Protecting the value of real property using options and the capital markets
20230214926 · 2023-07-06
Inventors
Cpc classification
International classification
Abstract
A system and a method of using property taxes to create an asset (property tax easement), which has a fair market value, that can serve as an underlying instrument or security for purpose of linking it to a new type of option (property tax put or call option) that can be bought, sold, and/or traded on, preferably, a major publicly-traded exchange. The present invention includes several, most or all of the following: a property tax easement, a Multi-Listing Subscription-type (MLS-type) listing, property tax options, a publicly-traded market exchange, and a Property Tax Refund Program that—collectively, provides the owners of residential real estate property and/or commercial real estate property with the means to potentially obtain a property tax refund each and every year.
Claims
1. A method for protecting the value of real estate property comprising: a) providing a computing device with software including a predictive model; b) providing the computing device with a database for storing information about real estate property; c) defining, by a user, a range of input parameter values as attributes related to the real estate property; d) simulating a plurality of random samples of the input parameter values defined for the attributes related to the real estate property; e) simulating a probability distribution of possible outcomes; and f) storing the probability distribution in the database, wherein the probability distribution aids a user in making decisions regarding real estate property.
2. The method of claim 1, further comprising: using a machine learning algorithm to improve the predictive model.
3. The method of claim 1, wherein a Monte Carlo module is used for simulating a probability distribution of possible outcomes.
4. The method of claim 1, wherein the attributes related to the real estate property include at least one of: market conditions, property characteristics, potential risks, and uncertainties.
5. The method of claim 1, wherein the probability distribution includes at least one of: expected return on investment, likelihood of different levels of appreciation, likelihood of different levels of depreciation, likelihood of unexpected maintenance costs, and likelihood of being affected by a natural disaster.
6. The method of claim 1, further comprising: a) simulating a probability distribution of possible outcomes for a portfolio including multiple real estate properties; and b) storing the probability distribution in the database, wherein the probability distribution aids a user in making decisions regarding an optimal combination of real estate properties and strategies for the portfolio.
7. A system for protecting the value of intangible real estate property comprising: a) a computing device with software including a predictive model; b) the computing device includes a database for storing information about intangible real estate property; c) the predictive model receives a range of user-defined input parameter values as attributes related to the intangible real estate property; d) wherein the attributes related to the intangible real estate property include at least one of: market conditions, property characteristics, potential risks, and uncertainties; e) the predictive model simulates a plurality of random samples of the input parameter values defined for the attributes; f) the predictive model simulates a probability distribution of possible outcomes; and g) the probability distribution is stored in the database, wherein the probability distribution aids a user in making decisions regarding tangible and intangible real estate property.
8. The system of claim 7, further comprising: a machine learning algorithm to improve the predictive model.
9. The system of claim 7, wherein a Monte Carlo module is used for simulating a probability distribution of possible outcomes.
10. The system of claim 7, wherein the probability distribution includes at least one of: expected return on investment, likelihood of different levels of appreciation, likelihood of different levels of depreciation, likelihood of unexpected maintenance costs, and likelihood of being affected by a natural disaster.
11. The system of claim 7, further comprising: a) the Monte Carlo module simulates a probability distribution of possible outcomes for a portfolio including multiple real estate properties; b) the probability distribution is stored in the database, wherein the probability distribution aids a user in making decisions regarding an optimal combination of real estate properties and strategies for the portfolio.
12. The system of claim 7, wherein the intangible real estate property includes a real property tax easement agreement.
13. The system of claim 7, wherein the intangible real estate property includes a property-specific geographic trademark.
14. A method for using intangible real estate property as a means of helping to reduce the financial risks and financial losses of real estate property, the method comprising: a) creating an account and acquiring at least one real property tax option including at least one of: a call option and a put option, related to real estate property by a party comprising at least one of: a property owner and an investor; b) calculating an average annual property tax bill based on at least one probability distribution; c) providing a first contract that is triggered by a real property tax notice from a tax collector that has a different quantity of property taxes owed than a prior real property tax notice; d) providing a self-referential database which includes a probability distribution reflective of the annual property taxes owed related to at least one parcel of real estate property; e) associating the probability distribution with at least one intangible that together serve as a financial derivatives options contract that results in creation of an instrument; f) linking the instrument; g) incorporating the linked instrument as an integral part of a mortgage contract; h) exercising the call or the put option of the at least one real property tax option; and i) receiving a profit paid via the capital markets by said party associated with the at least one real property tax option.
15. The method of claim 14, wherein the self-referential database is a blockchain.
16. The method of claim 14, wherein the first contract is a smart contract.
Description
BRIEF DESCRIPTION OF THE DRAWINGS
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DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS
[0114] Referring to
[0115] Preferably, with regard to the present invention, the system and method for refunding property taxes to a property owner comprises (or comprises the steps that include) at least one of the following:
(1) a “Property Tax Easement” and at least one of the additional elements or components:
(2) a “non-government entity,” such as, but not limited to, a private person, a public corporation or a privately-held corporation;
(3) at least one investor who desire to invest in property taxes by acquiring derivative contracts, such as, but not limited to, puts and call property tax options;
(4) a government taxing authority, tax assessor, property tax notice, tax collector;
(5) property tax options and options market exchange;
(6) a Property Tax Easement Agreement and/or a property-specific geographic address trademark;
(7) “fair market value of the Property Tax Easement Agreement;” and/or property-specific geographic address trademark;
(8) Local, state, and federal tax forms for personal and business tax returns to claim \ amortization and charitable contribution deductions of the intangible real estate property assets; and
(9) a residential and/or commercial parcel of real estate property.
[0116] As a non-limiting aspect of the present invention, the “property tax easement” and at least one of the additional elements or components are implemented into a portion of a traditional tax administration process or into the entire traditional tax administration process.
[0117] As a non-limiting aspect of the present invention, the “non-government entity” facilitates access to the free capital markets by using the property tax easement as an underlying instrument in order to link it to the newly created “property tax option.”
[0118] As a non-limiting aspect of the present invention, the public corporation or a privately-held corporation facilitates the unique service of rebate (or “refunding”) property taxes paid by property owners back to them—in lieu of a government entity performing this task.
[0119] The present invention discloses a new and useful application of the terms “property taxes” via a novel approach that is designed to demonstrate how to transform a zero-sum game, typified by the (i.e., the payment of property taxes) into a win-win game.
[0120] Easements are well-understood, routine and conventionally used by professionals and those skilled in the art of real estate and real estate law. However, in contrast to the traditional use and understanding of an easement, the present invention introduces a new term of art to the field.
[0121] This new term of art that the present invention adds to the field of real estate and real estate law is called a property tax easement. Somewhat like other types of easements, a property tax easement is a legal instrument that gives one person certain rights to use something that is related to the property that is subjected to the easement.
[0122] The rights granted to the holder of the easement include, but are not limited to, the following: [0123] the right to use the property taxes for the purpose of monetizing the current tax liability; [0124] the right to use the property taxes for the purpose of monetizing the future expected property tax liabilities; [0125] the right to use the value of at least one or more of the property tax liabilities as the strike price of a property tax call option; and [0126] the right to use the value of at least one or more of the property tax liabilities as the strike price of a property tax put option.
[0127] For the purposes of the present invention, the word phrase “property tax” is a specific limitation that—when added to well-known, routine, and conventional use and meaning of the word “easement”—literally changes its overall meaning, purpose, and use, from its more widely-understood use and meaning in the field of real estate, title work, tax law, taxation, finance, and real estate law.
