[00:03:20] Jerry Chu: That wasn’t really the career I wanted. So I can actually use my major for something that seemed pretty interesting. And so that’s, that’s sort of the reason why I always wanted to be in finance and work in a quantitative field.

[00:03:31] Patrick Donley: What was that first shot? Where did you initially go? And I don’t know how long you were in, in that world, but then you taught yourself how to code, correct?

[00:03:39] Jerry Chu: That’s correct. Yeah, not too long. Also, my first role was working at Barclay’s in, um, in Midtown, New York. So that was the first thing that I kind of learned how things were different. Everyone talks about Wall Street, wall Street, but post 2001, post September 11, I believe most of the major banks actually moved their headquarters outta Wall Street.

[00:03:59] Jerry Chu: And they’re like now all based, you know, like Manhattan and Midtown. And so it’s like, so that’s like just a location isn’t even there anymore. So that was the first sort of awakening where it’s like, oh, this is not what a lot of people. And so I was working there in treasury risk management, which is actually mostly a a back office role.

[00:04:17] Jerry Chu: People don’t really realize, but after 2008, the banks got hit with a lot of regulations. That’s another thing people don’t realize. A lot of people felt like Congress or the government didn’t do anything after the financial recession, but it’s actually quite the opposite. There was a lot of regulations that were formed after that to make sure that situation could never happen again, and the banks got saddled with the majority of.

[00:04:40] Jerry Chu: So most of them had to unwind and get rid of their internal proprie trading desks where they were like trading against clients and doing crazy things governed by mathematical models that like vast majority of people didn’t understand based on assumptions that hold up, you know, 98% of the time in the world.

[00:04:57] Jerry Chu: But then when those 2% outliers happen, your model completely breaks down. Everything breaks down. You start losing a ton of money in a very short amount of time, which is how these black swan events happen to banks and how in many cases, recessions are, are often caused. But they had to get rid of all of that and trading became more of a sales job, if you will.

[00:05:19] Jerry Chu: Right. But imagine like instead of selling car or a house, you’re selling clients on hedging instruments or certain strategies to gain exposure to another market that could, you know, help them or something like that. So, so you were just selling a different thing, but it was mostly a front office sales based job and for most people that were trained as financial engineers and had quantitative backgrounds, we got sent to sort of, they called it like mid-off office, like in risk management where you were monitoring the banks sort of treasuries on like which, how money was moving, how much funds they had in certain things.

[00:05:55] Jerry Chu: You had models governing those when it hits certain levels. You would report that and flag that like, oh, that’s not good. We should look into this. Why is this number so high? Why is that number so low? Was doing a lot of that stuff and also sort of validating existing models that people have built to kind of monitor these behavior.

[00:06:12] Jerry Chu: So that’s what I was really doing, and I wasn’t there for a very long time because I loved working with the team. Uh, super grateful for the opportunity, but I’m, I’m just kind of a builder at heart. Like I don’t really like bureaucracy, which is a huge component of, uh, big corporations. I remember at one point, There was this model, but it was built on Microsoft ex, uh, Excel, and it’s, it got very large and it was very slow.

[00:06:36] Jerry Chu: You had to click a button and sit there and wait for 15 minutes for like, the model to run and just, and like it would freeze your computer. So it wasn’t even like you could work on something else while this 15 minute thing was happening. It just like, you couldn’t do anything else on the computer while this model was running, so you just have to sit there pretty much, and it was really annoying.

[00:06:54] Jerry Chu: I thought it was inefficient and a waste of time, so I wanted to rebuild the model using sort of modern day technology stacks. I wanted to rebuild it in Python. And I had to request within the bank to gimme a license for, uh, dev tools in there. Right? Like, and it took them like two and a half weeks to approve it.

[00:07:13] Jerry Chu: And they kept asking, I go, why do you need this? Like, to make your process better? And they’re like, oh, we have to make sure that based on your role, your experience and which department you’re in, you’re, you’re supposed to be able to access something like this. Okay. There’s all that running around. It took two weeks to just get the license so I can download the software I needed.

[00:07:31] Jerry Chu: And that was just, I was like, okay, I don’t really see myself sort of enjoying or thriving in an environment like this for the next 20, 30 years. And, and so I just didn’t see myself getting a career in big organizations. You’re exactly right. I was like, okay, what can I do instead? And again, I really enjoy technology.

[00:07:50] Jerry Chu: I kind of kept up with it and so I was like, huh, maybe. And sort of coding shares a lot of logical similarities with math. It’s something I like and I just decided, you know, you know what, I can probably teach myself how to do this. And so that’s what I did and I learned how to code and I went to work at another startup where I met my co-founder Max, and that’s kinda how all of this began.

[00:08:12] Patrick Donley: I heard maybe on another podcast, I think you had known him only for a little bit of time. Correct. Like maybe a week or two weeks or something like that.

[00:08:21] Jerry Chu: Yeah, it’s pretty, pretty insane. . You know, it’s one of those things where it just worked out for us. I think huge amount of luck involved, but it’s not something I would advise to most people.

[00:08:32] Jerry Chu: You probably shouldn’t start a company, you know, it’s a very stressful process. It requires a huge amount of trust. You’re basically like married to this person, but I work . It’s exactly, it’s as difficult if, maybe not more to manage than an actual marriage. And so I wouldn’t advise people jump into a new business with someone you just met two weeks ago.

[00:08:54] Patrick Donley: It sounded like you guys, the two of you were at the office one day and there maybe weren’t too many people else in the office, and you kind of got to talking. Who gave the el? Was it your elevator pitch to him or his to you that you both were like, let’s leave this job and start this company together.

[00:09:08] Patrick Donley: I’m kind of curious what the conversation was like and how you came up with the idea.

[00:09:13] Jerry Chu: Yeah. And so back hailing a little bit. When Max and I first met at the company in just quick introduction, we, we went out to lunch together the first day and just kind of chatted a little bit about our, our history, what we’re hoping to achieve in life and our goals and, and ambitions and things like that.

[00:09:29] Jerry Chu: And, you know, it turns out we were extremely similar. He said the same thing. He was like, I could never work at a big company. I’m just going to like . I’m either going to be homeless or I’m going to start a successful business. And they’re like, that’s, there’s no sort of middle ground for me. And that was exactly sort of my thought.

[00:09:45] Jerry Chu: I was like, oh wow. It’s really random and interesting that we just kind of have that same mindset. Fast forwarding to that, one day, we were just randomly at the office alone. I had been working on this idea that I wanted to start and, you know, there was no concrete, I didn’t have funding, I didn’t, I had nothing.

[00:10:01] Jerry Chu: I didn’t know who would be working on it with me. I had no co-founders and honestly, I didn’t even really know like what the business model was going to be at that point. I did the mistake of coming up with a cool technology or building cool technology and then trying to find a business problem to solve afterwards, which is the reverse of what you’re supposed to do.

[00:10:19] Jerry Chu: But, you know, I, I never started my own business. I didn’t have any experience, so I didn’t really know what I was doing. And I just had this pitch deck that I’ve been using to kind of formulate my ideas of like, this company I was going to build around this technology I was going to build. And Max was just kind of curious, was like, Hey, what are, what are you looking at?

