The Wolf Of All Streets - You Can Use NFTs To Buy A House Today | Sanjay Raghavan, Head of Structured Securities At RoofStock

Episode Date: October 30, 2022

Web3 can automate real estate purchases while cutting out the middlemen and minimizing the costs. With NFTs you can do the entire thing in 15 seconds! Sanjay Raghavan, Head of Structured Securities At RoofStock, explains. RoofStock: https://www.roofstock.com/ Sanjay Raghavan: https://twitter.com/eth_sanjay ►► JOIN THE FREE WOLF DEN NEWSLETTER https://www.getrevue.co/profile/TheWolfDen  GET UP TO A $8,000 BONUS IN USDT AND TRADE ALL SPOT PAIRS ON BITGET FOR ZERO FEES! ►► https://thewolfofallstreets.info/bitget   Follow Scott Melker: Twitter: https://twitter.com/scottmelker  Facebook: https://www.facebook.com/wolfofallstreets   Web: https://www.thewolfofallstreets.io  Spotify: https://spoti.fi/30N5FDe  Apple podcast: https://apple.co/3FASB2c  #RealEstate #NFTs #Web3 The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. This video was created for entertainment. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this video constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.

Have you ever bought or sold real estate? Have you ever tried to get a mortgage on your house? Have you ever thought, wow, this process is absolutely insane? Well, Sanjay Raghavan from Roofstock has a better way and they're already doing it. We talk about a future where we tokenize things and use NFTs to transact from one person to another. Well, now you can do that with your house. Roofstock is described as the number one real estate mobile investing platform in the world. What does that mean? For single family properties, yeah. So if you think of the days prior to 2015, and let's say you wanted to buy an investment property

and you were living in the West Coast and you want to buy a property in Atlanta or Indianapolis. There was really no easy way for you to do that because you don't know the local market, you don't have your boots on the ground to go look at the property, and even after you buy the property, you don't know how to get it rehabbed, how to find a tenant, any of those things. So version one of Roofstock was simply to make remote real estate purchases easier. This is a $4 trillion asset class in the US and there's 20 million rental properties. But historically, people have been buying rental properties within 50 miles of where they live, right? Because that's how you go to the property. Real estate's always been a hyper-local market.

I mean, the entire world could be melting down and one market's doing exceptionally well. That's exactly right. And so Roofstock's initial goal was to radically simplify buying remote real estate. So I could be living in California and purchase a property in Atlanta by just underwriting that on my computer,

and Roofstock would put me in touch with local realtors, local property managers, rehab crew, and so on. And so we're probably the only company that does this, both for retail investors at a small level that's buying one or two properties, but also for large institutional investors that might be willing to deploy a couple of hundred million to a couple of billion dollars into a real estate strategy, but they don't have the you know their own infrastructure to go buy acquire renovate and manage these homes and we would do it for them so by virtue of kind of being this one platform that caters to the guy that's

buying one property to the guy that's buying thousands of properties you know we are the largest kind of SFR dental property platform in the country right now. Obviously, it was created an interesting time because it was during this sort of maturity of cryptocurrency and this entire market and blockchain technology. And actually how you describe it sort of mimics the original ethos of crypto to some degree. You don't have to find a trusted party in that market who's going to find you the right property and not rip you off. But now, I mean your job literally is

pivoting into a blockchain. Into blockchain and crypto and you know we wanted to look at Web3 and see how we can use Web3 to solve a problem that's existed in the real estate industry for a long time, right. So even though Roofstock was able to help you identify remote properties, underwrite them from your computer, be able to push a button to make an offer, when it came to closing the asset, you still had to have a buyer's agent, a seller's agent, title company, escrow, notary public. And this process takes three or four weeks to close a typical real estate

transaction and often costs a lot of money as well because there's so many intermediaries involved. Web3 offers a really neat alternative to shorten the timeframe and the cost associated with these transactions. So we spent the last year trying to come up with a structure, which we have finally created and we're launching at this conference where you can go to an NFT marketplace like OpenSea, connect your wallet, buy an NFT and literally 15 seconds later when that block's written to the blockchain, you are now a property owner. So that's radically, radically innovative.