[0128] Residential and commercial builders in different stages of a real estate project (such as under construction, newly constructed, for sale, pending sales, and/or future planned residential and commercial real estate development projects), existing property owners, and For Sale By Owners (FSBO) would find aspects of the present invention attractive for various reasons. Real estate and non-real estate investors, as well as local county governments would also benefit from the use or application of the present invention.
[0129] Both vacant land and existing residential and commercial real estate property owners could benefit from the teachings and disclosure of the present invention and its use or application in practice.
[0130] The present invention relates to rearranging the temporal relationship of the existing property tax administration process (i.e., property tax assessment done, property tax notice sent, amount of property taxes owed accepted (or contested) by the property owner, and property owner makes payment of property taxes, etc.)—which typically and routinely, does not provide a property tax refund or rebate on a regular basis, or use the capital markets as the source of any refunds made.
[0131] According to the present invention, if the existence of the annual property tax liability were to be specifically disclosed, listed, and categorized as a separate line item on a corporate balance sheet under the Liability section, then there would have to be a separate, corresponding, identifiable, line item entry of an asset that must be listed under the “Assets” section.
[0132] The present invention preferably uses the fundamental equation of accounting that assets must always equal liabilities. In addition, the present invention preferably uses its counterpart equation, requiring that contingent assets must always equal contingent liabilities.
[0133] Whether speaking about a business or an individual, there is one main fundamental equation of accounting:
Assets=Liabilities+Shareholder's Equity (Equation #1)
To keep things simple, if shareholder's equity is ignored—then, according to the rules of accounting, every asset has to be offset or balanced by a liability. A liability is defined as a debt that is owed.
[0134] In order to take into account the contingent property tax liability, there thus exists a need and a requirement to re-write Equation (1) as:
Contingent Asset=Contingent Liability+Shareholder's Equity (Equation #2)
[0135] This contingent asset is distinguishable, is readily identified, and able to be reasonably quantified. In addition, the amount of this asset must offset and have a value that is at least equal to the value of the contingent property tax liability that is anticipated and the expected amount to be owed in order to balance the accounting equation.
[0136] Equations #1 and #2 above are both well-known, used, and widely recognized throughout the professional disciplines and the prior art published literature by the professionals who practice in the field of accounting, finance, economics, banking, real estate law, tax law, and taxation.
[0137] According to the teaching of the present invention, there exists a high likelihood that the local government tax assessor or collector will continue to make regular assessments of the real estate property taxes owed for a given subject real estate property well into the distant future. This assessment could and would become an obligation of the current property owner and any subsequent owner of the property.
[0138] The owner of real property can make the strong assumption that property taxes owed today will also be expected to be owed in the future. The property owner can also make an even stronger assumption that the local government authority or tax collector will continue to exercise it sovereign power and authority to tax the citizens who own real estate property.
[0139] According to the teaching of the present invention:
Contingent Liabilities=Property Taxes (Equation #3)
[0140] Again, to keep things simple and ignoring Shareholder's equity, the accounting equation can now be re-written as follows:
Contingent Asset=Contingent Liability (Property Tax) (Equation #4)
[0141] However, given the Equations #3 and #4 above, there are two main questions that must be raised (and that are answered) by the present invention. [0142] 1) Does there exist a “Contingent Asset” which will offset and balance the Contingent Liability (property tax)? [0143] 2) If so, then what is the name of this Contingent Asset?
[0144] Upon information and belief, the inventor believes that neither the published prior art, the published literature, or the professionals who practice in the field of accounting, finance, economics, banking, real estate law, tax law, and taxation teach, disclose, or provide an answer to these two questions related to and raised by Equations #3 and #4.
[0145] As such, the present invention recognizes this knowledge gap in the prior art and thus provides an answer to this real world problem.
[0146] Instead of thinking about property taxes as a liability (or at best, a contingent liability), the present invention view property taxes from the perspective of its contingent asset. But what type of asset?
[0147] Since every asset item on a balance sheet has to be classified as either a “tangible asset” or an “intangible “asset” and each item must be something that is readily identifiable, quantifiable, and at least equal in value to its counterpart—which is a liability, then the most plausible way to answer the question was to consider an intangible asset.
[0148] According to the present invention, a property tax easement is an intangible asset and thus it should be useful for the purpose of serving as the underlying for an option contract.
[0149] According to the Dictionary of Real Estate Appraisal and as commonly understood in the field of real estate law, an easement is defined as the “conveyance of certain property rights, but not ownership, to a parcel of real estate.”
[0150] Another source defines the word easement as “an interest in real property that conveys use, but not ownership, of a portion of an owner's property. Access or right of way easements may be acquired by private parties or public utilities.
[0151] Governments dedicate conservation, open space, and preservation easements.”—the Dictionary of Real Estate Appraisal—4th Edition.
[0152] These property rights define the rights of ownership related to the property—as if the rights were a “bundle of sticks”. This bundle of rights includes, the right to sell, convey, transfer, use, to enter upon it, to lease it, to give it away, the right to refuse to do any of these things, etc. As such, a property owner could choose to keep all the sticks in the bundle together or wholly intact and maintain a fee simple estate. Or, the property owner could elect to convey certain rights to a third party—meaning that the other party would have the legal right to exercise those rights granted to them by the property owner.
[0153] Easements can be categorized according to their length of time and can be granted for an indefinite or permanent period of time. Or, an easement may be granted for a known, finite, or fixed period of time by the grantor such as for 12 months, 12 years, or 300 years.
[0154] In addition to a length of time associated with an easement, it is also well known that an easement can be categorized according to the space that it affects. There are different types of easements, such as subsurface, surface, and overhead easements that may provide the right to dig water and sewer lines, erect billboard signage, or fly over certain property. Real estate appraisers face the task of determining if and how an easement affects the use or utility of a property, and how it affects the actual market sale of a property (before and after) placement of the easement. By comparing its value to other final sold properties that are unencumbered with an easement, appraisers can calculate a fair market value for the easement.
[0155] For example, an easement is unique to one property. It is distinguishable from other easements on the same property and specifically grants a partial taking or defined interest (estate) in the subject property to another person—other than the owner of the underlying fee simple interest. As such, an easement is generally understood to mean “an estate or interest in land.” The specific property rights granted to the other person are delineated in the easement document and typically refers to a “servient estate” and a dominant estate”.
[0156] However, in the present invention, the term “property tax easement” represents an estate or interest, not specifically in the land itself but, rather, in the property taxes that the land is subject to pursuant to the sovereign power and authority of the local government. The property tax easement is granted by the property owner to another person in exchange for certain mutual benefits that each party enjoys. The owner of the property still has and retains physical possession of the property. The property owner also has the legal duty, obligation, and responsibility to pay all of the property taxes on the property as they become owed and due. The easement holder has no legal duty, obligation, or responsibility to pay the property taxes. Nor does the easement holder have the right to physically take or possess the property subject to the easement. The easement is different from a lien in that a lien gives the lien holder the right to foreclose on the property, possess, and sell the property.
[0157] According to the present invention, one of the intended purposes of the property tax easement is to give the general public or a party (buyer, seller, investor) both notice and information that the easement exists.
[0158] According to the present invention, one of the intended purposes of the property tax easement is to give the easement holder (and/or his agent) the legal right, authority, and permission to enter over, under, across, through, and within the property via vehicle (manned and unmanned) or by foot for the purpose of evaluating it and the property taxes that may be owed on the property now or in the future.
