Method of structuring real estate asset leasing contracts

Abstract

This invention addresses key housing issues: constrained affordability, information overload, and limited options. It offers: 1) affordable rent-to-own: transparent auctions set rent based on tenants' creditworthiness, while mandatory savings build equity; 2) streamlined information: a single platform simplifies property comparison and saves time; 3) efficient allocation: auctions optimize property placement based on demand and income, guiding future development; 4) increased usability: underutilized properties enter the market, while investors retain asset exposure; 5) smart savings: mandatory savings overcome cognitive biases and reduce defaults. By overcoming these technical hurdles, this solution aims to improve housing accessibility and affordability.

Description

METHOD OF STRUCTURING REAL ESTATE ASSET LEASING CONTRACTSFIELD OF THE INVENTION

[0001] This innovation is a method of structuring real estate asset leasing contracts to reduce the costs of real estate direct financing through the capital markets by:

[0002] Auction-Based Rental Platform: a virtual platform for property rental where prices are determined through public auctions. Prospective tenants undergo credit risk assessments, and bidding is restricted to a percentage of their regular income.

[0003] Escrow Account Structure: Mandatory allocation of a percentage of income in the contractual nexus of the lease for payment of expenses included in the management contract (e.g., rent, taxes, insurance) and purchase of shares of dividend-paying companies or funds that have a certain level of daily trading volume with the residual cash.

[0004] Guarantees: assignment of cash and assets allocated in the escrow account to guarantee payments due under the administration contract.BACKGROUND OF THE INVENTION

[0005] The real asset markets are those that trade tangible goods such as real estate, commodities, and infrastructure. These markets may experience price fluctuations due to several factors, such as:

[0006] Supply and demand: variations in the quantity available or consumer preferences for these goods can affect the market balance and change prices. For example, a drought could reduce the supply of grains and increase grain prices, or a change in consumer preferences could increase demand for renewable energy and increase the value of related assets.

[0007] Non-competitive practices: agents that have market power can influence the prices of real assets by restricting supply, forming cartels, practicing dumping, etc. For example, an oligopoly of oil companies can manipulate oil prices by controlling production.

[0008] Market structure: the way real asset markets are organized can affect the prices of traded goods. For example, markets with a greater number of sellers and buyers tend to be more efficient and transparent than markets with few participants and barriers to entry or exit.

[0009] Availability of financing: access to credit can facilitate or hinder the purchase and sale of real assets, affecting demand and prices. For example, an expansionary monetary policy can reduce interest rates and stimulate real estate financing, increasing property prices.

[0010] Entry barriers: legal, regulatory, technical, or economic obstacles that make it difficult for new competitors to enter real asset markets can affect the prices of traded goods. For example, high installation and maintenance costs can prevent new companies from entering the telecommunications sector, keeping prices high.

[0011] Informational problems between agents: asymmetry or lack of information between agents involved in real asset markets can generate inefficiencies and distortions in prices. For example, a seller may hide defects or risks in a good, inducing the buyer to pay a price higher than the asset's real value.

[0012] The recent evolution of the real estate market has led to soaring prices, making it increasingly difficult for younger and lower-income individuals to organize themselves to purchase their own homes. This trend has also significantly impacted rental costs. Several factors have contributed to these changes:

[0013] Supply and Demand Imbalance: A surge in demand for housing, coupled with limited supply, has driven prices upward. Urbanization, population growth, and migration to cities have intensified this imbalance.

[0014] Low Interest Rates: Historically low interest rates have encouraged borrowing for home purchases. As a result, demand has spiked, further straining the market.

[0015] Investment Speculation: Real estate has become an attractive investment option, leading to speculative buying. Investors often purchase properties to sell at a profit, and drive up prices.

[0016] Construction Costs: Rising construction expenses, including labor, materials, and permits, have inflated property development costs. Builders pass these costs on to buyers and renters.

