Blockchain Tokenization

What is blockchain?

• Blockchain is a type of shared database that differs from a typical database in the way that it stores information; blockchains store data in blocks that are then linked together via cryptography.
• As new data comes in, it is entered into a fresh block. Once the block is filled with data, it is chained onto the previous block, which makes the data chained together in chronological order.
• Different types of information can be stored on a blockchain, but the most common use so far has been as a ledger for transactions.
• Blockchain is typically used in a decentralized way so that no single person or group has control—rather, all users collectively retain control.
• Decentralized blockchains are immutable, which means that the data entered is irreversible. Transactions are permanently recorded and viewable to anyone.

What is a token? What is tokenization?

• Tokens allow developers to create a representation of value on a blockchain platform such as Ethereum, Polygon, or Algorand. and can be used to represent just about anything as determined by the issuer of the token. This is how real-world assets can be purchased, traded, borrowed, lent, or sold on a blockchain network.
• Historically a piece of paper has been used to represent ownership.
  • Deed to a house
  • Title to a car
  • A paper stock certificate
  • A treasury note
  • A paper dollar, euro or other national currency
• A token is simply a digital symbol of ownership as opposed to a piece of paper
  • P&Z CO-OP creates tokens for purchase that represent ownership in an LLC that owns real estate and serve to organize large numbers of people who share in property ownership, while maintaining the ease of a smaller nimble LLC.
• Tokenization is the process of protecting data (membership in a CO-OP, LLC) by creating an algorithmically generated number called a token to preserve business utility.
  • The purpose of tokenization is to protect data while preserving business utility. Like the traditional paper representation of CO-OP membership, you can trade or use a token easily and exchange it for its represented value when you like.

What are the benefits of tokenized real estate?

• Tokenized real estate makes real estate investment affordable to anyone, and tokenized membership makes it practical. Real estate can be purchased quickly and easily through your phone or computer, your ownership is secure, and you realize the benefits of owning property
• By creating tokenized Co-Ops for each property, a pool of liquidity is created for the purchase of that property, eliminating the need for a loan and maximizing the profitability of real estate ownership.
• Since tokens are more easily accessible and broadly available the liquidity pool increases allowing for more efficient acquisition of real estate.

Which blockchain is P&Z using to tokenize properties?

• P&Z CO-OP uses the Polygon (MATIC) blockchain. MATIC offers many benefits
  • Very fast
  • Low transaction cost
  • Secure system that rides on the Ethereum blockchain
  • Simple integration with wallets
  • Polygon uses smart contracts that allow us to automate many processes and features in our community

P&Z CO-OP

What is P&Z CO-OP?

• Our vision is to make tokenized business opportunity accessible to all people, on a platform designed to minimize overhead, facilitate communication, and enable everyone to participate in the decision-making process.
• P&Z CO-OP is a digitized real estate CO-OP experience managed by our team of experts. Ownership of tokens represent membership in a CO-OP organized as an LLC.
• A real estate CO-OPs property LLC is represented by tokens on the Polygon (MATIC) network.
• Purchasing tokens in an LLC that owns a single property is simply purchasing your share of the deed to that property.

What does P&Z sell?

• We are simply a platform designed to facilitate the efficient formation and management of real estate CO-OPs and we offer real estate management services. CO-OPs organized as an LLC on our platform are free to leave, but because it is so easy, we don’t think you will want to.
• Each CO-OP is designed to operate democratically and owns a single real estate property
  • The CO-OP votes on business decisions such as making repairs, increasing rent, property management, even the sale of the property.

How does P&Z make money?

• P&Z CO-OP has a 5% service fee on each property transaction (or $5,000, whichever is greater)
• If a CO-OP votes to sell a property - P&Z charges a 2.5% sellers fee upon closing (or $2,500, whichever is greater)
• P&Z Management charges a monthly property management fee of 12% of the monthly rent.
  • Outdoor and yard maintenance is included in the rent of the properties ensuring a high standard of care for publicly visible spaces

How do I log in?

How do I buy Property?

Governance

How does governance work?