[0159] According to the present invention, one of the intended purposes of the property tax easement is to identify certain real estate property and evaluate and determine its suitability for enrollment and retention in a Property Tax Refund program.
[0160] According to the present invention, another intended purpose and use of the property tax easement and property tax option is to give the general public or a party (buyer, seller, investor) both notice and information that a given residential or commercial real estate property is enrolled in the Property Tax Refund Program.
[0161] According to the present invention, another intended purpose and use of the property tax easement and property tax option is to facilitate the acquisition of residential and commercial real estate property during contract negotiations.
[0162] With the increasing use of mobile devices, smart tablets, and cellphones used to view real estate property, there may often be a limitation on the amount of data, memory, and information that can be obtained and displayed about a subject property. Many printed and electronic MLS listings have multiple images of a subject property which highlight certain interior and exterior feature, bedrooms. bathrooms, kitchen, etc. Recent property tax data related to a subject property may also be given and displayed on the same webpage or printed page for the property. However, any additional property tax information that may be needed requires a person to go in person or log onto a different website such as a government entity, a property tax collector, property tax assessor, or entity having tax jurisdiction authority, before they can obtain any older property tax data—because often, the number of years displayed may only be the last three years' worth of property data.
[0163] According to the present invention, the system 100 of the present invention includes a proprietary online MLS-type database and/or printed directory 131 consisting exclusively or primarily of residential or commercial real estate property that has been preferably granted a license to use the mark PROPERTY TAX EASEMENT™. This database would serve as a primary resource for any real estate brokers, realtors, real estate agents, investors, and the general public who desire to quickly and easily identify commercial and residential properties available for purchase, sale, and/or trade. This type of database and/or directory would cover different local and regional geographic locations and contain a wealth of information about each property such as the current property taxes, address, listing price, etc. These properties would be recognized as enrolled into and participating in the Property Tax Refund program 130 and thus offer a competitive advantage over other similar competing online MLS directories and printed real estate property listings.
[0164] The proprietary online MLS-type database and/or printed directory 131 of the present invention preferably includes information such as the annual amount of property taxes owed (or paid) for a given real estate property or parcel of land listed for sale, the physical address of the property, the name of the property owner, a tax ID, and a legal description that identifies the listed property being taxed by the taxing authority.
[0165] As a non-limiting example, the property tax easement database 137 of the present invention has similarity to the form and function of a generic typical multiple-listing service (MLS) that is widely known and used by professionals in the real estate industry. Preferably, the property tax easement database 137 includes the capability of collecting, storing, retrieving, computing, and displaying the historical average and standard deviation of the property taxes paid related to a real estate property, wherein the calculated information would provide a benefit to a plurality of investors and property owners. As a non-limiting example, the database includes a calculation-performing device or a calculation-performing capability that performs and/or provides calculation that reflects the average (mean) value and standard deviation of property taxes which have been paid over a period of time—for example, seven years, related to a given subject property. Although some currently-used print and electronic MLS directory listings may provide and display a sample of the most recent one or two years of property taxes paid and property taxes assessed—this information is usually for a specific year only. In contrast, the present invention seeks to improve upon the prior art by providing one who practices the invention with new, additional, useful, information about the average amount and standard deviation of property taxes related to a subject property paid during a certain desired period of time, for example—the immediate past seven years. Those who have and use this information would realize a real world benefit because they would then be able to easily and efficiently construct a probability distribution and this would aid them in their decision-making process as to whether, for example—an investor should or should not invest in a certain real estate property. This probability distribution and information can then be compared with other different real estate properties in the same category (i.e., single family home, retail shopping center, office building, etc.), in the same price range, the same or a different city, etc.
[0166] As a non-limiting example, the current printed and electronic MLS listings of property may provide similar data in a tabular format. For example, the past fifteen years of property taxes may be listed in two columns of data, side-by-side, where each respective column is labeled “Year” and “Amount of Tax Liability.” Currently in the art, a person would have to copy the amount for each year and to perform a mental calculation or using a calculator to calculate the mean and standard deviation.
[0167] As a non-limiting example, assume that an investment banker is asked to make a determination about the valuation of a private company that owns substantial real estate assets—in addition to its business operations. If there are one or two properties, then this process may not take a long time. However, for some large corporations which may have up to hundreds or thousands of different locations and each site could have multi-year property data in a similar columnar format, then this would not be economical, practical, feasible, or cost-effective. The banker may be challenged to come up with a meaningful value for the entire business. As such, the investment banker may hire a valuation specialist or an appraiser to assist with the valuation. The hired person may choose to use “a replacement cost approach” (based on the principle of substitution), the income capitalization approach, or a sales comparison approach to determine the value of the business owned real estate holdings. However, all three of these approaches do not necessarily work for valuation of intangible real estate property, such as easements, mineral or water rights, air rights, etc. Thus, the proprietary online MLS-type database and/or printed directory of the present invention can be very useful.
[0168] As a non-limiting example, the property tax easement database 137 includes computer hardware (or a computer hardware system) and computer software wherein computer software is implemented using computer hardware, ROM, RAM, computer data files in a computer-readable format, graphical user input, graphical user output, the Internet, and, possibly, a network of computers, in order to retrieve, process, handle, and manipulate property tax data from a plurality of databases. The software would then perform a series of distinct processes to automate a task that goes beyond simply organizing the retrieved information and presenting it in a new form or carrying out a fundamental existing economic process. In contrast to the similar task which is currently being performed by humans such as appraisers and can be laborious in nature, and may require review and inspection of comparable and comparison properties, and then, due to time constraints, may only include a limited sample of the entire hundreds or thousands of different real estate locations, the present invention solves this real world problem by providing the historical data in a format—whose calculated average value+/−standard deviation value can then be incorporated into a probability distribution and used by the user in their decision-making process. The expected results and benefit to the user include, having increased flexibility, faster search and retrieval times, and smaller memory requirements needed to understand the data, perform analysis of the data, and gain insight about the valuation of the business real estate holdings. One specific application of the probability distribution function involves linking the computed mean value to the strike price of an option and the standard deviations can then be used to determine the range of prices above and below the strike price.
[0169] In addition, in contrast to using a computer software, computer hardware, and mathematical algorithm(s) simply as a tool for automating the process of calculating the mean and standard deviation of the property taxes paid on a subject property during the past several years, the system and method of the present invention also improves the functioning of a computer-related technology as follows: for example, once the probability distribution is calculated say for a dataset of one hundred single family homes located in Chicago during the past seven years, then this information could be compared to other dataset of one hundred single family homes located in other cities. It could be compared to a dataset of one hundred hotels, or a dataset of one hundred apartments, or one hundred retail shopping centers all located in Chicago and other cities, such as New York City or Miami. This results in a new type of self-referential database and thus is a new and useful improvement upon the standard information typically found in a printed or electronic MLS-type listing of real estate property.
[0170] Preferably, the computer hardware (or computer hardware system) of the present invention may be any computer hardware (or computer hardware system) known to one of ordinary skill in the art that allows the application of the embodiments of the present invention to be implemented.
[0171] According to the present invention, a proprietary website portal would preferably be created to give property owners the ability to pay their property owed on the property directly to the local tax collector, if desired.
[0172] Preferably, the Property Tax Easement Agreement is visible and displayable in print and on an electronic MLS directory listing and conveys additional useful material information about a residential or commercial real estate property.