[0017] Land Scarcity: Available land for new developments is limited, especially in densely populated areas. This scarcity drives up land prices and, consequently, property values.

[0018] Gentrification: Urban revitalization and gentrification projects can displace lower-income residents, pushing them out of affordable neighborhoods and exacerbating housing affordability challenges.

[0019] Regulatory Constraints: Zoning regulations, building codes, and lengthy approval processes hinder new construction. These constraints limit supply and contribute to price escalation.

[0020] Current market solutions can not address the affordability issue in real estate, especially for younger and lower-income individuals.SUMMARY OF THE INVENTION

[0021] Equilibrium Value: Real estate negotiations are hindered by limited competition among supply and demand players due to substantial transaction costs (e.g., availability of information, time constraints, dislocations, and willingness to engage), thereby creating many arbitrage opportunities.

[0022] High Information Complexity: Real estate markets are characterized by significant informational complexity, complicating informed decision-making, and increasing associated costs.

[0023] Strong Investor Demand for Real Assets (or Bull Raid Practice): This phenomenon drives an increase in property market value, notwithstanding that many properties serve as capital stock rather than for residential purposes.

[0024] Affordability: The rise in real prices in the market has not been accompanied by a commensurate increase in income distributed uniformly across all demand segments, leading to significant financial stress in segments with fewer available financial resources.

[0025] Cognitive Biases: Despite the aspiration for homeownership, cognitive biases pose challenges for individuals in accumulating savings for property acquisition.

[0026] Technical Solutions:

[0027] Auction-Based Rental Platform: a virtual platform for property rental where prices are determined through public auctions. Prospective tenants undergo credit risk assessments, and bidding is restricted to a percentage of their regular income.

[0028] Escrow Account Structure: Mandatory allocation of a percentage of income in the contractual nexus of the lease for payment of expenses included in the management contract (e.g., rent, taxes, insurance) and purchase of shares of dividend-paying companies or funds that have a certain level of daily trading volume with the residual cash.

[0029] Guarantees: assignment of cash and assets allocated in the escrow account to guarantee payments due under the administration contract.

[0030] Advantageous Effects:

[0031] Property Rental with Ownership Characteristics: Reduces common costs associated with current real estate transactions by eliminating transactions and incorporating risk mitigation mechanisms.

[0032] Reduced Information Acquisition Costs: Standardizing data into a single platform streamlines property comparison, thereby lowering information acquisition costs.

[0033] Improved Property Allocation via Auctions: Auctions facilitate better property allocation based on income availability and demand at specific times, as well as provide valuable demand information for real estate development planning.

[0034] Unused Property Inclusion via Real Estate Funds: Real estate funds enable the incorporation of unused properties into the rental market while allowing investors to maintain investment in tangible assets.

[0035] Forced Savings Mitigate Cognitive Biases: Mandatory savings counter cognitive biases that hinder savings formation, thereby significantly reducing the risk of non-payment.OBJECTS OF THE INVENTION

[0036] This innovation provides a method to structure real estate leasing contracts which includes: 1) Online property auction platform; 2) Credit analysis to determine a potential tenant credit limit for participation in open auctions; 3) Property rental agreement together with an escrow account management agreement in which tenant will commit to depositing their frequent income into the centralizing account and will allow the part to be retained for making payments and mandatory investments; and 4) Mandatory investments should be assigned as a guarantee of payments until the end of the contractual relationship.BRIEF DESCRIPTION OF THE DRAWINGS

[0037] The preceding and other objects will become more readily apparent by referring to the following detailed description and the appended drawings:

[0038] is a diagrammatic flow chart of the invented method; and

[0039] is a diagrammatic flow chart oflisting additional steps for the bidding process.

