🏢Real Estate Methodology

Fractit utilizes a Special Purpose Vehicle (SPV) structure for each property it offers. These SPVs are legal entities established solely to hold the underlying real estate asset. The location of the asset determines the jurisdiction of the corresponding SPV.

Investors acquire Fractible tokens, which represent beneficial ownership in the corresponding SPV. The ownership can be whole (entire property) or fractional (portion of the property), directly reflecting the amount of Fractibles held by an individual.

This structure empowers individuals worldwide to become buy-to-let landlords within 15 seconds by acquiring Fractible tokens. Any transfer of a Fractible automatically represents a corresponding transfer of beneficial ownership in the underlying SPV.

Furthermore, all rental income generated from the properties is distributed to the Fractible holders in the form of USDC, a StableCoin pegged to the US Dollar.

Fractit presents various potential rates of return (ROR) to accurately depict the investment opportunity and anticipated annual profit in USDC for Fractible holders.

• Gross ROI: This metric solely considers the property's projected selling price alongside estimates of capital appreciation and/or annual rental income.

• Net ROI: This metric factors in not only the selling price but also additional closing costs, fees, and reserve budgets as outlined in official documentation. This comprehensive total, known as the Total Tokenized Selling Price, results in a lower Net ROI compared to the Gross ROI.

The Total Tokenized Selling Price comprises various components, like property cost, management fee, vacancy reserve, maintenance reserve, legal, insurance, and tax expenses

Please note that the provided return figures are based on assumptions such as property lease agreements, timely rent payments, consistent capital appreciation, and minimal maintenance fees. Actual results may differ.

Gross Capital Appreciation Explained

Gross capital appreciation refers to the average annual increase in an asset's value over a specific period. This calculation typically utilizes valuation data from the previous five years.

For example, consider a property valued at $49,700 in 2023 and $31,600 in 2018. To calculate the gross capital appreciation for this five-year period:

• Calculate the change in value: $49,700 (2023 value) - $31,600 (2018 value) = $18,100

• Divide the change in value by the initial value (2018): $18,100 / $31,600 = 0.573

• Express the result as a percentage: 0.573 x 100% = 57.3% Therefore, the gross capital appreciation for this property over the five-year period is 57.3%.

Gross Rental Yield Explained

This metric represents the annual income generated from rent, expressed as a percentage of the property cost. It is calculated by dividing the annual rent by the property purchase price.

Example:

• Annual rent: $6,940

• Property price: $65,921

• Calculation: $6,940 / $65,921 = 10.6%

Expected Total Gross Yield Explained

This metric is a hypothetical calculation that combines gross rental yield and gross capital appreciation. It assumes:

• Continued capital appreciation following its historical trend.

• The property is successfully leased.

• Rent is paid consistently.

• No maintenance costs are incurred.

Therefore, the expected total gross yield represents an optimistic estimate of potential returns. It is crucial to understand that actual results may differ due to various factors impacting both rent and property value.

Net Rental Yield Explained

This metric reflects the expected cash return received by the investor in USDC based on the Fractible's purchase price. It is calculated by dividing the annual rental income by the total tokenized selling price of the property. This price encompasses the property cost, legal expenses, fees, and reserve budgets.

Example:

• Annual rent: $6,940

• Total tokenized selling price: $76,212 ($65,921 property price + $10,291 legal costs, fees, and reserves)

• Calculation: $6,940 / $76,212 = 9.1%

Expected Total Annual Net Yield Explained

This metric represents the anticipated total return on the investor's investment, considering the following factors:

• Total tokenized selling price

• Annual collected rent

• Expected one-year capital appreciation

Example:

• Tokenized selling price: $76,212

• Annual collected rent: $6,940

• Expected one-year capital appreciation: $5,130

• Calculation: ($6,940 + $5,130) / $76,212 = 15.8%

It is important to remember that both net rental yield and expected total annual net yield are forward-looking estimates based on assumptions and hypothetical calculations. Actual returns may vary due to factors influencing rent, property value, and unforeseen circumstances.

