SecondaryDAO uses a variety of metrics to evaluate property investments and ensure transparency in tokenized real estate transactions. Below is a breakdown of how the key metrics are calculated:
1. Total Investment Value (TIV):
The total investment value represents the cost structure of a property asset on the marketplace. It is calculated as:
TIV ($) = Underlying Property Price + Maintenance Reserves + Property Listing Fee
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Underlying Property Price: This is the purchase price of the property, which fluctuates based on market conditions such as appreciation or depreciation.
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Maintenance Reserves: A fixed amount allocated to cover property repairs and maintenance, replenished through rent deductions when necessary.
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Property Listing Fee: SecondaryDAO charges a fee of 0-10% of the total property purchase price.
TIV is then divided by $50, the initial property token price, to calculate the total number of tokens for the property.
2. Internal Rate of Return (IRR):
IRR is a metric representing the potential returns from a property investment, considering cash flows and projected appreciation over time. It provides a combined measure of:
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Cash-on-Cash Return: Yearly net cash flow relative to the total cash invested within the same year. For example, if an investor puts in $1,000 and earns $100 in a year, the Cash-on-Cash return is 10%.
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Projected Appreciation: The expected increase in property value over time, calculated using the formula:
Appreciation (%) = (Final Value – Initial Value) / Initial Investment × 100.
IRR combines these two factors to give a comprehensive picture of expected returns, excluding external market conditions.
3. Cap Rate (Capitalization Rate):
The Cap Rate assesses potential risk and return in real estate investments. It is calculated as:
Cap Rate (%) = Net Operating Income (NOI) / Purchase Price × 100%
This metric is particularly useful for comparing properties or markets and is regularly reevaluated to gauge market conditions.
4. Cash Flow:
Cash Flow is the net monthly or annual income from a property after subtracting expenses from revenue. It provides insight into profitability. The formula for calculating monthly cash flow is:
Cash Flow = Rental Income – Expenses
For annual cash flow:
Annual Cash Flow = Annual Gross Rent – Expenses
Annual gross rent includes all tenant payments and supplementary income, such as parking or storage fees, while expenses include taxes, insurance, and maintenance costs.
5. Market Capitalization:
Market capitalization in SecondaryDAO reflects the total value of a property based on current token prices. It is calculated as:
Market Capitalization = Total Token Supply × Current Token Price
This measurement dynamically adjusts based on token trading prices in the marketplace.
By applying these calculations, SecondaryDAO ensures transparent and data-driven evaluation of properties, enabling investors to make informed decisions.