[00:10:36] Jerry Chu: And he came over to my desk and we just started talking and I didn’t really treat it as a pitch. It wasn’t like, oh, let’s quit our jobs and get it here. It’s just like, oh, you know, I’m working on this thing. It’s really interesting. I noticed this pattern in real estate based on my quantitative background.

[00:10:52] Jerry Chu: I think you can actually build an AI to model this out and basically spit out predictions for you on what are the best places to invest in real. And you would kind of have this alpha over other investors because if you’ve spoken, there’s a lot of real spe uh, real estate people in Los Angeles, and if you speak to most of them, it’s like 99% gut instinct.

[00:11:13] Jerry Chu: Like most people aren’t investing, uh, very data driven or using a lot of sort of data or, or sort of quantitative methods. It’s just kind of like experience and gut instinct and like, Hey, if we did it this other way, there could potentially be a lot of alpha to be realized in this. And we just kind of went off of each other and he was like, oh yeah, that’s really interesting.

[00:11:33] Jerry Chu: And then like, you could do this. I was like, yeah, and then we could do that. So it just kind of became one of those conversations. And then at the end of that, we were both just really excited. All of a sudden we were like, Hey, you know, why don’t we just do this now? Like, you know, we’re working at another startup, so it’s not like we’re quitting super high salary jobs with pensions and 401ks or anything like that.

[00:11:53] Jerry Chu: Like what’s the real, like why, you know, we’re in an early stage startup. Why don’t we be our own bosses and do our own startup? And that was kind of the consensus. And neither of us had a good reason why we shouldn’t do it. And so we’re like, okay, let’s do this . And the next week we both quit our jobs and started Lofty together.

[00:12:10] Patrick Donley: That’s awesome. I’m curious, what was some of the data that you were looking at to like identify up and coming neighborhoods that had room for Alpha, for room for

[00:12:18] Jerry Chu: Appreci? Believe it or not, like the idea basically came down to tracking the digital footprints of hipsters. We noticed this pattern where, uh, for example, the idea is Brooklyn, New York, like super hotspot to be Williamsburg.

[00:12:33] Jerry Chu: Everyone wants to be there, is super expensive now, but back in the days nobody wanted to be there. Like you, you couldn’t beg people to go live there or to rent there or to develop there like in the, you know, eighties or nineties. And so how does that change? Like how does the neighborhood become, uh, go from something that nobody wants to live in to all of a sudden everyone wants to live in?

[00:12:51] Jerry Chu: Right? So I kind of studied and read a lot of research reports around that, and it really did kind of boil down to sort of hipsters who are like early adopters, like artists, like people that are looking for cheap places that were cool and hip to live, where you could, you know, rent this like loft slash warehouse and there was like no zoning.

[00:13:08] Jerry Chu: So you could be your office and bedroom at the same time and you, it would be your art studio and you know, people would musicians like it, it would be like those type of people. And then sort of businesses and products would sprout up around those hyper localized areas to cater to those people. New bars would kind of start, start up, but these wouldn’t be the high-end bars that people are familiar with in, you know, Manhattan.

[00:13:32] Jerry Chu: These would be like, you know, micro breweries and like really cool, weird, interesting things that kind of start up. And then all of a sudden you have this little neighborhood that is really walkable with really young, cool people. A lot of new idea. And a lot of new things that are being like, tried out in terms of, uh, businesses.

[00:13:49] Jerry Chu: And then all of a sudden other people start noticing and it’s like, oh, this area’s pretty cool. I actually wouldn’t mind living here. And then more and more people sort of migrate over and then that starts boosting rent, which then attracts more investment from real estate investors. And then ultimately the area, you know, building ski fixed, they get bought up, new buildings get built, and so that kind of cycle.

[00:14:09] Jerry Chu: Not just once in Brooklyn, and it’s, you know, uh, said and done. It happens thousands of times a year in thousands of neighborhoods across the country. Like you don’t even have to be in these massive tier one cities like New York and LA to see this in action. Like any city you could be in, like in places that have very sparse populations like Wyoming, I bet you could find a city or a town where this is going on in maybe a, a one or two block area as we.

[00:14:35] Jerry Chu: So the idea was to basically extract data from social media sites like Instagram, Twitter, things like that, that were geotech. So you, you know, you literally had location data accurately within 16 feet in, in some cases, of people saying like, Hey, I just went to a micro brewery. Or like, I really love this new ramen shop that popped up, where people taking photos with their french bulldog puppies, which are like, the designer ones are $10,000 each.

[00:15:03] Jerry Chu: And so it’s like, you know, someone who have that kind of money to be able to afford pets like that. Clearly it shows a lot of wealth migrating into a neighborhood. And so you could track all of this in real time, right? Because the downfall for a lot of real estate investors is you wouldn’t have fresh data.

[00:15:19] Jerry Chu: Like you didn’t know things until they were published in census, or a consulting firm or a private equity firm made this publication that studied data. But it, by the time those articles go up and people sort of know about things, everyone knows about it at the same time. What you want is an edge to know about it before anyone else.

[00:15:37] Jerry Chu: And so having data that refreshes on a daily basis, you can actually see a trend for certain neighborhoods of, oh, this is going up continuously, day over day, month over month. You would basically know before anyone else, right? And so that was the idea, and you would feed that through a neural network, which would then kind of just spit out answers on a map for you.

[00:15:56] Jerry Chu: Like, go check out this neighborhood, go check out that neighborhood. Uh, so that was, that was the product, and that was the idea.

[00:16:02] Patrick Donley: So that first iteration, were you selling the product to, what was your target customer? What, where were you guys selling the service?

[00:16:09] Jerry Chu: We were initially targeting sort of large institutional real estate investors, that they have millions and billions of dollars.

[00:16:17] Jerry Chu: They’re going out to develop, they own and buy shopping malls, things like that. And the idea was basically we would be your location intelligence. You know, we, our product would tell you where you should be focusing more of your efforts on. So that’s more efficient for you guys. So you could do more deals per year, right?

[00:16:33] Jerry Chu: And you could potentially do better deals per year instead of wasting your money in a neighborhood that isn’t actually growing at the same rate and getting in early. You can buy properties at lower prices and land at lower prices for future development and so forth. So that’s who we were targeting.

[00:16:48] Patrick Donley: So how did that work out?

[00:16:50] Patrick Donley: Because the business model now is, is different obviously. Very, very different. Very different. Right.

[00:16:54] Jerry Chu: So you were, we don’t even use AI anymore, so .

[00:16:57] Patrick Donley: Okay. I know that you were involved with Y Combinator or went through their incubator. Maybe they fund you to some degree. I just saw on your website that they’re involved.

[00:17:05] Patrick Donley: What was it like working with Y Combinator? What was the experience like? You know, how did they help in getting to that, I guess the second iteration? Or did they help to get to the next stage of where Lofty is at?

[00:17:17] Jerry Chu: Definitely great question. Y Combinator was very instrumental for us, so for folks who don’t know, it’s basically a startup accelerator, so they invest money into companies and SA at the same time.

[00:17:30] Jerry Chu: It’s almost like going to school where they teach you how to grow your company very quickly. Hence the word accelerator. They’re accelerating your business. And so we joined Y Combinator for their summer 2019 batch, and they kind of basically taught us a bunch of things that made us realize we were doing everything wrong.

