I’d like to get some of your input on how this would be possible in a Tezos smart contract.
How best to structure a smart contract to allow investors to participate in shared ownership of a long term cash flowing investment (such as commercial real estate). Any short term investment (like less than 6 months) could be somewhat simpler to compose. For example, imagine a house flipper needing cash to buy a rundown house, hold it for a few months - the time to renovate it, market it and sell it. If the investor is paid interest on the loan, the contract might be the simplest - minus the risk of currency fluctuation between the local government currency in which the house is located versus Tezos. The contract might be a bit more involved if the investor was to get in return a share of the profit on the flip, but still relatively simpler than if the investment was for a long term cash flowing property.
Long term cash flowing investment:
In such case, multiple concepts needs to be accounted for:
- You have the initial funding of the investment (down payment, closing cost, …)
- The monthly or quarterly distribution of net rental income (or dividend equivalent for any other businesses). Considering that the revenue is probably coming in local government currencies, it will have, after expenses, to be converted to another currency (Tezos, or token, or…)
- A few years later, once the asset is liquidated (property sold), the initial investment in addition to a portion of the net profit of the sell (price sold for minus mortgage balance and closing cost…) is distributed back and the contract terminated.
An additional benefit would be for the smart contract to allow investors to get in and out of this ownership at will (as in shares being bought and sold), rather than having to hold until the contract is terminated.
What might be a good smart contract construct that will deal with this, in particular on the cash flow portion.
*** Small note: Since in the Land of the Free and Home of the Brave, financial liberty is very limited with the SEC and other 3 letter government agencies - this would probably excludes US residents, and any other countries with similar lack of freedom (like North Korea, Cuba, … - am I being sarcastic? Well just mildly unfortunately)
One method I considered as one of the most ideal is through token distribution (as in shares) with the percentage of token each investor’s own dictating the portion of distribution in Tezos of quarterly cash flow received. This structure would be as close to what is already existing with company shares and dividends distribution. I thought about other method but most of them had more complications attached to them, but perhaps one of you guys have some good other suggestion that would be a better fit with the crypto world smart contract.
Within Tezos world, how feasible would such a smart contract be put in place - or what issues to watch for. (I know there is a statement about Tezos not yet having ERC-20 like token)
Thanks in advance