Hasn't been done in the SFR market so far. So we're the first. So that disrupts one of the largest industries on the planet. And there are obviously laws and regulations about the way that property transfers hand. So when you get the NFT, you literally automatically own the property, or do you still have to then outside of the Web3 space do some sort of mortgage? No, no. So there's no literally, you literally, once you buy the NFT in the NFT marketplace, you are the new property owner.

And the way we've done it is, there's a way to do this compliantly, which is what we've been spending the last year trying to figure out and put together. We dropped the title to the property into a single-purpose Wyoming LLC. And so the property will never actually get retitled from there. It always stays there. We tokenize the membership interest of the Wyoming LLC. That's what changes hands. It's a single membership. So once that membership changes hands, you're the owner of the LLC, which is the owner of that property. So interesting. We don't have to re-record title. We don't have to go back to the county and do a recordation

of the deed or any of those things. It's literally, this is what makes it possible to just push a button and you're now a property owner. I live in Florida and we've seen a few select properties that have been tied to an NFT and they've done auctions for the properties. And those houses have generally sold way over their actual value because of the hype around the fact that it was done with an NFT. But that sounded like a more arduous process the way that they did it. It was a really novel approach. That's right. So most of the other single family tokenization that we've seen so far, they're still, like, after the purchase of the NFT,

as you pointed out, there's still a process. In our case, we wanted to make this as close to Web3 as possible. So, you know, there's, of course, the initial work of putting the property into the LLC and tokenizing that LLC interest. But once that's done, you've kind of crossed over, you know, you've now taken the bridge from Web2 to Web3, and then the rest of the transaction's

all Web3. So there's no document signing afterwards or any other formality for closing. It's literally the purchase of the NFT is the legally binding mechanism to now become the title holder of this property. So the inevitable hard question that follows, because anybody who's been in NFTs and Web3, I mean, what percentage of Bored Apes have been hacked or stolen? That's what happens when someone steals your house. So again, fortunately here, there's a real world asset, which is represented with a digital asset, right? In the case of Bored Apes, the value of the NFT resides in the NFT itself, right?

Whereas in our case, the value of that NFT is derived from a real-world asset. And because there's a real-world asset and there are certain legal requirements, for example, you can buy a Bored Ape as an Anon on OpenSea, right? You could be using that for money laundering, for terrorist activities, so on and so forth.

Obviously, we need to be a little bit more compliant given that this is a real-world asset. So the way this works is you come to our site and you can mint a soulbound token. Once you mint the soulbound token, you can get KYC, then we use Jumio, which is a regarded KYC provider. Once you're

KYC'd, we update your soulbound token. We put a flag there. None of your private information is on the soulbound token, but the token has a flag that says you're now KYC'd. Exactly. When you go to OpenSea and you're buying this property or this NFT, the smart contract checks to see if you have the soulbound token and your KYC.

And only then the transfer is allowed to go through. So it's not possible to basically scam somebody out of their NFT by just asking them to come to a site that looks like ours and through a phishing attack or something, grab your assets. Because unless you're KYC, nobody can transfer this out of the existing wallet. So it can't be transferred either? It can be transferred, but only to another KYC person. And so we know who that person is. So if there was some kind of fraud, we can figure out who perpetrated the fraud,

and then there's legal remedies, of course. It's interesting. It's sort of borrowing from the concept of ZK roll-ups and snarks, where basically you take all the information, but you don't have to actually give someone all the information. You just have to prove that that information has been vetted. That's exactly right. So when Vitalik came up with the idea of soulbound token, we saw a lot of possibilities for how Web3 applications can use the soulbound token to let people interact with their applications. And so this is one of those where everything somebody does with Roofstock on-chain, we can provide a curated experience based on,

you know, this KYC flag is one example, but anybody who mints this token will give them access to a free real estate investing course so they can learn about real estate investing. Once they've purchased tokens, we can store that they're now a token owner, an OG, and if we're doing a drop later on, we can see statuses on the soulbound token and do drops based on that. So there's a lot of applications eventually that we can do with this one Solbound token. The starting point is giving people access to a real estate course and then doing the KYC. A lot of people have tied NFTs obviously

to real world assets for proof of ownership. A house is unique, it's not gonna move. So can this same model be used for a watch? Absolutely. So we are basically coming up with this construct and we did a lot of research on where should the LLC be incorporated, for example, Delaware, Wyoming. I was going to ask about Wyoming. So Wyoming is very crypto friendly. So we picked Wyoming, but any real world asset can be essentially wrapped in an LLC structure like this and then tokenized.