[00:17:48] Jerry Chu: Remember when I said earlier of, you should not create a product or a technology that just sounded cool and, and was very technical and was very interesting just for the sake of it. And then go, okay, now that I have this, how do I make money with it? Right. That’s not a good way to start a business. That much better way is to first look at the market, look at people and say, what is a problem that I could potentially solve that people have?

[00:18:11] Jerry Chu: And it’s such a big problem that millions of people would love to solve this problem, and it’s so painful for them that they’re trying to do things themselves to solve this problem maybe on a daily basis. And you know, and they’re failing and they’d be more than happy to pay for a solution that took care of this for them.

[00:18:28] Jerry Chu: And that’s kind of the better way to, to arrive at what kind of business should I create in your business model? And so after learning all of that, we realized institutions like they’re making a lot of money, they have a lot of money and they’re very successful. These real estate investors, nobody was kind of sitting around one day.

[00:18:45] Jerry Chu: It’s like, oh gee, I wish I had this like AI algorithm that would tell me where to buy properties. They’re like, it’s inefficient for sure, but it’s, they have a lot of money. They have huge acquisitions team. They pay, they partner with local real estate brokerages, right? They partner with people that have people of boots on the ground that literally drive around the city looking for new neighborhoods that they could develop and invest in.

[00:19:06] Jerry Chu: And again, not very efficient, but it works for them because they have the funding and they’re big enough to do that. We realized they never really had this problem as cool as our product. As much as it made their teams more efficient, this wasn’t something that was like a burning problem these institutions wanted to solve.

[00:19:23] Jerry Chu: And so we kind of regrouped together as a company and said, we need to pivot our business model. What should we do next? And having the new information that we have, the knowledge we learn from yc, what can we do? And so one of the things we came to was that a lot of. In fact, all of us wanted to own and invest in real estate on the side, and none of us could for various reasons.

[00:19:47] Jerry Chu: And then the reasons started overlapping and then we realized like, oh, this is like a, a very small subset of reasons is the cause that the majority of people who want to invest in real estate don’t get into it. And we basically came to the conclusion that real estate investing is really inaccessible, primarily for three main reasons.

[00:20:06] Jerry Chu: Number one, it’s really expensive right away. That’s a huge barrier to entry. If you don’t have the cash to buy the property outright, or if you cannot obtain a mortgage or a loan, then you just, sorry, no luck to you. You just can’t do it. Then the second issue is that it’s a very outdated transactional process.

[00:20:25] Jerry Chu: You’re talking sometimes of taking upwards of 60 diss 70. To close on a deal on a property this entire time, you’re dealing with a firing middleman man who’s all trying to charge fees from you. Right? And a lot of real estate investors, especially sort of mom and pop retail, real estate investors that go out and buy a house to rent out these people, their primary job isn’t real estate investing, so they have full-time jobs.

[00:20:50] Jerry Chu: So imagine doing all this work on the site on the weekend, or like while you’re at work. It’s a really annoying, frustrating process for some people who even have the funds to go out and invest in real estate, and then the want to do it, they end up not doing it just because the process is so crappy.

[00:21:05] Jerry Chu: That’s the second issue. Then the last issue is a lack of liquidity, which scares a lot of first time real estate investors because they’re thinking, Hey, I have this maybe $200,000 I’ve saved up on the side. Real estate is a really good investment. I hear people talking about it constantly. I should diversify my portfolio.

[00:21:22] Jerry Chu: I want to go out and do this. And then they start thinking, Well, what if I buy this one house and then the tenant trashes it or something goes wrong or the economy crashes, or I lose my job for like a thousand things could go wrong. And it’s like, well then how do I get this money out if I need it? Right?

[00:21:36] Jerry Chu: And then realizing, oh, you gotta hire maybe a realtor and they’ll take 6% fee from you to sell. And if you want to sell very quickly, chances are you’re not able to sell at the market price, you’re going to have to sell below it. And so you’re just losing money right off the bat from there and you’re not able to recover, uh, the majority of your principle.

[00:21:55] Jerry Chu: And so for hybrid entry in terms of capital costs, legacy, transactional process, and the lack of liquidity, these are the three primary reasons that people actually don’t invest in real estate, even though they may want to. We realized that if you actually put the ownership of real estate on the blockchain, you can actually solve for all three problems at the same time.

[00:22:17] Jerry Chu: That’s what we pivoted into, and that’s what we do today at Lofty, which is we turn houses into tokens that people can trade. Now all of a sudden you could buy fractions of a property, right? And you’re still an owner. You’re just a co-owner, and it’s up to you how much you, you want to own. You could own large percentage of the property or a small percentage, and it’s basically based on how much money you want to deploy, how much money you can afford to, et cetera.

[00:22:41] Jerry Chu: Now for as little as $50 people can start building a real estate portfolio. So literally anyone who has an interest in, in starting with real estate investing can do it. Now, there’s no more capital cost acting as a barrier to entry. Then in terms of the transactional process, we’ve eroded that away completely.

[00:23:00] Jerry Chu: Blockchain is extremely efficient, very low fees, very fast. And so what ends up happening is you can just sign up for an account and then under five minutes start buying and investing in properties with these tokens. And you don’t need to worry about a title company. You don’t need to worry or deal with realtors or anything like that.

[00:23:17] Jerry Chu: And in under five minutes you can start deploying capital and building a portfolio, which is much more convenient than going out, finding your own properties, wait 70 days to close on them, et cetera. And then lastly, there’s liquidity. People can trade these tokens. So if you buy a single token for $50 and you decide, Hey, this isn’t for me, right?

[00:23:37] Jerry Chu: Which happens, you can then just sell that token to someone else and someone else will come by and say like, oh, I want to be a co-owner in this property. I like it for X, y, z reasons. And they’ll buy that directly from you. And you basically don’t have to pay any transaction fees. It’s incredibly cheap.

[00:23:52] Jerry Chu: You’re not paying 60, uh, 6% to, again, an agent to sell the house for you. Instead of waiting for months, you can liquidate in five minutes, 10 minutes a day, three days, whatever the number is right now, like our data shows the average amount for people to liquidate their ownership is around three days, three business days roughly.

[00:24:09] Jerry Chu: Um, which is way when you compare to the legacy real estate world, like way, way, way faster and better, we were able to erode all three of these problems away. And ultimately that’s what we’re excited by and we’ll continue to build towards that.

[00:24:23] Patrick Donley: That’s super fascinating. Explain a little bit like if I, you said you could invest for as little as $50.

[00:24:30] Patrick Donley: Let’s say I’m a young guy, I’m just starting out. I, you know, don’t have a ton of money to invest. What exactly am I buying? Am I buying a Lofty token and how does that price fluctuate? And also, I, I guess I’m curious too, like, by buying the token, what do I own? Like the fractionalized ownership? Like what, explain that a little bit more.

[00:24:47] Patrick Donley: because it’s obviously a new concept for many, many people.

[00:24:51] Jerry Chu: A hundred percent. They’re great questions. We are just a marketplace first of all. Right? So when you see properties on our marketplace, we don’t own them. We own zero tokens. We own zero percentages in any of the properties. Think of us as a new age digital brokerage almost, where sellers come to us and say, I have a house I want to sell, and they list it on Lofty instead of the mls, or with a traditional broker.

