When it comes to both individual and institutional investments, real estate stands out as the most critical and significant asset class in the world. According to Savills World Research, the total value of global real estate assets was USD 326.5 trillion as of the end of 2020.
That’s partly thanks to the surging growth of the REIT segment. For instance, REITs invested $85 billion in new constructions in 2020 and owned more than $4.5 trillion US assets.
However, real estate investments have historically been unstable across some economic cycles. That has led to the development of interesting new opportunities in real estate investing over the past few years, such as United States Property Coin (USP).
USP intends to provide investors with reliable returns, hedge against inflation, portfolio diversification, low transaction costs, and lower market entry barriers.
Keen observers found a close resemblance between USP and REITs. The question is, are these two sides of the same coin, or are the similarities farfetched? That’s what this article seeks to explore.
What is USP?
USP is a security token developed to enable fractional ownership of a diversified property investment portfolio in high-demand urban markets across the US. Its developers made it in response to the instability of utility tokens and the effects of inflation on fiat currencies, dollar-backed stablecoins, and algorithmically-backed coins.
USP incorporates cutting-edge technology with a time-tested investing strategy to lower the barrier to entry for real estate and as a means of wealth preservation. Primior, a major property development corporation based in Southern California, provides the financial backing for USP.
Token holders will hold a stake in a broad portfolio of multifamily housing developments, healthcare institutions, and hospitality properties across the United States.
What are REITs?
A REIT refers to a corporation that invests in and manages properties to earn a return on investment. The company’s stocks are traded on a national stock exchange to facilitate open transactions and timely transmission of relevant price information.
Some of the property types REITs invest in include offices, retail complexes, residential buildings, hotels, resorts, and self-storage units.
Investors pool their money and buy shares of a trust to earn the profits or income generated by the trust’s holdings in real estate. REITs do not invest in developing real estate properties to resell but primarily intend to operate them as allotments to their investment portfolio.
Is USP a type of REIT?
In a nutshell, no. However, USP and REITs have similar characteristics:
1. Frictionless transfer
USP provides a peer-to-peer (P2P) transfer of tokens between wallet holders. Investors can transfer their USP tokens directly from one person to another without a third party acting as an intermediary (so long as both parties are qualified investors who meet the regulatory requirements outlined under Regulation D Rule 506(c) and Regulation S).
REIT investors do not own physical property. They cannot legally change ownership of any property, but they can sell their shares in those properties whenever they choose.
2. Hedge against inflation
The consumer price index (CPI) was 7.7% in October 2022, the highest since 1982, a major headache for real estate investors.
Thankfully, USP has no link to the dollar, which can’t unshackle itself from the effects of inflation. USP has its backing in the US urban real estate, which has a long history of appreciating in value.
3. Property fractionalization
The initial investment, marketing, and upkeep costs associated with real estate development are vast and beyond the financial means of most people.
USP and REITs provide property fractionalization, where investors own a piece of real estate. That allows more people to get into real estate because of the low barrier of entry. Moreover, they are more convenient than outright property ownership for investors looking to diversify their portfolios.
4. High liquidity
Unlike traditionally illiquid real estate investments, it is easier to convert REITs and USP units to quick cash. You will be able to trade USP on a token exchange (with some restrictions), while REITs trading happens on legacy exchanges.
Many REITs are highly liquid as their listings are on major stock exchanges and trade at high volumes. USP, on the other hand, provides investors with easy access to the property market that operates 24/7 and without the constraints of the local stock market.
5. Yield
The IRS requires REITs to distribute at least 90% of their taxable revenue as dividends to shareholders. That happens periodically, typically quarterly or semi-annually, bringing in passive income for the investors with tax advantages.
With USP, investors receive distributions with earnings calculated during the holding period. However, the company has no tax obligation to provide its profits to its shareholders, and can instead use the funds to reinvest into more property – potentially compounding returns and increasing the book value of USP.
REITs vs. Tokenized Real Estate (Security Tokens)
As you can see, there are similarities as well as differences between REITs and tokenized real estate investments. It is important to understand both investment vehicles in order to choose the one that best suits your needs. Ultimately, the decision will depend on what kind of return you’re aiming for and how much risk you are willing to take on.
But, when it comes to which option is a better investment opportunity, we believe that tokenized real estate security tokens like USP have significant advantages, including:
- 24/7 trading on the Ethereum mainnet, allowing for greater liquidity and an easier access to the underlying U.S. real estate globally;
- Lower fees and commissions than REITs or other traditional investments;
- Decentralized fractional ownership of real estate vs. centralization that comes with REITs;
- The ability to transfer tokens peer to peer.
Of course, we always encourage investors to seek their own financial advice before consider investing in any type of security, and the above statements reflect our opinions only.
USP provides a more secure and convenient alternative to traditional real estate investment using Web3 technology, allowing more people to get a piece of the lucrative and booming United States property market on a global scale. With USP, you have the chance to profit from one of the most stable investments – real estate – with a lower barrier to entry and a more accessible way to invest in U.S. real estate internationally.
Final word
USP is not a REIT, although it has some features in common. Both USP and REITs are viable real estate investments providing dividends for their investors, a hedge against inflation, and are highly liquid. However, there are definitely differences between the two products and this article provides a helpful overview to help you decide which one is right for you.
We hope that this article has been informative and assists in making an informed decision by understanding the differences between USP and REITs.