[0173] Preferably, the “fair market value of the property tax easement” provides a user with useful financial information associated with the residential or commercial real estate property, such as the fair market value of the subject property itself before and after placing the property tax easement on the property. Just as conservation easements are known to have value, then it is believed that a property tax easement (legal document) and the rights associated with it will also have value. It is believed that the value associated with the “fair market value of the property tax easement” would and should be separate and distinct from the value which the “property tax easement” itself would be independently valued at by an appraiser.
Source:
[0174] https://www.forbes.com/sites/peterjreilly/2016/01/14/conservation-easement-tax-deductions-and-valuation-abuse/#7f49f2865f63
[0175] Preferably, the “contingent value of the property tax easement” provides a user with useful financial information associated with the residential or commercial real estate property, such as the value of the property tax easement as determined by the contingent liability that is created upon the issuance of a property tax notice to a property owner that is owed and payable by a date certain. It is believed that this element may be correlated with and/or related to the fair market value of the subject property itself before and after placing the property tax easement on the property. It is believed that the value associated with the “fair market value of the property tax easement” would and should be separate, distinct, and independently valued by an appraiser.
Property Tax Options
[0176] The present invention discloses a security instrument created based upon the ad valorem or property taxes which each tax collector/assessor of a municipality, city, county, or state sends out to its respective real estate property owners and business owners on a regular basis.
[0177] In the present invention, the property tax easement 136 serves as the underlying intangible asset that is associated with a specific real estate property. Since the underlying intangible asset has a value and this value can be linked to the property tax easement (as measured by the difference in the market value of a subject property before and after an easement is placed on the property) and/or as determined by the property tax liability, then, the amount of the annual property taxes owed can serve as the strike price for an option. There are multiple different properties that have different annual property taxes owed based on their respective assessed value. This means multiple strike prices can be offered for the property tax options that are bought, sold, and traded on a public market exchange.
[0178] Property is assessed by a tax assessor 152 on, for example, an annual basis and typically a property tax notice 156 (liability) is issued by a local government entity to the property owner. Thus, there is a direct connection and nexus between a property tax easement placed on a specific real estate property and the property taxes that attach to this property as a liability that its owner must pay to a local government entity.
[0179] A real estate investor 140 can buy an option(s) and use leverage to take advantage of the “price” movement that occurs as a result of the annual property tax assessment, property appreciation, property depreciation, and property tax liability associated with a specific real estate property.
[0180] However, in contrast to the price of a share of stock fluctuating, according to the present invention, it is the fluctuation in the property taxes routinely assessed and owed that an investor should seek to exploit for profits.
[0181] It is known that if the price of a stock increases by a certain percentage this usually generates a larger percent change in the price of an option.
[0182] Likewise, if the price, specifically the amount of property taxes (annual amount owed in dollars and cents, tax rate, or the millage rate) owed for a property increases by a certain amount—as shown in
[0183] One embodiment of the present invention is a security instrument that is a call option linked to the ad valorem or property taxes. Since many property and business owners have often experienced an increase in their annual property taxes owed, then one way that they could mitigate against this risk is by buying and/or selling “property tax call options.”
[0184] Alternatively, since many residential and commercial business property owners may suffer significant financial loss due to flooding after a natural disaster, then one way to mitigate against this financial risk is buying and/or selling “property tax put options.”
[0185] These property tax call and put options could be created, underwritten, issued, bought, sold, and distributed on one of the existing national, regional, or international options exchange markets.
[0186] By using a property tax easement 136 (which is an intangible, contingent asset) as the underlying security and using the amount of the annual property taxes assessed and owed on a given subject property as the strike price for a property tax option, a property owner (residential and/or commercial) as well as other interested investors, can buy, sell, and/or trade property tax futures and options contracts on a public exchange. A property tax easement 136 and property tax options may be used as a means by which the owners of either residential and/or commercial real estate property can potentially obtain a property tax refund each and every year. Given the fact that the property taxes owed on vacant land have an (almost guaranteed) tendency to increase once improvements have been made to the land—and, given the additional fact and strong tendency for property taxes to again increase within 1-2 years after a new property-owner occupies the property, then a property owner, builder, and/or investor can use these two facts and different futures and option strategies, such as a naked call option to take positions that advantageously gives them an opportunity to consistently win profits and obtain a property tax refund year after year. Ultimately, a property owner can transform this zero-sum game into a “win-win” game. However, there are some tax authorities where the property taxes decrease after capital improvements have been made to a vacant lot, such as in Washington, D.C.
[0187] The Table of Steps of the present invention below illustrates how the present invention would be used to create a property tax long call option related to a vacant lot owned by, for example, a builder or property owner.
[0188] As a non-limiting example of a method to create a property tax long call (and/or put) option related to a vacant lot owned by, for example, a builder and/or a property owner or where the builder has legal rights to the vacant lot, the method to create a property tax long call (and/or put) option comprises the steps of:
[0189] (1) providing to a property owner and/or builder of a vacant lot with an opportunity to join the Property Tax Refund program;
[0190] (2) property owner and/or builder granting a property tax easement on the vacant lot for the purpose of creating a property tax option;
[0191] (3) linking the property tax easement to the property tax option with strike price equal to the annual property taxes expected to be owed;
[0192] (4) property owner and/or builder making capital improvement (such as, but not limited to, building a house) on the vacant lot;
[0193] (5) property owner and/or builder buying a long naked call (and/or put) option contract;
[0194] (6) property owner and/or builder receiving a property tax notice or bill showing an increased amount of taxes owed for next year resultant from the completed capital improvements and higher taxable assessed property value;
[0195] (7) property owner and/or builder paying the property tax bill to a tax collector for the higher property taxes owed; and
[0196] (8) exercising property tax call (and/or put) option prior to its expiration date and splitting profits among property owner and/or builder.
[0197] As a non-limiting example, a buyer of an option has the right to buy (a call option) or to sell (put option) an underlying asset at a fixed price (strike price or exercise price) for a given period of time before the option expires. The buyer of the call option wants the price of the underlying asset to go up. The seller of the call option wants the price of the underlying asset to go down. If the price of the underlying asset goes above the option's strike price, the option holder will purchase the asset at the strike price and then sell it at the higher market price, making a profit. The option writer must sell the asset at the strike price (which is lower than the asset's market price). If the seller does not already own the underlying asset, then the seller will have to purchase it at the higher market price. The option seller receives the option premium upfront from the buyer of an option. The option seller is obligated to sell (in the case of a call option) or to buy (in the case of a put option) an underlying asset according to the terms of the option contract. If exercising the option would be unprofitable for the option buyer, then they have the right to walk away from the transaction. However, an option seller cannot walk away from their contractual obligation.
[0198]
[0199] A property tax liability option is a contract between a buyer and a seller.
[0200] In one embodiment of the present invention, a “property tax liability” option serves as the equivalent of a “stock” option.
[0201] However, instead of buying 100 shares of the underlying stock, a property tax liability option contract gives the buyer of the contract the right to buy (or sell) 100 units of the underlying property tax liability associated with at least one (or more) subject property at a predetermined price on or before the expiration date. For example, the buyer of a property tax liability option contract, such as a real estate investor, obtains the right to buy (or sell) 100 contracts associated with vacant lots on which a house will be built within the next 24 months and the property taxes are expected to increase or decrease once the improvements have been completed.
[0202] Alternatively, according to the present invention, one property tax liability unit is equal to $1.00 (USD) of property taxes owed by at least one (or more) property owner. If the annual property taxes owed for a parcel is $1000 (USD), then this represents 1000 units.
[0203] The buyer of the property tax liability option is not obligated to buy (or sell) the underlying property tax liability.