[00:25:14] Jerry Chu: And buyers can come to Lofty and say, Hey, there’s a house for sale. I want to buy the house. Right? The only difference is instead of selling one-to-one, letting one seller sell the house to one buyer. We have an additional step in the process that makes this more flexible, which is we allow a group of people to collectively come together and pool money and say, I want to buy this house, but I don’t have a hundred thousand dollars.

[00:25:37] Jerry Chu: I only have a thousand dollars. So it’s sort of like crowdfunding, like a group of people who all agree and say, Hey guys, do you want to buy this house? I want to buy this house. Like I have some money. You have some money. Like we all clearly want to own and buy this house, but we can’t do it by ourselves, so why don’t we do it together?

[00:25:51] Jerry Chu: Right? And this sort of phenomena happens again all the time actually in just the real estate world. Like people get together, pool money together. Sometimes they’re colleagues at work, sometimes they’re family members, like cousins, uncles, whatever is is the case. And, and this happens all the time. And so we just handle the creation of a lot of legal entities for you.

[00:26:10] Jerry Chu: So what we do is we spin up an entity called a Dow, and it’s, they’re actually called Dow LLCs, and they’re created in the state of Wyoming. And so for folks that don’t know it, it stands for decentralized autonomous organizations, right? And it sounds very confusing, but basically it’s just a company like an llc, right?

[00:26:29] Jerry Chu: Very traditional company. It has the legal ability to, um, own property, not just real estate, but anything that can go out and buy a car, right? Like anything legally that can be owned, can be owned by this entity. And it also offers its owner’s liability protection, which is a huge bonus. Lots of folks go out and they buy real estate under an llc.

[00:26:50] Jerry Chu: And the reason for that is, you know, if someone slips on your driveways and, and sues the owner, they sue the llc, which only holds the property as the asset. And so your maximum exposure is the house. Whereas if your personal name is on it and you didn’t have an insurance policy, they can sue you for everything you’re worth.

[00:27:07] Jerry Chu: Like your car is your, for whatever may be the case, right? Which is not great. So you get this added bonus of liability protection. But the reason is called decentralized autonomous organizations is because unlike a traditional organization that typically has one manager or like a small group of people as the managing team or a board or something like that, this organization legally has no managers.

[00:27:29] Jerry Chu: It’s managed by an algorithm, which in this case is what we call the governance system. So when you buy these tokens, you become a part owner or a part member of this autonomous, decentralized organiz. And you collectively make decisions together along with the other owners by voting with your tokens. So one token equals one vote.

[00:27:51] Jerry Chu: If you own 1% of the Dows tokens, you have 1% of the voting power, et cetera. And you don’t elect any managers. There’s no c e o or anything like that. It’s basically democracy as H. It was created by the Greeks where people went to the town square and there was no mayor or the president or anything.

[00:28:09] Jerry Chu: There was no Congress or the Senate. It was just, we have a problem and we’re all citizens. We all have the right to vote. We’re going to just decide this ourselves. Everyone has a vote and everyone can voice their opinion. So that’s how all of this works. And basically at the end, once the property is sold, when enough money is raised, um, what ends up happening is the deed transfers.

[00:28:28] Jerry Chu: So the seller sells the house completely to this new entity that we’ve created for you, and you’ve put in money to pull that money together. And now that money is used to then buy the underlying property. The deed is owned by the entity and you become an owner and member of this entity. Uh, and you control everything this entity does, including how it manages the property through voting.

[00:28:51] Jerry Chu: And that’s ultimately how it works and how we’re able to allow you to become a owner for a very small amount of money is how we’re able to fractionalize real estate assets or any assets for that matter.

[00:29:02] Patrick Donley: Super interesting. So is the DAO, the de, it’s decentralized autonomous organization, is the development of an llc, is as a DAO llc, is that a recently new development to limit the

[00:29:14] Jerry Chu: liability?

[00:29:15] Jerry Chu: Yes, it is. It’s, it’s so new. It just came out at the end of 2021 and is only available as far as I know in two states, um, state of Wyoming and the state of Florida. So you can’t even form these, I believe, in the state of California and New York or many other places, or even Delaware for that matter. But I think over time, more and more states will adopt this format as well.

[00:29:38] Patrick Donley: I’m curious, like with all the kind of the media stuff that’s going been going on with FTX and you know, the crypto winner that we’ve been experiencing lately, how’s that affected Lofty? Like what’s business been like for you guys? Has been there been a downturn?

[00:29:52] Jerry Chu: It mostly hasn’t affected us. We have zero exposure to any of this, so it’s, that’s the one thing people don’t realize.

[00:29:58] Jerry Chu: We aren’t a cryptocurrency business, like we don’t sell cryptocurrencies. Right. What we do is we are a traditional, like we sell real estate, we sell houses, but we leverage blockchain technology, which is what a lot of cryptocurrencies operate on, and we realize that this is just a more efficient way to transact real.

[00:30:20] Jerry Chu: Ownership and to also create the ability for you to facilitate governance and voting, right? Because without that piece, you can’t really have a company like who makes the decisions? How? How does that work? Right. Without blockchain, none of that would really be possible with, because you require too much trust in one entity.

[00:30:37] Jerry Chu: But with the blockchain, you can see how all the votes are. Like if we say like, Hey, a hundred people voted, you don’t need to take our word for it. You can go on the blockchain. It’s all public information. You can see did 100 wallets actually vote yes or no? Right? And so all information is verifiable. And because of that, people actually trust the system.

[00:30:55] Jerry Chu: They, they know that there’s no one sort of doing bad things to the votes, essentially. And so all of that requires blockchain. But we’re not a, we don’t do cryptocurrencies. We’re not a cryptocurrency business. So because of that, we’ve had no exposure to that side of the. Directly or indirectly, you know, most of our users in fact are quite happy where they also have some exposure in cryptocurrency investments and they come to us and like, wow, this is great.

[00:31:18] Jerry Chu: Like you, you know, my property holdings on Lofty is the only thing that’s in the green or the only thing that hasn’t gone down and my other portfolios like are down 30%. And unfortunately we did have some users who are part of Celsius and so forth, so that entire portfolio of theirs is gone and then they come back like, good thing I diversified into real estate.

[00:31:38] Jerry Chu: Great. Like good thing. I still have this money here. And so if anything, I think it’s made a lot of people realize, especially people who are very into investing in cryptocurrency, that diversification is really important and putting a hundred percent of your money into a very risky asset that in many cases isn’t backed by anything is very difficult in our.

[00:31:58] Jerry Chu: All these tokens are backed by the actual real estate, like they, they are the real estate. It’s value is derived from the real estate. If the property value goes up through appraisals or, or is sold for a higher price than what you bought it for, then your tokens go up by the same equivalent amount proportional to, you know, how many tokens there are.

[00:32:17] Jerry Chu: So it’s always tracks the property one-to-one. And because of that, worst case canary, you, you always have to land. You always have the house, you can always rent it out and earn cash flow. And even if you did have to sell the house for a loss, real estate tends to not be as volatile where your cryptocurrency portfolio might be going down 50 or a hundred percent in some cases.