• CO-OP members vote on all decisions on the properties they are owners of. These decisions include
  • Rent increases, major maintenance and repair decisions, sale of the property, evictions or cash for keys, and more
• A winning decision is made by a 60% vote. The winning vote is documented, and our property manager carries out the decision. Issues that are not covered by this automated voting process are put up for voting by the owners of the property in question.
• Token holders are the owners of all properties, which is why token holders have full voting rights on all properties they have invested in.

Property Management

How are repairs handled?

• Each property has an 8% Maintenance Reserve to cover the cost of any repairs.
• When any portion of the maintenance reserve is used it will be replenished by using 10% of the monthly cash flow until the reserve is full again.
• The maintenance reserve belongs to the token holders and will be distributed to token holders upon the sale of any property they have invested in.

What happens if the tenant does not pay rent?

• Token holders are only paid once rent has been paid. If rent is not collected, then there is no rent to send out to token holders.
• If the tenant does not pay rent, the property management fee is also not paid.
• If a tenant is delinquent on rent, our property manager will make recommendations which the token holders will vote on. The tenant will be offered cash for keys to move out quickly. If the tenant does not take cash for keys, they will be evicted and replaced with a more suitable tenant.

Who manages the properties?

• With the goal of protecting P&Z CO-OPs CO-OP members, P&Z will manage the property on the investor’s behalf taking care of sourcing tenants, collecting rents, and managing repairs.
• If at any time the CO-OP is unhappy with P&Z CO-OPs property management performance and would like a new property management company, the token holders are free to vote to make the change. A 60% vote is required on all decisions.
  • In this case, to remain on our platform, a monthly platform maintenance fee will be assigned to the CO-OP LLC

What is the tenant selection criteria?

• Once the property is listed on the market for rent, our focus turns to tenant selection. Our goal is to ensure our investors are receiving consistent rent payments for the lifetime of their investment in the property. In continuing to work with our property management team, we research the local rental market and adjust as needed.
• The rental market is subject to a multitude of variables affecting rental rates and time it takes to find a tenant. Time of year is one variable- the market is most active between the end of spring and begins to experience a slow down at the beginning of fall. P&Z CO-OP ramps up marketing to compensate for the effects of the slow season. In slower periods, we may offer tenants concessions to compensate for the cold market.

What can I expect if my property is seeking a tenant?

• P&Z focuses on marketing rental properties to prospective tenants. You will receive an email when a lease is signed.
• Preparing the home for the rental market can be a multi-tiered process. Our investment team works closely with one of our experienced property manager partners to prepare the home for the rental market. Below is a list of some items Arrived & our property management partners complete in the marketing process:
  • Get it show ready
    • We get our rental homes into tip-top shape
    • Professionally cleaned, touch up paint, maintain flooring, fixtures, upgrade appliances
    • Updating and maintaining the units will add to the property’s desirability and allow for a more competitive market rent
  • Determine market rent
    • Rental rates change very quickly depending on supply & demand in the given market.
    • We hold-out for getting market-value rent which improves ROI for our investors
  • Take high-quality photos and videos
    • As real estate moves into a more virtual environment, it’s important to have quality photos and videos to provide to our prospective tenants (and investors!)
    • Pictures give an accurate representation of the rental property
  • Market online, market elsewhere
    • Market on multiple online platforms using the professional photos and a well-crafted description that represents the rental unit
    • For-rent signs on the property
  • PMs to respond quickly to prospective tenant inquiries
    • Act quickly and respond to tenants within 24-48 hours of inquiry
  • Pre-screen tenants
  • Continue with the tenant application process.

The CO-OP Environment

How much do I need to invest?

• P&Z CO-OP fractionalizes each property into $50 tokens, making the minimum investment $50.
• P&Z CO-OP limits single investor purchases to 15% of any individual property
  • This encourages diversification ensuring that investors are not simply tied to one property
  • Keeping any one member of the investment club from being the majority member and ensuring the democratic governance of each property

How Does the P&Z Marketplace work?

