05/07/2023
How Did Vank Arrive at the RoI of “41% (Capital Appreciation + Rental Income) per Annum” Figure for Angel Court?
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To understand this, let's briefly look at how real estate generates returns and how Vank enhances these returns compared to traditional real estate methods.
Returns in real estate come in two forms: Capital Appreciation and Rental Income. Capital Appreciation refers to the increase in the monetary value of a property over time. For example, if a house bought for N40 million becomes N50 million in one year, it indicates a Capital Appreciation of N10 million or 25%.
Rental Income, as the name suggests, is the money earned by renting out the property to tenants. Rental Income is typically a fraction of the property's value. For instance, a N40 million house might generate a rental income of N3 million per year. Both Capital Appreciation and Rental Income depend on factors such as location, size, market rates, and inflation.
The key difference between Capital Appreciation and Rental Income lies in liquidity, or how easily they can be realized. Rental Income is more liquid because tenants usually pay upfront, whereas Capital Appreciation can only be accessed when the property is sold. However, owners can also leverage Capital Appreciation by taking out a loan.
Now, let's consider a hypothetical scenario to understand how Vank maximizes returns. Imagine a smart investor who owns a property valued at N40 million with an annual appreciation of 25% and a yearly rental income of N3 million. To extract the highest value within a year, she would aim to rent it out at the highest possible amount and then sell it at exactly the last day of the rental contract. In this case, she would end up with a total return of N53 million on a N40 million investment, which equates to a 32.5% return from both Capital Appreciation and Rental Income. Vank enables this type of transaction by allowing fractional property ownership, which enhances liquidity and facilitates faster sales compared to traditional real estate markets. An investor who buys property on Vank can easily realize the return from Capital Appreciation because sales is more rapid than in the conventional real estate market.
Now let's discuss how Vank determines property prices and returns. We adopt a data-driven approach to determine the listing price, which is the price at which a property is offered for subscription. For a new property, the publicly advertised price is considered the Asking Price. We compare this Asking Price to a "Reference Price," which is the average price of similar properties within a 5-kilometer radius. The Reference Price represents the Fair Market Value.
To list a property on Vank, its price must be the same or lower than the Reference Price. The lower the price compared to the Reference Price, the higher the chances of acquisition and listing on Vank. Once we decide to list a property, we add a 5% commission and other charges like VAT, which may apply. Insurance charges are also included if necessary. Following this pricing model, the Angel Court property with an Asking Price of N60 million attracts a commission of N3 million (5% of 60 million) and a VAT of N225,000 (7.5% of N3 million), bringing the Listing Price to N63,225,000. Insurance charges, if applicable, are added to the final Listing Price.
Now let's delve into how Vank determines the expected return for properties. We utilize historical data to estimate the average annual appreciation of similar properties in a specific location over the past 3 years. For the Angel Court property, this appreciation rate is 35%. However, Capital Appreciation is not a liquid return as it is earned but not realized until the property is sold.
The other component of the return, Rental Income, depends on the decisions made by the co-owners. We take a conservative approach when estimating Rental Income. We consider the income generated from the lowest economic activity, which is the annual rental to a single family at the market rate. For the Angel Court property, the going rate for a similar lightly furnished four-bedroom terraced duplex in that area is N4 million, which translates to approximately 6% of the listing price (4 million divided by 63,225,000 multiplied by 100).
Remember, the Estimated Return is calculated as the sum of Capital Appreciation and Rental Income. So, in this case, the Estimated Return is 35% + 6% = 41% per annum.
It's worth mentioning that if the co-owners decide to operate the property as a short-term rental, they could potentially achieve a much higher return than 6% on the rental income. For instance, let's say they achieve a 20% return in one year. When we add that to the 35% Capital Appreciation, the total return would be significantly higher at 55%. This is why we have taken a conservative approach to estimating the returns. It aligns with responsible accounting practices.
Remember, as co-owners of a property, the decisions made collectively by the group determine the property's operation. You get to keep the majority of the revenue and profits generated from the property's operation. Vank only takes a commission and service charge. This is where the bulk of the returns for co-owners come from. Additionally, we have SEC-licensed trustees providing oversight to ensure compliance with regulations throughout this journey.
Sign up on VANK to buy into Angel Court, Ajah, Lagos from only N100,000 and earn up to 41% per annum.
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