[00:32:36] Jerry Chu: But in uh, houses case, like imagining even in 2008, it on the worst hit areas, you didn’t have people. We didn’t have home crisis go down by a hundred percent. That just doesn’t happen. Right. And in cases where it would, you know, the house would probably be destroyed and it’d be through some sort of natural disaster.

[00:32:53] Jerry Chu: But all these properties, you know, the owners, the Dows, they’re buying insurance policies on them as well. So they’re protected. Just no matter what. You’re not liable to lose a hundred percent of your money in the same way that investing directly into cryptocurrencies can

[00:33:08] Patrick Donley: Talk to us about some of the regulatory hurdles that you had to go through to, to get Lofty going to, I mean, these aren’t accredited investors.

[00:33:17] Patrick Donley: What were some of the regulatory hurdles that you had to cross to, to get the entire concept up and running?

[00:33:22] Jerry Chu: A lot, and it’s, it’s an ongoing process. The problem is that this technology and concept is so new, the regulators don’t really know how to handle it. So it’s been a process of approaching them sort of one by one, and then basically saying like, Hey, we’re Lofty.

[00:33:37] Jerry Chu: Here’s what we do. Here’s how our business model works. Here’s what these tokens actually mean. Here’s who’s buying these tokens and, and so forth. And like a lot of, it’s very nuanced because indirectly speaking, you’re not actually even buying the tokens. They’re, they’re given to you for free. What you’re buying is you’re buying the house, right?

[00:33:54] Jerry Chu: Like that’s what you’re putting money towards. You’re not buying the tokens. The tokens are just a record, a digital record of ownership or proof of how much money you’ve contributed into your Dow’s treasury, right? So if you’re pulling money together, how do we know Bob put in $10,000 while Sam put in 20,000?

[00:34:11] Jerry Chu: You recorded by issuing them different numbers of tokens. Right. So it’s, it’s really that simple. That’s what they’re for. People don’t even pay for tokens and so it’s just about educating regulators. But essentially this sort of business activity where a group of people go and buy their own houses and like managing it collectively together is not considered a security by existing laws through the how test through state laws.

[00:34:36] Jerry Chu: Like most people don’t want to read it, but if you’re interested, you can go read your local state’s securities laws. There’s almost always, like from every state we read, there’s some sort of exemption where it’s like, oh, if a group of people invest and buy some sort of asset but there, but you can prove that they all manage it themselves, then it’s not a security.

[00:34:54] Jerry Chu: Like there’s an exemption for that. It’s basically just going to regulators one by one and saying like, here’s how this works. Here’s what people are doing, here’s what people are not doing, and then educating them, because most of them don’t even understand decentralized governance. They literally come in extremely skeptical and don’t even believe it’s possible.

[00:35:13] Jerry Chu: And they’re like, how can a hundred people manage something together with efficiency? Like how, how will that even. But we’ve conducted, you know, through our platform, five 600 governance folks at this point all have passed. Only one had to be redone twice because it didn’t reach the super majority needed.

[00:35:32] Jerry Chu: So the DAO cannot make any decisions. It has sort of bylaws, if you will, like rules. Every member has to abide by that. You agree to, you know, when you join this, and one of the agreements by the default is you guys vote, but no action is taken unless one of the votes reached 60% supermajority, right? So it’s not just a simple majority at 51%.

[00:35:55] Jerry Chu: So this makes it more fair and democratic. One of the dows couldn’t reach 60% twice. So you just re-vote until it reaches a decision. And during that time, people are discussing in our telegram and discord groups trying to persuade each other like, no guys vote. This. Like that’s, this is why I think this is a better way to do this.

[00:36:14] Jerry Chu: And then people change their minds. And then the third time the vote went through, But we’ve done hundreds of these and we can prove with the data, like every governance vote is archived. We as a company have never made any decisions regarding how a property is managed, how much it should be rented for, like any decisions regarding a property and a doubt we we’ve just never made.

[00:36:37] Jerry Chu: And we can prove that legally. All we’re here to do is build a technology that enables you to do all of this stuff. And so we just go to regulators with all this data, all this proof, all this concept, and say you think it’s impossible, but here’s the proof that is actually possible and actually quite effective.

[00:36:51] Jerry Chu: And I think at large scale, one day will prove it might be more effective. Somehow some other organizations are managed. We just go out and do that. And it’s a slow process, but over time, more and more regulators get comfortable and they say, okay, you’re right. There is the exemption. You’ve somehow figured out how to make it work.

[00:37:08] Jerry Chu: And, and there you go. And then, you know, we haven’t been able to speak with all the regulators to date. There is always that risk of like, loss can change in the future. Right? And we’re aware of that and we’ll adapt in time. If things become different, environments become different, new laws are passed, et cetera,

[00:37:24] Patrick Donley: how would that affect somebody you know, that owns fractional, you know, the tokens for with Lofty, if there are changes from a regulatory standpoint, what is the regulatory risk for an investor?

[00:37:35] Jerry Chu: Well, for an investor, really daran, that’s something people don’t realize. Like we’ve had people ask us like, oh, am I going to be arrested by the regulator? I’m like, that’s not how it works. Like they’re here to protect you. They can’t steal your money. And they’re like, what if I spend this money to buy this house with a group of people and they just take the house away?

[00:37:51] Jerry Chu: I’m like, that’s illegal. They, they can’t take your house away. This, that’s not how this works. All it would change is our business model. For example, if it new laws and, and regulation guidance came into place and says, you can’t do this, then we just can’t offer new properties as a business. Obviously that’s not good for us, but not end of the world.

[00:38:09] Jerry Chu: Like our, our customers are protected, right? Like the regulator can’t come in and steal your house. They can’t come in and take your money and they definitely can’t arrest you for going out to buy a house with a group of people. Like that’s not an illegal act.

[00:38:23] Patrick Donley: How as a Lofty investor, am I making money?

[00:38:26] Patrick Donley: Is there, there’s, I saw that there’s like a daily rent that I receive. How are you guys doing that? That’s super interesting to me. And that, and why did you structure it that way?

[00:38:34] Jerry Chu: That there’s a daily payout. It’s actually to prevent arbitraging. A lot of people may or may not know this, but back in the days when sort of mutual funds were first created, a lot of folks on Wall Street kind of realized you could game the system.

[00:38:49] Jerry Chu: They would just buy into a mutual fund right before a dividend payout. Get all the dividend, then they would sell out of it, get their capital principle back, and then they just keep doing this rinse and repeat to like a bunch of different funds and basically get the income and then still keep their principle liquid, which is obviously great for them, but not good for the mutual funds.

[00:39:08] Jerry Chu: So it’s the same thing, right? Where typically rent is collected and paid once a month by the tenant. By the renter, and there’s a third party property manager that isn’t related to Lofty at all. It’s not us that the Dow you guys vote to hire. So, so they work for you and they go, they’re the boots on the ground that make repairs.

[00:39:26] Jerry Chu: They’re the ones that answer the plumbing calls at 3:00 AM when something goes wrong at that house. So you don’t have to do it. And they’re the ones collecting the rent. And those, each Dow has its own bank account, so they’ll send the rent to that property or that Dow’s bank account, and from there you’re entitled to the portion that you’ve contributed.

[00:39:43] Jerry Chu: So if you own 10% of the house, you obviously are entitled to 10% of the rent. Any income is collected and you’re entitled to 10% of any appreciation that’s realized through selling the house one day and, and realistically, 10% of any income that’s derived from the operation of the house. Some. There are weird, unique, quirky things.