[0204] Any action that the buyer may take to buy (or sell) the underlying property tax liability would typically be done if it is profitable for them.
[0205] The attributes of the property tax liability option are identifiable and similar to a stock option: [0206] the price of the option which is called the premium. This represents what the buyer of the property tax liability option would have to pay to the seller of the option; [0207] the predetermined price of the underlying property tax liability is known as the strike price (or the exercise price); [0208] the property tax liability price (or the market price) represents the amount of the property tax liability; and [0209] there is also an expiration date.
[0210] If an investor expects the property tax liability to be higher in the future, then they would buy a property tax liability call option and pay the seller of the option a premium—for example, $10.00 per option contract.
[0211] If the property taxes owed on parcel A was equal to $100 (USD) last year, then $100 would represent the strike price. The break-even price for the investor would be $100+$10.00 or $110 per option contract.
[0212] If the property tax liability next year is greater than $110, then the investor who holds the call option would exercise their contract and take a profit. Thus, if the property tax liability is $152, then this would represent a gross profit of $42 per contract for the investor.
[0213] On a traditional publicly-traded or private exchange, there are option chains which represent a range of different strike prices that are available. The difference between each strike price is standardized (i.e., $1, $2, $5, $10, etc.) and often based on the price of the stock.
[0214] In the present invention, there are option chains which represent a range of different property tax liabilities (strike prices) owed by different property owners. The option chains could be established to represent a range of different property tax liabilities (strike prices) that are available based upon different individual real estate properties owned by one (or more) property owners.
[0215] In another embodiment, instead of buying 100 shares of the underlying stock, a property tax liability option contract could give the buyer of the option the right to buy or sell the property tax liability associated with 100 parcels of already existing real estate that will undergo capital improvements within the next 24 months.
[0216] Thus, if there are 100 parcels of property in the same (or different) state, county, city, or municipality and each had property taxes owed last year in the amount of $100 (USD), then these 100 subject properties could collectively be treated and considered equivalent to the 100 shares of an underlying stock.
[0217] If the annual property taxes on each of these 100 parcels increased over the next year, then the buyer of the call option could exercise the option, and sell the underlying property tax liabilities at the market price and make a profit.
[0218] As a non-limiting example of another embodiment of the method of the present invention is:
[0219] (1) property owner and/or builder creating an account and acquiring property tax call and/or put options related to real estate property;
[0220] (2) property owner and/or builder deciding how much simple interest they are willing to pay an investor;
[0221] (3) property owner and/or builder calculating their average annual property tax bill from the past certain number of years (such as seven years);
[0222] (4) property owner and/or builder funding their account by placing certain number of years (such as two years) worth of property taxes into an account in addition to a certain amount of simple annual interest (for example 10%);
[0223] (5) investor(s) looking for a good investment that pays a certain (such as 10%) simple annual interest;
[0224] (6) investor(s) contributing a certain number of years (such as one year) worth of property taxes owed to the property owner's or and/or builder's account;
[0225] (7) property owner and/or builder receiving higher property tax notice from local tax collector due to market appreciation and/or capital improvements;
[0226] (8) property owner and/or builder paying their property tax bill to tax collector for the property taxes owed;
[0227] (9) providing proof of property taxes paid provided from the tax collector office to the investor;
[0228] (10) exercising property tax option and splitting profits between (a) property owner and/or builder and (b) investor;
[0229] (11) investor receiving their annual simple interest and their principle back from the property owner; and
[0230] (12) property owner and/or builder receiving a refund of their paid property taxes from the investor's account and/or the capital markets.
[0231]
[0232] In accordance with an embodiment of the present invention,
[0233] The owner 132 of the real estate property 134 now owes and must pay a higher (or lower) amount of property taxes to the property tax collector 154—resulting from a higher taxable assessed value of their property 134 as determined by the property tax assessor 152 in response to having received a property tax notice 156 which created a legal debt obligation and property tax liability.
[0234] In accordance with this embodiment of the present invention, at least three new elements (labeled 112, 138, and 192) are now introduced into the current property tax system comprising 152, 154,156. These three elements are a private entity 112 which may be a private or publicly-held corporation, trust, entity, or person. This private entity 112 may issue and buy, sell, trade, or exchange property tax options 138 itself or through a third party such as a broker dealer that are then publicly traded on a market exchange. The types of property tax options 138 may be a put option or a call option. The options that are bought, sold, traded, and exchanged will typically be settled by another company, such as an options clearing corporation 192 as is commonly well known in the industry. This process involving the buying and selling of property tax options 138 could repeat itself on a regular basis depending on the needs of those who practice the present invention.
[0235] As a non-limiting example of an application of the present invention, consider a family of four consisting of a husband, wife, and two children who just graduated with their college degrees. Both parents worked two jobs, incurred $250K in total debt, and the entire family has a total of $50K in the bank and live in a home owned free and clear and worth $50K. The family pays $1K a year in annual property taxes. Altogether, the entire family has a total wealth of $50K+$50K=$100K. The husband and wife wish to create a legacy for their grandchildren, great-grandchildren and great-great grandchildren. They wish to practice the invention as a way to address multi-generational poverty and massive consumer debt. They recognize the fact that only two things in life are certain—death and taxes. They realize that if they follow the steps disclosed in the present invention, then they could have an opportunity to effect a transformation of their present socioeconomic state (i.e., $100K total wealth) to a different and better state ($500K). In addition, if they follow the steps disclosed in the present invention, then they could have an opportunity to realize an overall reduction of a particular item (i.e., $250K debt) down to a much lower state of indebtedness ($10K) because they could use the profits generated from exercising their property tax options to pay off their family debts.
[0236] As another non-limiting example of an application of the present invention, consider a new home buyer, a residential homebuilder, a commercial builder, or a property developer. Upon buying a vacant parcel of land, the builder or property developer could purchase naked call options for each lot that they own, plan to build upon, and intend to sell. The naked call options would have staggered expiration dates throughout the year to allow for any potential delays in completing the building project. After each project has been completed, a new property tax assessment must be done which typically will result in the improved property having to be assessed at a higher valuation. As such, the property taxes on each of the builder's lot will be expected to invariably increase. After the property taxes have increased, the builder or property developer then simply exercises his naked call options, exits the position, and takes his profits directly from the free capital markets.
[0237] As a further non-limiting example of an application of the present invention, consider the President of a country, the head of a foreign state, or the ruler of a nation-state. For example, if a foreign nation-state wanted to transform its current economic system from one state (such as communism or socialism) into a different state (such as capitalism), then the present invention could be implemented by the government of that country as a way of dealing with its national debts.
[0238]
[0239] Different elements of the communications network 120 include the Internet 121, at least one (or more) browser 122, software 123, authorized users 124, software programs 125, a database 126, along with at least one (or more) server 127, and server software programs 128.
[0240] Different elements of the Property Tax Refund program 130 will be explained shortly.
[0241] Different elements of the taxing authority 150 include a tax assessor 152 and a tax collector (such as, but not limited to, a tax collector office) 154 and their respective tax assessor database 153 and tax collector database 155. A Tax Notice (TN) 156 related to a given subject property is also an element that the tax assessor 152 would typically send to a property owner 132, who would be expected to make any property tax payments owed to the tax collector 154.
[0242] Different elements of the capital markets 190 include an options clearing corporation 192 and at least one (or more) options exchange 194 and their respective options clearing corporation database 193 and options exchange database 195.