And we're going to make our smart contracts are going to be on GitHub. It's going to be open source. All our documentation will be open source. So if somebody wants to take our model and replicate that for doing single family homes, that's fine. You want to do it for luxury watches, cars, yachts, you know, go for it, right? The model is scalable and we want the Web3 community to be able to use the, you know, research we've done and be able to benefit from it. Can this concept effectively remove third parties from most or all of our transactions in the future? The promise of Web3

and blockchain is disintermediation to do things in a trustless way. Smart contracts are phenomenal to solve that one purpose. And so, yeah, any application where you can disintermediate or reduce the number of intermediaries, I think should be looking at Web3 actively to see how they can ultimately pass on those savings to the consumers, right? Because that's what it's all about. But all of those third parties that are making money on those transactions are not going

to give up their power easily. They will, yeah, it's probably going to be a process. But somebody was saying that this train has left the station. There's no putting this, or if you take the example of a genie, there's no putting this genie back in the bottle, right? Sure. The example I like to use is when Uber and Lyft were first disrupting the taxi industry, there was a lot of fighting. People hated them. Right?

There's a lot of lawsuits, and everybody was trying to shut them out. But once the consumer saw that it was convenient to just use their phone to order a ride, eventually that convenience won out, right? So we're looking at this the same way. I've gone through real estate purchase processes. It takes a lot of time, and you're constantly signing documents, sending them over email. And it shouldn't have to take so much time in 2022 to buy a house. And so once people see the simplicity and the cost savings, I think that convenience will win out all the other kind of structural impediments to the process. And you're also effectively eliminating the lending process. In this case, it seemed at least initially,

you can correct me if I'm wrong, you'd have to have the cash present to close because you're buying the NFT. That's right. So initially, that's how it's going to be. We are working on a true real world DeFi lending protocol. We've been in discussions with all the big DeFi providers, but it's going to be possible to essentially take this NFT, which represents value, and to be able to lock this in a DeFi wall. Right, you should be able to get a loan against the NFT afterwards. Afterwards. And it should be easy. It should not require me to say, all right, give me your last three years of tax returns and W-2 and bank statements and this and that, right? Because I'm giving you an object of value as collateral. You should be able to give me a loan against it. No different than if I had a bar of gold and I took it to a bank and

said, this bar of gold is worth $10,000 and I want to borrow $5,000 against it. And this isn't a volatile cryptocurrency. It's a piece of real estate. That's right. So it's low volatility. There should be low volatility. The arguments that people use against using cryptocurrency as collateral should not be conflated with what you're offering. Yeah, and over-collateralized cryptocurrency borrowing in the DeFi side may be a 30-40% loan-to-value ratio. Here, you could easily go up to 65 or 70 loan-to-value just because it's non-volatile. Even in the 2008 credit crisis, when property prices went down, you know, in some markets we saw maybe a 20-25% decline.

So the asset class has proven itself to be pretty sturdy through both the 2008 crisis and the 2020 COVID crisis. If anything, during the COVID crisis, home property, you know, property prices went up. I don't think there's anything that's more valuable to lenders as collateral than a physical piece of real estate. Physical piece of real estate. And these are rental properties. So the owner is also able to get cash flow,

which over a period, like every year, rents go up a little bit. So you can kind of think of it as almost an inflation hedged bond product, a fixed income product for the cash flow. And then the value of the property goes up over time as well. It might go down a little over a 10-year period. It's going to fare better. And you can kind of look at that appreciation almost like growth in a stock market. Right. So this is a unique product that kind of has characteristics of a bond as well as a stock. So once you've transferred the NFT to someone or they've transferred to you now on the house, you still have to go into the real world to figure out how to find a renter.