[00:40:04] Jerry Chu: For example, there’s this company that’s trying to set up a decentralized 5G mobile network infrastructure, right? So instead of like T-Mobile or one company doing all the work, they’re convincing homeowners to connect their wifi to this device, right? Which is then broadcasting signal and other people can connect to it.

[00:40:21] Jerry Chu: And you basically, by having that device, you mine and mi these tokens which have value. So like that’s why you as a homeowner, you would want to do it. You’re basically being paid to provide wifi to other people. And so you can imagine, we’ve had some owners come to us and say, can we put one of these devices in one of the houses?

[00:40:41] Jerry Chu: It would create additional income sources for us. And in addition to the rental, And we said like, yeah, of course. Like if you want to, like basically, again, we’re not the owners, you’re the manager. You can do whatever you want. If you guys decide to rent out the garage to let your neighbor park their car in there and collect an additional monthly fee, you can do that.

[00:41:00] Jerry Chu: If you guys want to put these helium miners inside the house to gain more cryptocurrency income, you can do that, right? Like you can do whatever you want as long as you reach consensus within the. Number one, you have the right to do whatever you want. And then in terms of daily rental income, the reason we did that was so that when rent is distributed, you are paid directly by how, what percentage you own of the underlying property and how many days you’ve owned it.

[00:41:26] Jerry Chu: So you can’t just buy into a property or a Dow the day before rent is paid. Take all of your rental income portion and then sell out of the Dow the next day. And just kind of keep hopping between Dows that way. This way, if rent is actually paid on a daily basis, if you own the tokens for three days, you get three days worth of rent.

[00:41:44] Jerry Chu: If you own it for the entire month, you get the entire month’s rent. It just makes it a lot more fair for people.

[00:41:50] Patrick Donley: So all the decisions are made in a decentralized manner through voting. Lofty has nothing to do with it at all.

[00:41:57] Jerry Chu: We have nothing to do. And that’s the thing that people don’t understand or believer like we can prove it to you with data.

[00:42:03] Patrick Donley: So how are you guys making money? You’re basically a marketplace,

[00:42:06] Jerry Chu: right? We’re a marketplace, so we make money on the front end every time we sell a house, a property. We make 3% of the asking press from the seller and then from the buyers. So when you guys are creating these dows and contributing money to buy the property, we’re doing all of this backend service for you, like handling the title transactions so you don’t have to.

[00:42:28] Jerry Chu: We also charge a buyer, so 5% fee. So I’ll combine whenever we sell a house successfully through our market. We make 8% of the asking price, which is pretty good. And then at the tail end, you know, when you’re selling, trading these tokens, we have a secondary marketplace built into the app for you where you can trade with these other Dow owners.

[00:42:48] Jerry Chu: So you’re like, Hey, I like this property because I think it’s managed better. I like all this information is publicly available. So the property actually is continuously updated. So you can read each property and say, this property had this issue, how did people handle it? That property had that issue, how did people handle it?

[00:43:04] Jerry Chu: So over time, some people go, you know what? I don’t want to be a member of this group. I don’t think they’re very good at managing this property. I’m going to sell out and go be and go be part of this other Dow. And you can do that. And when you’re trading tokens like that, we make a small transaction. 0.05%. So 50 basis points for all tokens traded through our platform.

[00:43:25] Jerry Chu: And obviously legally they’re your tokens. We have people trading off of our platform, like once you have it, you can do whatever you want with them. So there are people that text each other and say like, oh, I’ll buy your token for X dollars so you don’t have to pay a transaction fee or something like that.

[00:43:37] Jerry Chu: And, and you’re entitled again to do all of that. But that’s ultimately how we make money. We make one-time transaction fees upfront and we’re licensed to do that. Basically broker’s license, , we’re like real estate agents essentially, so we can take that fee. And then for hosting and building this, uh, secondary market, we also make a transaction fee as well.

[00:43:58] Jerry Chu: And that’s how we make all of our money.

[00:44:00] Patrick Donley: It’s really cool. I got on the website you, like you said, you can see all the houses, you can see what the i r is the cash on cash returns.

[00:44:07] Jerry Chu: Yeah. And again, none of that are projections by, by us. It’s like publicly available data. So the tenant has signed a lease, so that’s factually how much rent you’re able to derive per month.

[00:44:18] Jerry Chu: The appreciation projections aren’t from us either. They’re from a third party company called House Canary, which is basically actually used by a lot of institutional funds to, you know, as opposed to Zillow on evaluating properties, you know, at scale, how much is this house worth, et cetera. And so they’re making forecast projections like one year, two year, three year.

[00:44:36] Jerry Chu: And those are the numbers used for the irr. So it’s all this data that people already have access to. We’ve just like consolidated it and put it in a way where it’s very easy and convenient for anyone to really digest and understand. You don’t have to be an experienced real estate investor to understand how any of this works and what the numbers mean.

[00:44:54] Patrick Donley: I was going to just ask like, who is your ideal.

[00:44:57] Jerry Chu: We’re trying to do is basically make real estate the buying, the owning and, and sort of holding and management of real estate and also the selling of real estate 10 times better and easier and cheaper for everyone. So in an ideal world, if we’re successful, the entire single family rental market for real estate will just eventually all be done through Lofty.

[00:45:16] Jerry Chu: That’s it. We’re sort of the platform, the transactional layer who is actually for, is ultimately, again, up to these groups. It’s infinitely flexible. We have some users who, like you mentioned, are young guys. Currently in college and they’re like, I don’t have the funds to go and do this, but I’ve always heard real estate is great investment and that I have time, like I’m young, right?

[00:45:37] Jerry Chu: I can take 30, 40, 50 year time horizon and build a portfolio. So I’m just going to start putting in $50 a week every single week, and I’m just going to start doing this. And then when I earn rent, you can actually let you invest that rent back into buying new real estate again, or in the same proper. You know, it’s like snowballs over time.

[00:45:55] Jerry Chu: We’ve had a user who’s in that exact situation started out with $58 token, and after a year, I think his portfolio’s over five or $6,000 now. Pretty young guy. It’s pretty impressive. Like over time. Yeah. And you know, it protects you from inflation. You’re earning yield and people plan to do this. And then we have folks that are building towards their retirement.

[00:46:13] Jerry Chu: We have people that are building for their daughters, their kids, right? They’re like, Hey, I’m building them a portfolio. They’re like four years old now. And then when they turn 18, 20, 30, or when they get married, I’m just going to hand this over to them and be like, oh, by the way, you own like a couple hundred thousand dollars worth of real estate

[00:46:28] Jerry Chu: Like, congrats. And then we have people that are saving up for their down payment so that they can one day go buy a house to live in themselves, right. For their primary reside. Then we have people who are doing this for charity, like they buy houses through our platform and then they donate all the rental income to affordable housing.

[00:46:47] Jerry Chu: You’re in control, you’re the owner, and you guys can manage and do anything through the governance program as long as it’s not illegal, like you can’t burn the house down that could file for insurance claim or something like that. But beyond, like anything that isn’t illegal, you can do, and because of that, it creates just infinite flexibility.