[0243] At least one (or more) title company 160 and mortgage company 170 and their respective title company database 163 and mortgage company database 173, are additional elements of the present invention which are useful in helping to determine if certain real estate property is free and clear or if it is encumbered by a mortgage, any restrictive covenants, or any non-property tax easements.
[0244] As envisioned, a private entity 112 creates a proprietary MLS-like database directory 131 which consists of at least one or more property owners 132 and their participating properties 134, that collectively constitutes a database 135. The database 135 also includes those properties that have a Property-specific geographic address trademark associated with the property. Examples of different types of participating properties 134 include, but are not limited to, vacant land, single family homes, commercial office buildings, multi-family residential apartments, condominiums, theme parks, hotels, and real estate used for industrial and manufacturing purposes. Ownership of each participating property 134 is determined by at least one (or more) title company 160 that conducts a title search of the subject property based upon the legal description of the participating property 134 as part of a vetting process. Upon meeting certain criteria, approval, and passing the vetting process, the property becomes subject to a property tax easement 136.
[0245] The property tax easement 136 is entered into between the grantor (property owner 132) whereby certain rights are granted by the grantor to the grantee (private entity 112 and recipient of property tax easement 136). The property tax easement 136 may be for a finite or an indefinite period of time and have other relevant and material terms and conditions which affect the subject property. Other properties that have undergone a similar process and been granted a property tax easement 136 collectively constitute a property tax easement database 137.
[0246] At least one (or more) third-party custodial property 142 owner companies is used to establish, create, and maintain an account for the property owner 132 in a property owner database 144. A similar third-party custodial real estate investor company 143 is used to establish, create, and maintain an account for real estate investors in a real estate investor database 145 designed for investment purposes.
[0247] Certain types of properties in the property tax easement database 137, such as vacant land, may be linked to a property tax options 138 and serve as an underlying instrument for a property tax call options contract. It is envisioned that different types of option contracts, such as put and call options, would collectively constitute a property tax options database 139.
[0248] Property owners 132 may consist, for example, of residential builders, commercial builders, an individual property owner, a corporate entity, trustee, and real estate investors 140. Depending upon their investment interest (commercial versus residential), different types of real estate investors 140 would constitute a real estate investors database 141 who are only interested in, for example, office buildings as investments. Likewise, depending upon their risk-reward profile, each property owner might be attracted to certain properties listed in the proprietary MLS-like database directory 131 and in particular, those linked to a property tax easement 136—such as a vacant lot or post-natural disaster area, because they represent investment opportunities by which they could acquire property tax (call and put) options 138 and use the capital markets 190 to generate profits.
Another Embodiment: Property Taxes, LLC, and Corporate Entities
[0249] Many real estate investors are well aware of the fact that if they move real estate property that they own, for example as an individual or joint tenancy, into a limited liability company (LLC), then the annual property taxes owed on that property can increase—perhaps double or even triple. As such, one embodiment of the present invention envisions that property owners, trustees, trust beneficiaries, and real estate investors will use this fact and seek to advantageously position themselves by buying property tax options prior to any transfer of their real estate property into an LLC, land trust, or any other entity that might trigger an automatic increase in their annual property taxes paid.
[0250] The trustees of an LLC, land trust, partnership, owners of corporations, and other corporate entities which hold real estate assets in the name of a corporate entity, all collectively, thus would be expected to acquire long term property tax put options and long term property tax call options—depending on the ownership status of the real estate assets and the desires of the beneficiaries, trustees, etc. As such, they could serve as the counter-party in any call option and put option exchange transaction and support a viable market exchange for the buying, selling, trading, and exchanging of property tax options.
[0251] For example, the present invention's proposed solution would provide that all the real estate assets currently being held in the name of the LLC, land trust, business entity, or corporation be transferred out of that entity and into the name of an individual, joint tenancy, or another type of ownership. Prior to the transfer of the real estate assets out of the corporate entity, the trustee of the LLC will have been instructed to buy long term property tax put options. After the tax assessor has performed their job that year, since the real estate property is no longer being held by a corporate entity—but, instead by an individual, then the real estate will most likely not be treated as commercial property. As such, the property taxes owed should be lower due to the real estate now being held by an individual resultant from a change in the ownership status. Once the new decreased property tax notice has been issued, then liability attaches to the new individual owner. If there is sufficient difference in the amount of property taxes owed and it would be favorable for the trustee of the LLC to timely exercise the long put options, then the trustee will do so and collect the profits on behalf of the beneficiaries of the trust.
[0252] After receiving any profits, then the process is simply reversed and repeated using long property tax call options on the real estate property. In other words, the individual simply buys long term property tax call options, transfers all of the real estate property out of their individual name and back into the LLC. Upon complete transfer of all the real estate assets, the trustee is instructed to expect an increase in the amount of the annual property taxes owed due to the new ownership status and the presumption that the real estate will be accordingly treated and taxed as commercial property. The trustee will have been instructed to buy long term property tax call options and wait for the tax assessor to perform their job and raise the property taxes higher on the same real estate property that is (again) now expected to be treated as commercial property. If there is a sufficient difference in the amount of property taxes owed and it would be favorable for the trustee of the LLC to timely exercise the long call options, then the trustee will do so and collect the profits on behalf of the beneficiaries of the trust.
Source: https://budgeting.thenest.com/tax-consequences-transferring-property-limited-liability-company-33711.html
A Further Embodiment: Property & Casualty Insurance Premiums
[0253] Likewise, many real estate investors may be well aware of the fact that if they move real estate property that they own, for example as an individual or joint tenancy, into a limited liability company (LLC), then—in addition to their property taxes, the annual insurance premium charged for a property and casualty insurance policy on the real estate property may also increase significantly because the property is now viewed as being owned by a company and thus the insurer will treat it as commercial property. Therefore, another embodiment of the present invention envisions that property owners, trustees, trust beneficiaries, and real estate investors will use this fact and seek to advantageously position themselves by buying property and casualty insurance premiums (PCIP) options prior to any transfer of their real estate property into an LLC, land trust, or any other entity that could trigger an automatic increase in the amount of their annual property insurance premium fees.
[0254] As disclosed by the present invention's example of using annual property taxes owed related to a parcel of real estate, property and casualty insurance premiums would work in a similar manner.
[0255] Accordingly, the present invention envisions that all real estate assets currently being held in the name of the LLC, land trust, business entity, or corporation would be transferred out of that entity's name and into the name of an individual owner, joint tenancy, or another type of ownership. Prior to the transfer of the real estate assets out of the corporate entity, the trustee of the LLC will have been instructed to buy long term PCIP put options. After the tax assessor has performed their job that year, since the real estate property is no longer being held by a corporate entity—but, instead by an individual, then the real estate will most likely not be treated as commercial property. As such, the annual PCIP owed should be lower due to the real estate now being held by an individual resultant from a change in the ownership status. Once the new decreased property tax notice has been issued, then liability attaches to the new individual owner. If there is a sufficient difference in the amount of annual PCIP owed and it would be favorable for the trustee of the LLC to timely exercise the long term PCIP put options, then the trustee will do so and collect the profits on behalf of the beneficiaries of the trust.