[0040] is a diagrammatic flow chart oflisting additional steps for the lease payment and compulsory saving process.DETAILED DESCRIPTION

[0041] This innovation is a method of structuring real estate asset leasing contracts to reduce the costs of real estate direct financing through the capital markets. The method begins with an online property advertising platform that aims to allow objective and standardized property comparisons between advertisements. A user's first access will be to a limited content version of the platform that will present information restricted to a maximum of 4 photos, generic location, property type, property size, number of rooms and types, estimated total monthly cost based on the last bid offered (– Item 101). The goal is to create interest in the advertised properties and bring traffic from potential users without presenting all available information.

[0042] The process continues with the inputting and processing of personal and financial data (– Item 102) to qualify the potential renter against a lease warranty criterion and determine the maximum bid value (– Item 103). Prior art methods utilize checks of background, credit, and employment to determine if a lease will be granted to the renter. The collected information shall be shared with potential business partners to have their credit evaluations, such as for additional insurance and escrow bank accounts.

[0043] The background check includes a review of the renter's criminal record. If a significant criminal record is found, then no lease is possible. A potential renter who meets the background check is further processed by a retail credit check generally via telecommunication means.

[0044] The credit check includes a review for judgment for non-payment, bankruptcy, automobile repossession, medical bills, utilities, student loans, and no credit. Aside from student loans and no credit, default on any of the retail credit check categories results in a “no lease possible” outcome.

[0045] The employment check includes the steps of 1) verifying that the renter is currently employed or has any source of frequent income, 2) verifying that the renter has been continuously employed or had any source of frequent income for the previously specified number of twelve months, 3) verifying that the renter's annual income, and 4) verifying that the renter's age. The amount of credit approved for the bidding process would result in a certain percentage of the renter's annual income which can be different based on the region's cost of living.

[0046] Additionally, prior art, the credit analysis (– Item 103) will also check for personality type using the Myers-Briggs Type Indicator to better track individuals' credit performance which might lead to additional guarantee requirements. The potential renter may improve their credit limit by offering as guarantee shares of dividend-paying companies or funds that have a certain level of daily trading volume that will be valued as its last available market value as well as historical dividends payment.

[0047] After the definition of the credit limit value, the potential renter gains access to the full content of the platform (– Item 104) and can participate in one or multiple auction processes (– Item 105 andfor more details). The full version of the platform contains, but will not be limited to, the precise address of the property, more photos and videos of the project, floor plan, list of detailed characteristics of the property as well as allowing filters based on all the platform's selection criteria. Also, the potential renter gains access to the pages of the neighborhood and condominium, when applicable. The neighborhood and condominium pages are social pages to which tenants themselves can contribute when signing the rental contract to share information about security, noise, and air pollution levels, as well as information about commerce and public infrastructure.

[0048] The property auction process begins with the inclusion of the advertisement by the property owner (- 201). At this stage, it is necessary to include a minimum set of characteristics of the property so that it can be made available to potential renters. It is also at this stage that the auction term and minimum value for the rental price are defined as well as the list of costs to be included in the administration agreement (e.g. lease, taxes, insurance).

[0049] The next phase is the analysis of available properties by the potential renter and the offer of the desired value for a given property (- 202). The system does not allow the value of the total cost of the property, rent plus costs included in the management contract, to exceed the credit limit established for the potential tenant (- 203). This way, the potential renter defines the amount to be offered, includes it on the offer page, and sends his offer. The offer undergoes initial approval by the system and, when accepted, is ranked from highest to lowest value in a public list where all bids are listed without identifying the offeror (- 204).

[0050] The potential renter can make multiple offers for multiple properties up to the approved credit limit. If the limit is consumed, and the potential tenant makes a new offer for a new property, their oldest bid will be withdrawn to release the balance for the new bid after confirmation of the cancellation of the oldest bid by the potential tenant. On the bid submission page for the property, it is also possible to establish a rule for automatic incremental bids up to the approved credit limit (- 205). Bids offered can be held up to one hour before the final time defined in your notice (- 206). When the bid ranked first is withdrawn, the next lowest valid bid will be ranked first in the auction. When the bid ranked first is withdrawn, the next lowest valid bid will be ranked first in the auction. The bid ranked first at the end of the period defined for the auction will automatically be declared the winner of the competitive process (- 207).