[00:47:03] Jerry Chu: So ultimately, who’s. Customers, it’s, it’s everyone who wants to buy, own and eventually sell single family real estate. And that’s exactly what we see our division of user base is. You know, you have people who are young and just starting out. And then on the high end we have people who are actually experienced real estate investors who have owned multiple doors in the past and they’re like, oh, I was too concentrated in my home state.

[00:47:27] Jerry Chu: This is an easier way for me to diversify into multiple states. And it’s just like an easier process for me to control and manage my portfolio. And they actually liquidated their own real estate portfolio and redeploy all the money through Lofty. And now they just exclusively own real estate through Lofty and their own millions of dollars worth of property through us.

[00:47:47] Jerry Chu: Ultimately, it’s just whoever wants to use this faster, cheaper, more transparent method to buy, own, and manage their real estate can use.

[00:47:56] Patrick Donley: I’m curious as a seller, like I’ve got some rentals. I, I, before the show started, I discussed, I’m in Columbus, Ohio and I know that there’s a lot of properties that are in Akron, that are in Cleveland.

[00:48:05] Patrick Donley: I’ve gotta do a reverse 10 31. And so I’ve got several properties that I need to sell in 180 days, six months. So what would be the advantage to me, and, and typically the way I would do it is I hire a, it’s a flat fee brokerage that I use. They charge me 300 bucks. They list it on the mls, they list it on Zillow, it goes out to Redfin, all of that.

[00:48:26] Patrick Donley: I do the showings and then I, then I’ll pay the, the buyer’s broker 3%. So what would be the advantage to me? And I, I need to get these sold, there’s tenants in them. Talk to me about the advantages from my standpoint of selling through using Lofty, because I am quite curious about.

[00:48:44] Jerry Chu: A hundred percent. And so that’s, you know, we have sellers that work with us and this is exactly the benefit, provides them right off the bat is just cheaper.

[00:48:52] Jerry Chu: Like if you’re paying, paying a flat fee, we may be more expensive, right? But for people who weren’t paying flat fees, they were just hiring a realtor to kind of do the showings and do all the work for them, it’s much cheaper. You only pay a 3% fee as a seller on our site. But what is the best thing is, is about the exposure.

[00:49:10] Jerry Chu: We have so many people on our platform and eyeballs on it, and these people have high intent. You’re never dealing with people who are like window shopping, which happens in real estate a lot. They’ll like call you and be like, oh, can I come by and see? Or they’re quote unquote interested, but they’re just kind of like wasting your time.

[00:49:24] Jerry Chu: Everyone who’s on Lofty has full intent, like, and because of how flexible it’s, you can put in basically any amount of money, there’s no barrier. Like anyone who can buy will buy something. It’s just whether they like your property versus someone else’s. That’s the only sort of competition there. But beyond that, it just creates a lot more liquidity for you as an owner.

[00:49:43] Jerry Chu: To give you a sort of extreme example, we’ve had a property sell out in eight seconds. After it was listed in eight seconds, it was gone, it was fully sold. And then as the seller, they can close within a week, only pay 3% and get it all cash offer, so it’s guaranteed to close. So that’s the, that’s the benefit we provide, you know, our, our ecosystem provides to the sellers.

[00:50:05] Jerry Chu: You probably can’t do that anywhere else, especially if you’re from a market where there isn’t as much activity sometimes, right? Like if you’re sort of in a more rural market or something like that, there’s just, who are the buyers? There’s not that many buyers. But now all of a sudden you’re reaching international buyers out of state buyers, right?

[00:50:23] Jerry Chu: You, you just get a lot more eyeballs on your listing. And so you get to do all of this without doing any work essentially.

[00:50:30] Patrick Donley: So if I were to list with Lofty, what hurdles do I have to, what do I have to do to list? I mean, I assume an appraisal. What else is involved?

[00:50:39] Jerry Chu: Again, not a whole lot, like we’re still, we’re just a marketplace.

[00:50:42] Jerry Chu: So we never want to be in a position where we’re recommending to people like, Hey, this is what you should buy. That’s a better investment for you. It’s up to people to decide on their own, like do your own due diligence, read the information, the documents the seller provides. But what we do is standardize things.

[00:50:57] Jerry Chu: And so typically in real estate, you know, it’s, there’s a lot of information asymmetry between buyers and sellers. So we erode all that away. It’s for any seller to list. We first of all do a background check on you just to make sure, like you don’t have any, like there are people with mortgage frauds and like you don’t want those sellers on your platform.

[00:51:14] Jerry Chu: It destroys the trust in the ecosystem so quickly. So we, number one, do that just to wean out all the bad actors. Then the next thing we do is we order an inspection report and also an appraisal report. And these will be done, and they will be publicly available to view when people view your listing. So they can immediately go like, oh, let me read the inspection report.

[00:51:33] Jerry Chu: Oh, let me read the appraisal report, and then make decisions like, do I think this is worth it or not? And then if there’s a tenant, we need rent rules. Like you have to provide those right. And then that’s it. And usually before closing, you need to let the property manager that the Dow has hired to go walk the house really quickly to meet the tenant and, and just basically make sure that, again, like right before closing to make sure there isn’t like a, the roof is half missing and things like that.

[00:52:00] Jerry Chu: And also, uh, we send photographers to take pictures of the property so people can’t send edited photos and things like that, just to make this like very fair and very trustworthy. But beyond that, that’s all we do. If you, if you kinda go through all those steps, that’s it. Like, we don’t decide if this property’s a good investment or not.

[00:52:17] Jerry Chu: Anyone can list their property and you pick your own price, but it’s a free market and the appraiser reports there. So if you pick a prize that’s ridiculous and too expensive, no one’s going to buy it. If you, you know, if you pick a prize that’s way below the appraisal, not the best deal for you. But I, we can almost guarantee it’ll just like sell like that.

[00:52:34] Jerry Chu: Cause you’re like, oh, I’m getting a great deal. As long as you’re willing to go through those steps. Anyone can list on Lofty.

[00:52:39] Patrick Donley: And then do the renters know how the deal is structured? Do they know that a DAO is buying the property that they’ve got? Maybe, I don’t know how many owners involved.

[00:52:50] Jerry Chu: Some do, it’s not advertised to them.

[00:52:52] Jerry Chu: And that’s the interesting thing, like what I was mentioning before about the flexibility of just what we’re building this platform. We’ve had some tenants find out like there’s Lofty and my house is on there and there’s multiple people that own the house and that Dow, and guess what? They’ve bought tokens and become a member of that Dow.

[00:53:07] Jerry Chu: So they’re a part owner. Essentially. They’ve created their more, their own more flexible rent to own solution. So on months where they have excess cash flow for whatever reason, maybe that got paid a bonus, maybe their government gave them some covid relief checks or whatever. They go and they buy more tokens and now they benefit from their appreciation of the house instead of just being the, the, you know, renter.

[00:53:30] Jerry Chu: You don’t benefit from them. They get to benefit from that as well. And then in months when they don’t have the funds, they don’t have to buy more tokens. So, you know, whereas other rent to own solutions, but essentially you’re constantly paying down that down payment that they paid for you. And so in a month where you don’t pay, you go into default.

