An owner of a property, appraised at $200,000, proposes a 5-year agreement to raise $40,000 (20% of the value of the property).
– One or many investors agree to fund the $40,000
– At the end of the five-year term, the home is appraised again and appreciated by 10% to an ending value of $220,000
– Because investors funded 20% of the initial value of the home, they split 20% of the final value ($44,000) proportionally (minus platform fees)
– Conversely, if the property’s value decreased by 10%, to $180,000, the investor(s) will only be entitled to the same 20% of the property’s final value: $36,000. There is a risk for investors, who share in any gains as well as losses.
– At the end of the term, the issuer (owner) will have a financing event, such as a refinancing or sale of their property, at which time investor earnings are released back to them, proportionally.
Note: This is an overly simplified example and does not include all steps or scenarios.