• P&Z is a space created for small investors to join Real Estate CO-OPs. Each CO-OP is organized as an LLC created to purchase a single property for the purpose of renting.
• P&Z does not have a fund, does not purchase properties, does not flip properties, and does not sell properties.
• The P&Z CO-OP environment consists of buyers and sellers.
  • P&Z finds and vets sellers in 2 ways
    • We find and contract with local builders who build quality single and multi-family homes to rent
    • Our team researches and finds existing homes and contracts with the owners to list their home in the P&Z marketplace
• P&Z CO-OP step by step process
  • The seller submits their property to be sold in the P&Z CO-OP environment.
  • P&Z confirms that the property is suitable for the CO-OP investors.
  • Once approved, the property is put into contract by a newly formed LLC, the LLC is tokenized into $50 tokens on the Polygon (MATIC) blockchain.
  • A property inspection is completed to confirm the quality of the property. If repair or punch-list items need to be completed, the seller completes the tasks before closing or provides credit to the LLC.
  • The property is listed in the P&Z CO-OP Environment. When the property is fully funded the LLC closes on the property and the deed is transferred to the CO-OPs LLC.

How do I purchase Tokens? – Complete this section once the Demo is up and the tutorials are completed

• You purchase tokens by utilizing our easy to navigate website
• Here is some information…
• For more information visit our tutorial page (link)

How many tokens can I purchase in each property?

• Each owner can purchase up to 15% of the tokens in a property. The percentage is limited for governance purposes, to decrease single party control, and ensure a fair voting process.

Can non-US Residents Participate?

• Yes, non-US residents can participate
• Citizens of a sanctioned country will not be able to purchase tokens on the P&Z Investments platform due to restrictions by the Office of Foreign Assets Control.
• Sanctioned countries include Balkans, Belarus, Burma, Côte D’Ivoire (Ivory Coast), Cuba, Democratic Republic of Congo, Iran, Iraq, Liberia, North Korea, Sudan, Syria, and Zimbabwe.

Do I have to submit my ID before I can participate?

• Yes, US law requires us to Know Your Customer (KYC) on every investor before they are allowed to purchase tokens.
• Although you may be anonymous to the rest of your CO-OP and your tenants, we must know who you are for the purposes of
  • Preparing the proper LLC reporting documents
  • Ensuring any revenue generated by your account is sent to the right place.
• We use Blockpass to perform all ID verification

Why do I need to fill in personal information, and is it encrypted?

• Since you are part of a real estate owning CO-OP formed as an LLC, we are required by US law and regulation to collect your name, address, date of birth, citizenship, and Social Security number to create your account.
• All personal data is secured on our website with SSL.
• Personal data is stored on encrypted non-public storage
• All personal information collected is for legal and regulatory purposes only.

Why is my ID verification taking so long?

• We use Blockpass to perform identity verification
• US Citizens will easily be able to use their Driver’s License or other government issued ID
• non-US citizens will use their proper legal ID

Do you have 2 Factor Authentication (2FA) available?

• For security purposes P&Z requires 2 Factor Authentication (2FA).

Rental Income & Appreciation

How is rent determined?

• P&Z CO-OPs goal is to bring new or newer properties into the P&Z Marketplace, so that there is less maintenance required. Rent is planned to match the quality of the property and to stay competitive to comparable properties in the area. We feel each CO-OP will fill the needs of perspective renters and the price is set to reflect this.

Do I benefit from Depreciation?

• Yes, all token holders will benefit from depreciation.
• Our accountants use the MACRS method for depreciation purposes and each property will be depreciated over 27.5 years. This means that even though you might be earning income from rents as well as appreciation (on paper, because the property value has gone up), the value of the property is reducing on paper for tax purposes.
• This is one of the main advantages of owning and investing in real estate in the U.S.
• If you’ve made $100 in income from rents, but the property on paper depreciated (for tax purposes only) by $1000 and you owned 10% of the holding entity, then you would benefit from a paper loss of $100, which would negate your rental earnings completely.
• As a result, even though you’ve physically received $100 for the year, you incur $0 in nominal income tax liability for that year through ownership of the property.

