fees and maintenance reserve). 

Once both price range and total token supply are determined, the Lofty.AI team creates an Algorand Standard Asset (ASA) to represent the LLC/property on the Algorand blockchain. As a side note, ASAs can be created for a myriad of applications such as being stablecoins, credits, or non-fungible tokens (NFTs). Each Lofty.AI property is its own ASA, meaning means each property has its own unique ASA ID, token unit name, and set quantity of tokens available for sale. For instance, information on the first property tokenized by Lofty.AI is below: 

• ASA ID: 237913743
• Token Unit Name: LFTY0001
• Total (Token) Supply: 2160

You can find more on this example ASA, including all of its transactions, by searching its ASA ID or Token Unit Name on AlgoExplorer; I have also linked it here for your convenience.

Future Expectations

For now, the tokens only show proof of ownership for portions of the LLC (and, therefore, the property). However, in the future, it could also be utilized in governance protocols which essentially gives token owners the ability to vote on the future of the property.

The Algorand Blockchain: What and Why

The What

Founded by an MIT faculty member, Silvio Micali, Algorand is a blockchain that uses a Pure Proof of Stake (PPoS) protocol and aims to solve the blockchain trilemma of security, scalability, and decentralization. There is a lot more information on this crypto that can be found on their website.

The Why

Algorand is used for the tokenization of Lofty.AI properties because of its ease of use, finality (no forking), and speed of transactions. For reference, Algorand's transaction speed averages around 4.5-5 seconds while Ethereum 2.0 is supposedly around 6 minutes (sourced from a Reddit post, so not necessarily the most accurate). 

Behind the Scenes

Lofty.AI Team's Process

Clearly, buying and selling properties are highly complex and regulated, and throwing cryptocurrency (crypto)/blockchain into the mix introduces another set of challenges. Below is, I believe, a watered-down version of what the Lofty.AI team does:

1. Feed its AI various data points from property characteristics to social media chatter.
2. Review/vet potentially undervalued properties outputted by the AI.
3. Put the property(ies) of interest under contract with a closing period.
4. Form an LLC for the property under contract.
5. Determine the property’s token supply and price.
6. Establish an Algorand Standard Asset (ASA) on the Algorand blockchain to represent the property.
7. Update its website to open the sale of tokens for the property (once tokens are sold out, the property is then considered purchased).
8. Provide the relevant property documentation to its token owners (AKA the property investors), including the Operating Agreement, Manager Consent, LLC Formation, Certificate of Good Standing, Closing & Title Documents, Property Insurance.
9. Manage the property through its local management team by performing activities such as collecting rent, maintenance, and sourcing tenants.
10. Update the property's fair market value (FMV) on the website monthly by applying the rate-of-change of the Zillow Zestimate to the Principle Value.

Future Expectations for the Platform

There are many things in the works from the Lofty.AI team. From my (and many others') constant badgering, here is what I have learned about what the team hopes to do moving forward.

In the near future:

• Create better integration of the investing/divesting process for the tokens by
  • Allowing token purchases directly from one's Algorand wallet
  • Opening up secondary markets so that investors could buy or sell the tokens to one another.
• Receiving rental income directly as ALGO or another stablecoin as opposed to USD.
• Implement governance protocol for token owners so that decisions on the property could also account for investors.

In the distant future/still up in the air/speculation:

• Investing in properties other than single-family homes.
• Create an app to support said integration (not in the immediate future)--As of now, we simply buy/sell tokens and view property information on the Lofty.AI website/dashboard.

Getting Started

Becoming a Lofty.AI Token Owner

To get to the point of buying the tokens for a Lofty.AI property, you would need to complete these steps: 

1. Setup an Algorand wallet.
   • If you do not already have a wallet, create one by using the
     • My Algo by Rand Labs if you are on a computer/laptop; or
     • Algorand Wallet app by the Algorand team themselves (links to Apple Store) if you are on your phone.
   • Deposit a small amount of ALGO into the wallet so you could fund transactions.
2. Complete the Know Your Customer (KYC) process.
   • You will need to provide a copy of your identification and other identifying information when you make your initial purchase.
   • Subsequent token purchases do not require additional KYC because you'll have an account with Lofty.AI by then.
3. Complete the purchase of tokens.
   • For now, the purchase of tokens still uses fiat (AKA you will pay using a bank transfer, debit card, or credit card).
   • To receive your tokens, you must provide your wallet's address. NOTE: This part is crucial and must be done very carefully--you can either manually provide your address or connect using the My Algo platform to retrieve your address.
   • To complete the transaction of your tokens, you must also add the ASA to your Algorand wallet.

The Algorand Wallet: What and how

The What

A crypto wallet is what you can use to interact with (send, receive, and store) crypto. If you want to get into the specifics of what wallets are, there are plenty of resources and I hope to have a comprehensive article explaining wallets in the near future (hopefully it will be updated here as well).

As tokens, representing fractions of a property owned by an LLC, are established under an ASA on the Algorand blockchain, the average person looking to invest in the property must set up an Algorand wallet to interact with the tokens. Fortunately, the team that created Algorand did a fantastic job to ensure that even those who do not dabble in cryptocurrency can easily get started. 

KYC: What and why

The What

KYC is a standard requirement for organizations to verify the identity, appropriateness, and risks stemming from the customers they are entering a business relationship with. 

The Why

Echoing the previous note, real estate is an industry that is regulated stringently so it is expected that you must verify who you are before you can invest.

Staying in the Loop

Connecting to the team and investors

To stay up-to-date on the newest properties being put on sale by the Lofty.AI team, sign up for email notifications through their website and check our their FAQs or blog page while you are at it.

To be able to interact with the team as well as other potential investors directly, join the public telegram group. Once you've invested in one of the properties, you'll also be invited into an investors-only telegram group.

Monitoring Lofty.AI's movements through the "Algo-verse"

Lofty.AI has a vanity wallet address on Algorand where their property ASAs are built on. You could add the address to your "Watch Account" on the Algorand Wallet on your phone or through "Track Address" on the My Algo on your computer. The address is below:

LOFTYRITC3QUX6TVQBGT3BARKWAZDEB2TTJWYQMH6YITKNH7IOMWRLC7SA

Adding the Lofty.AI's wallet address as a "Watch Account" or as a "Track Address" allows you to be notified when transactions occur. It is also an easy way for you to check on whether new ASAs, hence properties, are being prepared for sale.

Closing Thoughts

Cryptocurrency and DApps are becoming more prevalent--no one knows what will succeed and what will fail. That said, Lofty.AI may have had an early mover's advantage in disrupting the real estate industry. Moreover, careful execution through the use of AI, a sound team, and the choice of the Algorand blockchain may just be the right combination.