[0256] After receiving any profits, then the process is simply reversed and repeated using long PCIP call options on the real estate property. In other words, the individual simply buys long term PCIP call options, transfers all of the real estate property out of their individual name and back into the LLC. Upon complete transfer of all the real estate assets into the LLC, the trustee is instructed to expect an increase in the amount of the annual PCIP owed due to the new ownership status and the presumed treatment that the real estate will be accordingly taxed and treated as commercial property. The trustee will have been instructed to buy long term PCIP call options and wait for the tax assessor to perform their job and send a property tax notice reflecting the higher property taxes higher on the same real estate property that is (again) now expected to be treated as commercial property. Upon the property and casualty insurance carrier receiving the same notification, then an increase in the PCIP should occur and be expected. If there is a sufficient difference in the amount of the PCIP owed and it would be favorable for the trustee of the LLC to timely exercise the long PCIP call options, then the trustee will do so and collect the profits on behalf of the beneficiaries of the trust.
[0257] The trustees of an LLC, land trust, partnership, owners of corporations, and other corporate entities which hold real estate assets in the name of a corporate entity, all collectively, thus would be expected to acquire long term PCIP put options and long term PCIP call options—depending on the ownership status of the real estate assets and the desires of the beneficiaries, trustees, etc. As such, they could serve as the counter-party in any call option and put option exchange transaction and support a viable market exchange for the buying, selling, trading, and exchanging of PCIP options. It is envisioned that a PCIP option could also serve as the underlying of a property tax option (and vice versa).
[0258] A similar process is envisioned and can be performed with respect to life insurance policies and their life insurance annual premiums. The advantages of having a life insurance premium option (“LIPO”) can be provided in a later patent application with more details as to how this embodiment is actually quite similar to the treatment of “vacant property” and real estate property that has undergone capital improvements and resulted in higher property taxes.
An Additional Embodiment: Blockchain Technology and Cryptocurrency
[0259] Another embodiment which the present invention envisions is the use of blockchain technology to facilitate accepting and using digital cryptocurrency, for example—bitcoin, as a cost-effective and efficient means of performing monetary exchanges related to the buying, selling, trading, and exchanging of real estate, property tax options, property tax easements, property tax refunding services, and other real-estate related services.
Source: https://www.realcomm.com/advisory/738/1/what-is-blockchain-and-how-does-it-apply-to-real-estate
[0260] Typically, property tax information is kept, recorded, and maintained on a given real estate property in the records or computer database of the local county or municipality where the property exists. Local tax authorities such as the tax collector and tax assessor by and large focus on the tax administration process—and in particular, their main duties are directed to the levy and collection of property taxes and assessments related to real estate property. Property owners may attempt to lower their annual property taxes owed by filing an appeal—however, if this is unsuccessful, then they may have to resolve their dispute legally by filing a lawsuit. This consumes a large amount of time, energy, and resources by both parties and is thus not a cost-effective or efficient process. Occasionally, a taxpayer may file a request and/or receive an unexpected tax credit or refund for overpayment of their taxes. However, most property owners do not expect or anticipate receiving a refund or rebate of their property taxes. Nor have they considered or viewed property taxes as a type of investment opportunity.
[0261] According to one source, it is claimed that:
“Blockchain will enable every property, everywhere, to have a corresponding digital address that contains occupancy, finance, legal, building performance, and physical attributes that conveys perpetually and maintains all historical transactions. Additionally, the data will be immediately available online and correlatable across all properties. The speed to transact will be shortened from days/weeks/months to minutes or seconds.—Jason Ray, Nov. 2, 2015.
Source: https://www.linkedin.com/pulse/blockchain-cre-its-all-speed-transact-jason-ray
[0262] According to a different source (see below), “over $500 billion is collected in the US each year in local/state property tax revenues” and this is consistent with what the National Tax Lien Association (“NTLA”) organization has found. This predictable, reliable, steady source of cash flow represents an attractive investment opportunity for most investors. The present invention envisions an investor being able to potentially obtain a refund or rebate of their property taxes by using property tax options, the capital markets, and the strong tendency for local governments to exercise their sovereign power and authority and raise taxes on vacant land that has undergone capital improvements. Although there are periods of boom and bust related to economic growth. Nevertheless, throughout every business cycle, history has shown and the present invention envisions that the function of levying and collecting property taxes by the government is an ongoing process and this type of activity will continue each and every year
Source: https://www.cnsnews.com/news/article/540701000000-us-property-taxes-hit-record-2016
[0263] Taxes are imposed by these taxing jurisdictions on the total and partial ownership interests in real property such as land, building, and permanent improvements. If, and when, the expected taxes are not paid and they become delinquent, then this usually results in the public debt being sold. According to the FAQ section of the NTLA in response to the question, “How does the novice investor find tax lien investing opportunities?′ the response given was that “some 2,500 jurisdictions (cities, townships, counties) [currently] sell public tax debt.”
Source: http://www.ntla.org/?page=FAQ
[0264] Finally, a third source claims that:
By offering a 100 percent incorruptible resource, whereby the sender and recipient of funds was logged, and where “digital ownership certificates” for properties are saved, the blockchain would effectively make forged ownership documents and false listings a thing of the past. The unique “digital ownership certificates” would be almost impossible to replicate, and would be directly linked to one property in the system, making selling or advertising properties you don't own almost impossible.—Don Oparah, Feb. 6, 2016
Source: http://techcrunch.com/2016/02/06/3-ways-that-blockchain-will-change-the-real-estate-market/
[0265] The present invention argues for the premise that there doesn't appear to be much or any concerted effort put forth by the federal, state, or local government in striving to provide consumers and property owners a refund or rebate of their annual property taxes paid.
[0266] The present invention envisions a unique opportunity to use the capital markets as an attractive means of delivering these “lost” funds back into the hands of the consumers, businesses, and owners of real estate property. The disclosed embodiments may be ways to best achieve the objectives of the proposed invention.
[0267] Whether one is a real estate investor who loves to fix and flip houses, a seasoned tax lien sales certificate investor in search of an attractive investment opportunity, or a new commercial or residential builder just entering the competitive real estate and construction industry—they all face the same challenging situation under the current traditional tax administration system. He who owns the property pays the property taxes. How does one create a sustainable, reliable, predictable residual income stream from each and every property that a builder, investor, or realtor builds, flips, or sells? The present invention is intended to address this question.
[0268] The present invention discloses that the annual property taxes associated with real estate property, property tax easements, property tax options, and the capital markets can be combined into a system to create an attractive investment opportunity. By combining the ideas and embodiments expressed in the present invention with a cryptocurrency and the blockchain technology, a system can be envisioned that is a more streamlined, cost-efficient, transparent, cost-effective process that leverages disintermediation and results in lower transaction costs, cost-savings, reduced fraud, and enhanced trust between the parties engaged in a transaction while preserving the anonymity of each party. The opportunity to examine and use other alternative ways to achieve similar, if not better results compared to the existing tax administration system, would be advantageous for consumers, property owners, the government, and all real estate and capital market participants.
Another Embodiment: Property-Specific Geographic Address Trademark
[0269] As a non-limiting example of this embodiment, a business opportunity is implemented as a franchise business model and that an individual is a prospective franchisee who: [0270] owns and lives in a residential home physically located at 123 Main Street, Anytown, N.Y.; [0271] owns a vacant lot that is physically located at 456 Main Street, Anytown, N.Y.; or [0272] owns a parcel of commercial real estate that is physically located at 789 Main Street, Anytown, N.Y. which has a commercial building on it.
The individual can have a “property-specific geographic address trademark” (or “property-specific geographic address service mark,” if applicable) for each of these separate, distinguishable, identified, type, and parcel of real estate.
[0273] Under the franchise agreement, the individual could, for example, be granted, the right to hire someone to create up to three (3) related or similar trademarks, one for each type of real estate property which the individual currently owns.