[00:53:47] Jerry Chu: And then they, you know, and that, that’s not good. So this is a more flexible solution that some tenants have discovered, but it’s not advertised to them. It’s complicates things. People can get scared. Like what? What is a doubt? Like it’s just, it’s kind of really out there. And so all they need to know is here’s the property manager, this is the person, you know, our company you’ll be dealing with.

[00:54:06] Jerry Chu: They’re the ones you pay rent to. They’re the ones you call when there are problems. They’ll take care of everything. And then who ultimately owns the property? They’re your renting is kinda irrelevant.

[00:54:17] Patrick Donley: How is fractionalized ownership different than investing in a reit in a real estate investment trust?

[00:54:22] Patrick Donley: What’s the difference between or the pros and.

[00:54:26] Jerry Chu: It’s purely down to the, well, we’ve been talking about management, whether it’s active versus passive, right? So in a reit what you’re doing is you’re giving your money into, uh, to a group of people that created a fund. You’re basically becoming an investor in their fund, and then they take all this money, they pull in a fund, and then they’ll go out and buy real estate.

[00:54:46] Jerry Chu: Whether it’s single family houses, depends on the reach, some focus on malls, or they only buy malls. Some are agnostic and they buy like all sorts of random assets. They own one warehouse here, they own a couple houses there. They own one building here, right? Like they do that, then they do all the management, they hire the property managers or they lease it out themselves and they self-manage.

[00:55:04] Jerry Chu: They decide when to sell. If to sell, they decide what price to sell and all they promise you are distributions, right? Like every quarter or something, like you get dividends and it’s paid out. So you as an investor aren’t really an owner. You don’t own the underlying property, you have no control over it.

[00:55:20] Jerry Chu: What you’re investing in is a real estate investment fund, essentially, right? And for a lot of people, that is something that’s good for them. You, you get to diversify. You get professional managers, assuming you trust them in their background. Maybe you gain more alpha that way. And on top of that, it’s just no work.

[00:55:37] Jerry Chu: You don’t have to do anything at all, right? It’s completely passive. You, you set it and forget it. Now what we do, the fractional real estate, a lot of other companies do it the same way. So for them there is no difference. Like they’re basically just a smaller reit, right? You’re buying these houses, but really you don’t actually own them.

[00:55:53] Jerry Chu: You’re just investing into a fund. And they go out and they acquire assets. And in many cases, they actually own the assets before selling them to you, which is, you know, so they make a profit on the flip to their customers, which we think is kind of conflict of interest and probably not the best thing.

[00:56:07] Jerry Chu: But what we do here at Lofty. Again, we’re a pure marketplace. So you become a direct owner in the asset of your choice. So you like house A, you buy house A, you don’t like house B, you don’t ha, no one’s forcing you. You don’t have to buy house B. Whereas if you invest in a reit, you’re exposed to all the assets that they own and you don’t get to control how that’s allocated, right?

[00:56:28] Jerry Chu: So if you love houses, but you hate malls and you invest in one of those reeds, that just happens to hold both, it’s like, okay, , what’s going on? But on Lofty, you can just buy houses and maybe one day we’ll sell malls too. And you know, if you like malls, you can gain exposure that way. Or some people only want to buy malls and then they don’t want to buy houses.

[00:56:46] Jerry Chu: But you can do that here on Lofty. You do exactly what you want. It’s like creating your own read that works just for you, for your sort of risk tolerance, for your management style, for your understanding. And again, it’s not passive, so you have to vote, right? So as an owner, you have to vote on decisions.

[00:57:03] Jerry Chu: You have to think about things and how to make these decisions. You can’t just be like, okay, I, I’m $50 in this down, like off I go and just forget about it. It doesn’t work like that. So those are the fundamental differences. For some people, uh, Ari would be more beneficial, and for some other people it’s more desirable to have full control of your assets.

[00:57:21] Jerry Chu: So it really just comes down to do you want control of what you invest in or. Same thing, like do you individually pick your own stock portfolio? Do you buy some Tesla shares in some Microsoft shares because you have some opinion about what’s going to happen to Tesla and Microsoft in the future? Or do you buy into an ETF or an index fund?

[00:57:41] Jerry Chu: At which point you, you do nothing? They’re like, they, it just holds the index. It really just comes down to that. I wouldn’t say one method is just outright better than the other one. It really comes down to personal preference and what your goals are when you’re investing, and ultimately psychologically, what’s more comfortable for you.

[00:57:57] Jerry Chu: Some people want to focus on their business and their full-time jobs, so they don’t have time to think about investments and managing things, so they just want to be passive. For some people, they really care about what they invest in. They only want to invest in things that they do understand, and they want to know that they have control over how that investment is managed and run.

[00:58:16] Jerry Chu: And so for those people, Lofty would probably be a better option.

[00:58:20] Patrick Donley: So is it only single family homes at this point, or, or are there commercial office buildings, commercial buildings that are a potential investment?

[00:58:27] Jerry Chu: At this point, it’s mostly single family properties. This is where we started out. We’re still a very young company.

[00:58:33] Jerry Chu: We only released this current business model in May of 2021, so it hasn’t been that long. But, uh, right now actually even on the platform, there is a strip mall available for sale if that’s where you’re interested in, where one of the tenants is McDonald’s and the other one is, uh, dominoes and a couple other ones.

[00:58:50] Jerry Chu: That’s something you be interested, but again, it’s completely up to you and we’re agnostic in terms of the technology. It’s just a matter of do people who want to sell strips want to sell it on Lofty or not?

[00:59:01] Patrick Donley: If there was just like one big takeaway, you’d want our listeners to walk away with this from this conversation, what would it.

[00:59:08] Jerry Chu: The takeaway is basically just that there’s a lot of new technology coming out and a lot of things you thought was impossible is now possible. So take a look. It could be pretty transformative for your life. If you’re one of those people that have been frustrated at housing prices constantly going up and your wage is not catching up with it, this might be an interesting solution to fix your problems.

[00:59:29] Patrick Donley: I love it. I may be checking it out as a seller on the marketplace. We’ll see. I’m

[00:59:33] Jerry Chu: going to look into it. Definitely. You know? Sure. Our team would be happy to chat with you.

[00:59:37] Patrick Donley: Yeah, that’d be great. So for our listeners that would like to learn more about you, learn more about Lofty, what’s the best way for them to do that?

[00:59:44] Jerry Chu: So they can come to our website, which is just Lofty.ai, and you can also find us on Twitter. We’re pretty active there, so if you want to learn more and kind of follow us along the journey, feel free to come to Twitter and search Lofty AI as well, and you’ll find us.

[00:59:58] Patrick Donley: Awesome. Jerry, thank you so much.

[01:00:00] Patrick Donley: I really appreciate it, and uh, I wish you guys the best of luck. It’s a really awesome concept you guys are doing.

[01:00:05] Jerry Chu: Thank you so much. Likewise, Patrick. I appreciate you having me here.

[01:00:08] Patrick Donley: Okay, guys, that’s all I have for Real Estate 101. I hope you really enjoyed that episode and I’ll see you back here next week.

[01:00:15] Outro: Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires by The Investor’s Podcast Network. Every Wednesday we teach you about Bitcoin, and every Saturday we study billionaires and the financial markets. To access our show notes, transcripts, or courses, go to theinvestorspodcast.com.

[01:00:36] Outro: This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.