Yeah. So we and that's where sort of having seven years of real estate experience is helpful because we've sold real estate in over 70 markets as Roofstock. So in all these markets, we have a list of diligence property managers, and we can give you a list. So if you're buying a property in Columbia, I can say, here's four property managers in your neighborhood that are already diligenced and approved, and they're good property managers. Again, you don't have to pick one of

them. Right, but at least you're doing some of the vetting process. Right. So did you come to Roofstock with this idea and say, oh my gosh, I love what Roofstock is doing. This needs to be Web3 native? Well, I started three years back, and the first thing I did was build a real estate investment trust, a REIT product at Roofstock. So, you know, I've always been sort of doing innovative things at the company. So last year when the board approached our CEO and said, you guys need to get smarter about Web3, one of my colleagues who was on the legal side and I were picked to collaborate and make this a reality.

So that's when you went down the rabbit hole. Yeah. So it happened just over a year back. And, you know, we took a lot of wrong turns because it's not an easy problem to solve. Right. Otherwise, somebody else would have done it already. We spent a lot of time and money trying to figure out the right solution that's compliant, because ultimately, when you buy this NFT, we have to definitively say that you are the owner of this underlying property. So we've got that all figured out now from a legal perspective and tax perspective. But were you really just getting involved in Web3 a year ago? Or were you always crypto? I've been in crypto since 2017, so I knew what it was capable of doing, but we hadn't solved a real-world problem of this magnitude.

Because I saw that you're also an advisor for Pudgy Penguin. I am, yes. Explain to me why I should care about Pudgy Penguin. So, you know, I was probably a couple of years back as much a naysayer about NFTs as anybody else. But I've changed my mind and I'll tell you why. So when Punks first came out, right, that's the OG NFT. Its only value was as a PFP. And they've never done an event or any other kind of networking thing or a community thing.

It's, you know, still the OG PFP, right? But the NFT evolution since then has changed quite a bit. So with Apes, obviously, you have, you know, ApeFest is a big thing that as a community, people like to have. You're a drop-off community and you own the intellectual property. And you own the IP uh which and of course you know when they did like other side and other deeds and all that there's they're expanding what that ecosystem looks like and how as a as an ape holder you have access to a larger

ever-growing community uh but the main thing there of course is you own the ip to your nft and there are ways to monetize that IP. Now, if you're a regular AAP owner and you don't have the media connections or connections in the toy industry or whatever, it's hard to do the licensing and all that yourself. But a lot of platforms are trying to figure out how do we get holders of these NFTs to opt in and then be part of some kind of monetization strategy. Pudgy is very interesting because the management team at Pudgy did a buyout of it back in April. I don't know the story because the original owners had quite a bit of drama. Exactly. But the interesting thing was the community was very, very strong, even during those calamitous times.

And so the new management saw that if during really bad times you have such a strong community, with an NFT project which is very lovable and has almost near endless possibilities in terms of licensing and all that, what could a really passionate management team do if they bought that? And that's what they've been doing. Obviously, they came out with their Soulbound. They announced their toy partnership with PMI Toys. So that's going to hit the markets later this year. So physical Pudgy Penguin stuffed animals.

Yes, stuffed animals will be available at big box retailers. And the owners of those penguins will be able to monetize their penguins. So not only is it a cute PFP and you can use it as your avatar and all that, but it's actually giving you now licensing opportunities. And the possibilities are endless. You can do storybooks, you can do feature films. I can imagine at Disney, if this is a really popular theme in a few years... I've seen Happy Feet.

Yeah, that's right. That's exactly right. Dancing Penguins. The possibilities are, again, endless with Pudgy. So that's why, to me, that's an interesting project and it's worth being a part of. And they've done a spectacular job of putting together a really strong advisory team that comes from both Web 2 and Web 3. So I'm excited. My argument is always, I love the Bored Ape concept. I love punks.

My argument has always been that after those, 99% of them, Pudgy Penguins maybe excluded, have just been cheap knockoffs that will never have any utility or value where people believed that it was going to be the... Most of the projects probably will not get to blue chip status. But again, I think with Pudgy, like anything else, it's all about the team behind the product. And I think this team is, you know, I know them very well. I'm good friends with their CTO. And they just live and breathe. Every day they're doing something to make the product and community better.