How often do I receive rental income?

• All property owners of properties that receive rental income will receive rental payments monthly, within 10 business days of the rent payment being received.
• Rental income is shown within your marketplace account, until you decide to withdraw or re-invest that income.

How do I withdraw my rental income?

• Rental income can be withdrawn anytime directly to your bank account, to your PayPal account, or with MATIC deposited directly into your wallet.
• You also have the option to invest your rental income in additional CO-OP memberships.

How is token appreciation determined over time?

• Tokens update in value on a quarterly basis starting one quarter after the property sale is recorded on the MLS.
• The amount a token appreciates or depreciates is determined by using the HouseCanary Automated Valuation Model (AVM). HouseCanary is the largest property valuation company and is used by most single-family hedge funds like Invitation Homes and Amherst Holdings.
• To determine the valuation of a property over time, we take the rate-of-change of the HouseCanary AVM of the property on a quarterly basis, then apply that same rate-of-change to the principal value of your tokens on a quarterly basis.
• For example, if HouseCanary’s valuation of your property is $100,000 and then one quarter later it’s $105,000 – your tokens would increase from $50 each to $52.50 each (a 5% increase).
• The HouseCanary valuation is updated once per quarter during the first week of the quarter, which is when the principal value of your tokens will update as well. Every time the value of your token’s updates, there will be a report from HouseCanary attached which walks through exactly how their valuation was calculated.

Taxes & CO-OP Business

How are properties chosen?

• Our team of experienced real estate experts look for opportunities in the US using two methods.
  • Existing Properties
    • These properties range from apartment buildings to single family homes with high rental rates. Each property is up to code, taxes, and utilities paid up to date, then rented to well vetted tenants.
  • New Properties
    • In keeping with our mission to bring Innovative, accessible blockchain based opportunities to investors, business owners, employees, and their families, and our value of Community, P&Z Investments building experts contract with small local builders to purchase newly constructed property upon completion.
    • These properties are single and multi-family homes built to a high standard then rented to well vetted tenants. Bringing opportunity to the local community while providing access to broad investment opportunities.

How do taxes work?

• You are required to report rental income you receive to the IRS
• Taxes are filed with a K-1 form that we complete for you and send to the IRS. You will receive a filled-out copy as well
  • Rental income is taxed as regular income and capital gains tax applies once you sell your tokens for a gain or loss.
• You will receive a separate K-1 form for each property you invest in. The K-1 forms are prefilled out and you only need to fill in a couple of fields on your personal income tax Form-1040
• You are also responsible for filing state taxes in the states that the properties are located in.
  • Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming don’t have state income taxes, so in these states, you do not have to worry about filing state income tax.
  • Always consult your own legal or tax professional and make decisions based on your own comfort and risk assessment.
• Non-US Residents
  • If you are located outside the US, you will be subjected to withholding taxes when you try to sell your tokens for a gain or withdraw your rental income. Some countries have Tax treaties with the USA, so if your country has one and you don’t want to pay withholding taxes, you will need to complete a Form W-8BEN, for individuals, and Form W-8BEN-E, if you invested as a business entity, and send it to document@pzcoop.com, as separate attachments in the email, before you withdraw rental income or decide to sell your tokens. This process is only available for foreign entities or individuals who have an SSN or ITIN within the USA. If you do not possess one of these numbers, you will have to be subjected to foreign withholding taxes.

What happens if there is negative cash flow due to loss of renter or unplanned expenses?

• Given that all properties are purchased in full by the CO-OPs and there is a cash reserve for each property to cover both planned and unplanned expenses. It is unlikely that negative cash flow would be more than a short-term occurrence.
• If expenses or negative cash flow ever exceeded the cash reserve and operating expense budget, P&Z would make a short-term loan from our corporate entity to the individual home and the CO-OP will repay the loan with future rental payments.
• P&Z will not do a capital call to investors, though short term cash flows may be lower until the loan is repaid, or the reserves are replenished.
  • Members can hold a vote an agree to their own capital call to cover the loan.