Fractit's Initial Sale Process

Following the execution of a sales memorandum and deposit placement, Fractit Trustee facilitates the listing of each property on the Fractit platform for a defined sale period. This sale is open to all users and concludes upon the complete sell-out of all fractional ownership digital assets (Fractibles).

During this sales window, purchasers of property fractions receive "In Escrow" Fractible. These Fractibles cannot be transferred, sold, or traded, but nevertheless represent the individual's proportional ownership stake in the corresponding SPV and property.

Once the initial sale concludes, the Fractible are unlocked, and the distribution of rental income commences within seven business days.

Contingency Measures:

In the event that a property-backed Fractible nears complete sell-out but fails to reach 100% before the deadline, the sale may be extended for a limited additional period.

If the sale fails to achieve full Fractible sell-out by the stipulated end date, the process is canceled. All initial investors receive a full refund (100%) of their investment, inclusive of any associated fees, within five business days.

Rent Collection and Distribution

Rent Collection:

• Fractit Trustee facilitates the collection of rent from tenants.

• Collected rent is then directed to the Fractit DAO, which distributes it through smart contracts, enabling Fractible holders to claim their share.

• Rent distribution commences within two business days of the initial property sale's completion.

Rental Yield Distribution:

• Rental income is distributed to Fractible owners periodically, typically bi-weekly, after deducting a management fee retained by Fractit Trustee, as long as the Fractible is staked on the Fractit platform .

• For fractionalized Fractibles, the rental yield is proportionally distributed among the fraction owners.

• Fractit Trustee strives to maintain continuous tenant occupancy for all Fractible-backed properties.

Vacancy Reserve:

• A 2% vacancy reserve is established from the initial Fractible purchase price. This reserve serves to support continued rental disbursements during periods without an active tenant.

• Should the reserve fall below 2% of the property value, a recurring 20% of rental yield will be allocated to replenish the reserve until it reaches its target level.

• In the event of complete reserve depletion, rental yield distribution will be paused until a new tenant is secured.

• If a property remains unoccupied, Fractit Trustee may adjust the rent to attract potential tenants. Conversely, they may increase rent based on market conditions.

• If an Fractible owner chooses to redeem their Fractible by taking possession of the underlying property, any remaining vacancy reserve capital is returned to the owner along with the property.

Capital Appreciation

Yield estimates incorporate capital appreciation, which represents the potential increase in an asset's market value exceeding the initial investment cost. This figure is based on historical data reflecting local market averages over the past five years and should be considered an estimate, not a guaranteed outcome.

Management Fees

Fractit Trustee provides property management services for an annual fee of 1.5% of the property value. This service includes:

• Maximizing tenant occupancy through consistent leasing efforts.

• Informing owners of necessary repairs (when applicable).

• Overseeing any required repairs to maintain the property.

• Managing redemption requests, including ownership transfer to designated individuals or new legal entities (additional fees apply).

Maintenance Reserve:

Fractit allocates a portion of the initial Fractible token purchase price (5%) to a maintenance reserve. This reserve funds both planned and unforeseen repairs and maintenance needs for the underlying property. Importantly, repairs covered by property insurance do not impact the maintenance reserve. To ensure the reserve remains adequately funded, a mechanism is in place: if the reserve falls below 5% of the property value, 20% of the rental yield is automatically directed towards replenishing it until the target level is reached. In the event of complete reserve depletion, 100% of rental yield will be used for replenishment until sufficient funds are available for repairs. Transparency is maintained by uploading invoices and quotes exceeding $100 for repairs to the real estate owner's portal. If a Fractible owner chooses to redeem Fractibles and take possession of the property, any remaining capital in the maintenance reserve is returned to them along with the property.

Tokenization Fees

A 5% tokenization fee is applied to all new real estate Fractible tokens listed on the marketplace. This fee is borne by the buyers and is utilized to cover the following:

• Legal fees associated with property acquisition and tokenization.

• Other costs incurred during property sourcing, closing procedures, and general protocol maintenance.