So it's really about community. It's really about the people and community at the end of the day. Yeah. What other things in crypto do you think that strong communities can drive? If you look at when the internet started and all we were doing was, you know, websites with just read information, nobody would have thought that, you know, 10 years later, there would be an Amazon where, you know, that's how you're buying not just books, but everything else. And another five years after that, social networking and all that came along. And then yet, you were able to take concepts like maps, location,

and different features, put that all together and create the Ubers and Lyfts and DoorDash. When you look at how our life has been changing over the last 20 years, it's radically changed today where you can stay at your house and you can order food and it gets dropped off at your doorstep. I think the financial rails in the country right now require that kind of radical shift. And blockchain and Web3 can make that happen. I think in the next five to ten years, life is going to be very different. Everybody is going to have a wallet, and everybody is going to have... Perhaps Bitcoin is the digital gold, Ethereum is the way to transact with Web3 projects, and then USDC or some other stable coin is the way to buy and sell things. I think we are going in that direction.

And if we have this conversation 10 years from now, we're going to be looking at it and saying, it's odd we were giving our credit card information on websites and doing transactions with passwrites. So I really think that's where we are headed. And with kind of the Web3, which is read, write, own, community becomes a central part of it because it's shared ownership between the creator and the consumer of the information or data or whatever service. And so if there is a way for both the creator to monetize and the consumer to monetize somehow and take away the big companies from the middle, I think that's a very good thing to aspire to.

And I think that's where the Web3 community is going. Are there any regulatory concerns or risks to what you're building that you've accomplished something, created something, and it effectively gets regulated away retrospectively? Yeah, I mean, you know, regulation is something that keeps changing all the time.

And, you know, one of the things we should all be doing is to make sure we're compliant. And in our case, for example, we didn't start writing a single line of the smart contract code until we knew that the legal and tax framework had been figured out and we had confidence it works today. And of course, that can change in the next couple of years. And if it does, then we'll have to continue to evolve and adapt based on that. But my only takeaway is, you know, you have to keep innovating and you have to want to get to a better future. And you can't, you know, always, you know, you have to find, obviously, you have to be compliant, you have to stay within the regulatory framework, but you have to find ways to innovate within the existing framework and still make it work.

Expand the bubble. Push the limits. 10 years down the road, 20 years down the road, how else can Roofstock use this technology to improve our experiences? Already, the next thing is trying to figure out real-world assets, DeFi lendings. If you think about the mortgage process today, it's complicated. The property that has value is the collateral,

but you as the individual are getting underwritten every time you're buying a property. Correct. And that process, it was created for owner-occupant properties because you were going to be living in the home and they needed to make sure you have the money to pay the mortgage. But the same model should not apply to a rental property because it's a completely different...

If you bought it... You bought it, you own it, and you want to take some money out because, I don't know, you want to do a $20,000 rehab, you shouldn't have to go through a three-week underwriting process to get a loan on that. Just put that up as collateral, take the money, do what you need to do. And when you need to pay it off, pay it off and get your collateral back. So we really want to get to that world because for rental properties, it's asset-based lending. And it's no different than Bitcoin or ETH or gold

or any other commodity that has value. You should be able to pledge that and be able to borrow against it. You have to be able to come up with the cash first. And then in that model, you can't get the mortgage to buy the NFT. You need to buy the NFT and then take a loan against it, which actually is a safer, as you said, and it's probably a better way to do it. Yeah, I mean, we may be able to come up with a way where people can, at the time they purchase, decide to put on leverage. And that may be possible as well. But, you know, we're starting out with the more the easier problem to solve. And then over time, we'll, you know, take on. Well, hopefully we won't have 20 or 30 percent interest rates on those loans that we're taking against our houses by that point.

On the DeFi platform, we shouldn't because, again, you don't have a loan originator, you don't have a loan servicer, and you don't have to deal with all the, again, for any intermediaries in a securitization like a rating agency, a trustee, a custodian. So you remove all of that. It's all on the blockchain through a smart contract, and you can come and borrow anytime you want, repay anytime you want. And unless there's an event of default and you need to figure out how to liquidate the collateral, nobody needs to get involved at all. So that's the beauty. If you remove these 15 intermediaries, you should be able to, again, pass on those savings

to the consumer. Well, after talking to you, I able to, again, pass on those savings to the consumer. After talking to you, I want to buy a pudgy penguin and then go buy a house and let my penguin live in the house. There you go. Thank you so much. It was a pleasure. It's a pleasure. Thank you so much. Thanks for having me. Let's go.