[0051] After defining the winning bid for the auction, the contracting process begins (- 107). At this stage, the general platform automatically forms rental contracts based on the standard model, the tenant's personal information, the characteristics of the property, and the rental value defined in the auction. The resource management contract and assignment of credit rights and collateral assets are also generated automatically based on the system data. If integration with other service providers is possible, automatic generation of insurance contracts and opening of escrow accounts included in the administration contract would also be envisaged. The tenant will also be informed about the process for taking over the leased property via electronic contact.

[0052] Rent payment will be made entirely by the contract administrator (- 107). The tenant's frequent income will be deposited in the centralizing account (- 301) and this account will have automatic management that will transfer a percentage defined in the administration contract to the paying account and the remainder to the tenant's free movement account (. - 302). The amounts received as income from assets provided as collateral will also be centralized in the paying account (- 303).

[0053] The contract administrator will use the funds deposited in the payment account to make the monthly payments agreed in the administration contract (- 304), which may include but are not limited to, rent, property taxes, condominium costs, property insurance, surety bonds, administration fee, escrow account maintenance costs. If there is a residual balance of resources after payments, the contract administrator will acquire shares of dividend-paying companies or funds that have a certain level of daily trading volume up to the amount in which the dividends received from these shares are equivalent to the monthly costs agreed in the administration contract. When the amount of dividends received reaches an equal amount to or greater than the monthly costs agreed in the administration contract, no more shares will be acquired and the net amount of resources from the monthly payments will be returned to the lessee's free movement account (- 306).

[0054] If the balance available in the payment account is not sufficient to make the monthly payments agreed in the management contract, the tenant will be notified by the contract administrator to top up the balance within 1 business day. If this deadline is not met, the shares held as collateral will be sold on the market until the amount necessary to make the agreed payments is recovered. If it is not possible to recover an amount equivalent to the balance of monthly payments, other protection mechanisms will be activated, such as insurance, credit recovery services, or termination of the lease contract.

[0055] Upon termination of the rental contract, the other contracts will also be terminated together. Any residual balance of resources as well as shares held as collateral will be transferred to the lessee's free movement account.

[0056] This innovative solution aims to unlock homeownership possibilities for individuals who may not qualify for traditional bank financing. Instead of facing stringent loan requirements, these individuals, with demonstrably income and flexible insurance options, can now enter formal long-term rental agreements with built-in savings programs. Over time, these accumulated savings should mirror the financial benefits of homeownership, while mitigating many of the risks and costs of having your own home. This is possible since this innovation builds a robust structure of guarantees that can help mitigate non-payment risk which can help in the marketability as an asset in the financial markets.

[0057] It is to be understood that the preceding description and specific embodiments are merely illustrative of the best mode of the invention and the principles thereof and that various modifications and additions may be made to the apparatus by those skilled in the art, without departing from the spirit and scope of this invention, which is therefore understood to be limited only by the scope of the appended claims.

Claims

The invention claimed is a method of structuring real estate asset leasing contracts to reduce the costs of direct financing real estate through the capital markets by: 1) Auction-Based Rental Platform: a virtual platform for property rental where prices are determined through public auctions. Prospective tenants undergo credit risk assessments, and bidding is restricted to a percentage of their regular income; 2) Escrow Account Structure: Mandatory allocation of a percentage of regular income in the contractual nexus of the lease for payment of expenses included in the management contract (e.g., rent, taxes, insurance) and purchase of shares of dividend-paying companies or funds that have a certain level of daily trading volume with the residual cash; and 3) Guarantees: Assignment of cash and assets allocated in the escrow account to guarantee payments due under the administration contract.

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