Will I lose my tokens if P&Z goes out of business?

• P&Z CO-OP is not a company that owns the asset or assets in which you are investing.
• Each LLC would continue to remain in existence as a separate legal entity for property holding, tax, accounting, liability, and member ownership purposes.
• No matter what happens to P&Z CO-OP, the property tokens of the LLC which owns the property remain intact.
• Your ownership is still represented and could be transferred in the market, as needed, so long as applicable securities transfer rules are complied with.
• If P&Z CO-OP ceases to exist (absolutely not our goal), a new Managing Member of the LLC would be appointed. This could be a lawyer on a temporary basis, an accountant, or even the largest token holder.
• If P&Z CO-OP is no longer in business, then we would not be able to purchase the tokens back and provide liquidity, so please be aware of this risk. With that said, the tokens still entitle you to your share of the property, so your interest will still be protected in the form of property ownership. If the property were voted on by the token owners for liquidation, you would still be able to recover your investment plus any gains from the sale.

Who legally has ownership of these properties?

• When you purchase tokens in a P&Z CO-OP property offering, you are joining a CO-OP and directly buying a membership interest in the individual LLC that owns that property asset. If you purchase 1% of the tokens in a single property offering, you would then be entitled to 1% of the economic interests of the asset over time, which may include income from rent or property value appreciation.
• As an owner, am I liable if any lawsuits/accidents occur at the property?
  • No. Each home is owned through a limited liability company structure (LLC) to protect owners from personal liability. The most you could lose is your original investment.
  • Provided the limited liability shield is maintained and the property is adequately insured (these items are required to be part of our platform)

Are P&Z purchases purchased using debt?

• P&Z CO-OP properties are purchased with all cash. No debt.

Who owns the properties listed in the P&Z marketplace?

• When you purchase tokens in a Lofty property offering, you are directly buying a membership interest in the individual LLC that is contracted to buy and will own that property asset.
• For example, if you purchase 1% of the tokens in a single home offering, you would then be entitled to 1% of the economic interests of the asset over time, which may include income from rent or property value appreciation.

How long after I pay will I receive tokens in my wallet?

• If you pay with a credit card or crypto, you will receive your tokens immediately to your wallet. This assumes that you have followed the instructions displayed on the dashboard after purchasing your tokens to add the asset and link your wallet to our app.
• If you add the asset to your wallet at a later point in time, you will receive your tokens within the hour via a script that runs throughout the day sending outstanding tokens to owners.
• If you pay via ACH, you will receive your tokens after the payment clears on our end just in case your payment is rejected as we do not have a Clawback feature.

Does the price of MATIC affect the price of P&Z tokens?

• No, P&Z tokens are based on the value of the property offering itself.
• The value of P&Z tokens has nothing to do with the value of MATIC and will not have the same volatility.

What is the MetaMask wallet and why do I need one?

• Team, please assist on this one.

Can I do a 1031 Exchange with P&Z properties?

• Currently, it is not possible to do a 1031 exchange into or out of P&Z properties.

How do we ensure each LLC owns the deed on its property?

• All ownership documentation is available online, accessible within your marketplace account.
• You can also find these documents in the assets overview section of your P&Z dashboard.
  • Each property has a link to a shared folder with all appropriate documents.

How can I track the performance of my property?

• All owners have their own dashboard, called Assets Overview, where you can see how many tokens you hold and their current principal value, which will adjust automatically each month starting after the token offering is complete.
• Here you will see income added to your account along with records of your transactions.

How long are properties held before they are sold?

• The owners of the property decide if and when to sell through the P&Z governance system.
• Once a property is sold, owners receive their returns equal to the (total sold price + cash reserve – selling fees) divided by their percentage ownership in the property.

What happens if the property doesn’t sell fully by the deadline on the website?

• If this occurs, we reach out to the seller and ask them to extend the closing deadline, which would be commonly accepted. In this case the property remains in our marketplace until the new closing date.
• If the seller is not willing to extend the closing date, we will fully refund all investors who purchased tokens in the property. We then cancel the listing and remove it from our website