[0274] For example, a property-specific geographic address trademark could be: [0275] 330pieR which is designated for the residential home physically located at 123 Main Street, Anytown, N.Y.; [0276] 330pieV which is designated for the vacant lot that is physically located at 456 Main Street, Anytown, N.Y.; or [0277] 330pieC which is designated for the property that is physically located at 789 Main Street, Anytown, N.Y. which has a commercial building on it.
[0278] An application to register each of these property-specific geographic address trademarks with the State of New York and/or with the United States Patent and Trademark Office (U.S.P.T.O.) could be submitted by the franchisor on behalf of the franchisee—and if approved for state and/or U.S.P.T.O. registration, then the marks could later be assigned to the franchisee based upon certain criteria being met (i.e., having a clear title and proof of ownership for each property).
[0279] Each trademark could seek registration under, for example, Class 41, that describes: [0280] the 330pieR mark as being used to “provide educational services to the general public about the creation and use of intangible assets exclusively related to residential real estate property;” [0281] the 330pieV mark as being used to “provide educational services to the general public about the creation and use of intangible assets exclusively related to vacant real estate property;” and [0282] the 330pieC mark as being used to “provide educational services to the general public about the creation and use of intangible assets exclusively related to commercial real estate property.”
[0283] Assuming that these trademarks are approved for registration, then each of them can be used in conjunction with the inventor's business and enhance the value of his federally registered trademark, PROPERTY TAX EASEMENT, that is devoted to providing “Financial services, namely the management and investment of real property owners' property taxes.”
[0284] As part of the franchise package, legal services could be obtained by the franchisor to: [0285] draft and prepare a Property Tax Easement contract for the individual to sign that would subject their properties to it; [0286] draft and prepare a license Agreement giving the individual limited rights to use the patent to create a Property Tax Easement; and/or [0287] draft and prepare a separate license agreement to give the individual limited rights to use or make a trademark that is similar to the federally registered, PROPERTY TAX EASEMENT, trademark.
[0288] The individual/franchise owner could choose to use their residential home or the property that has the highest paid annual property taxes as the place of business for their franchise.
[0289] Under the current existing tax laws, the value of different types of assets used in a business can be amortized or depreciated over a certain period by the owner of these assets.
[0290] It is believed that both the two (2) license agreements, as well as the three (3) trademarks, would all qualify as intangible assets used in the franchise owner's business—each with their own valuation.
[0291] These laws give owners the right to claim and take amortization and depreciation expenses related to the value of all of their intangible and tangible assets.
[0292] This results in lower taxable income and ultimately fewer taxes having to be paid by the owner on earned income and revenue generated by their business.
[0293] In some cases, net income losses (NOLs) are created which can be used as a loss carryback and loss carryforward and thus provide the owner favorable financial accounting, tax, and economic benefits.
[0294] It is to be understood that the present invention is not limited to the embodiments and non-limiting examples described above or as shown in the attached figures, but encompasses any and all embodiments within the spirit of the invention.
[0295] Another embodiment includes a method for using intangibles related to real estate property as a means of helping to reduce the financial risks and financial losses of real estate property. The method can include: creating an account and acquiring at least one real property tax option selected from a group consisting of a call option and a put option, related to real estate property by a party comprising at least one of: a property owner and an investor. Further, the method can include: calculating an average annual property tax bill based on at least one probability distribution; providing a contract that is triggered by a real property tax notice from a tax collector that has a different quantity of property taxes owed than a prior real property tax notice; providing a self-referential database which includes a probability distribution reflective of the annual property taxes owed related to at least one parcel of real estate property; associating the probability distribution with at least one intangible that together serve as a financial derivatives options contract that results in creation of an instrument; linking the instrument; incorporating the linked instrument as an integral part of a mortgage contract; exercising the call or the put option of the at least one real property tax option; and receiving a profit paid via the capital markets by said party associated with the at least one real property tax option.
[0296] Blockchain can be implemented as a database for storing information. For example, the self-referential database could be a blockchain. Further, any of the aforementioned contracts can be “smart contracts”. Smart contract is a well-known concept in the field of blockchain but less utilized in real estate. A smart contract is a paperless digital code that defines a set of promises on prewritten conditions that the parties of a transaction have agreed upon. These programs are executed on a decentralized network of blockchain. The parties involved can set a condition that can trigger a series of actions when met. For example, the contract that is triggered by a real property tax notice from a tax collector that has a different quantity of property taxes owed than a prior real property tax notice can be a smart contract. A mortgage contract, property tax liability option contract, property tax futures contract, property tax options contract, etc. can all be implemented as smart contracts in this invention. A smart mortgage contract can remove the need to depend on intermediaries and the constant back and forth between parties involved. Other example uses of smart contracts in real estate include property ownership transfer, lease agreements, real estate investments, etc.
[0297] Another embodiment of the invention includes systems and methods for protecting the value of real estate property. The system and method can utilize a computing device with software including a predictive model. As a practical example, the software can receive a weather alert for a given geographic location, the information is used by the software to query the historical weather alert database, the tangible real estate property database, and the property tax database linked to the subject property at the given geographic location. The software then uses either a supervised, semi-supervised, or unsupervised machine learning model, and/or an algorithm is used along with a predictive model and artificial intelligence. The software generates a list of property tax put options and property tax call options that can be bought, traded, and sold by a user. A quantity of property tax put and call options, having the same strike price and expiration date, can be simultaneously bought by the user. The quantity can be used to create, for example, a long property tax straddle position that approximates the cash value (or the amount of equity) which the property owner is at risk of losing in the event of their physical tangible real estate property being destroyed.
[0298] The use of software with predictive models is an improvement in the art and in the technical field of financial recovery associated with natural disasters. The invention offers a new means of using the options and financial/capital markets for protecting and preserving the intangible property value which exists in the form of cash value (equity) that—metaphorically speaking, “is stored, trapped, and accumulated within the physical tangible real estate property” owned by the property owner.
[0299] Preserving the property value of real estate property using Monte Carlo simulation. Monte Carlo simulation is a mathematical modeling technique that uses random sampling to simulate a wide range of possible outcomes for a given system or process. In the context of real estate, Monte Carlo simulation can be used to analyze the potential risks and uncertainties associated with property value and develop strategies for preserving and increasing property value over time.
[0300] As is well-known in many different technical fields and industries, Monte Carlo simulation and its underlying principles can be used to provide insight, benefits, information amidst uncertainty when it is used in a practical application. Although there may be some limitations to using Monte Carlo simulation, this approach is very popular and widely accepted. In the context of real estate, the inventor believes that Monte Carlo simulation can be useful for helping to preserve the property value of real estate property.
[0301] Principles of Monte Carlo Simulation. Monte Carlo simulation is a mathematical modeling technique that involves generating a large number of random samples of input parameters, such as market conditions, property characteristics, and potential risks and uncertainties. These random samples are then used to generate a probability distribution of possible outcomes, allowing analysts to estimate the likelihood of various scenarios and outcomes.
[0302] The basic steps of Monte Carlo simulation include defining the input parameters, generating random samples of these parameters, simulating the system or process under each set of input parameters, and analyzing the results to identify the range of possible outcomes and the likelihood of each outcome. Monte Carlo simulation can be used to model complex systems and processes with multiple input parameters and complex interactions, making it a valuable tool for real estate analysis.
[0303] Benefits and Limitations of Monte Carlo Simulation. The main benefits of Monte Carlo simulation for real estate analysis include the ability to model complex systems and processes, the ability to quantify risk and uncertainty, and the ability to generate probability distributions of possible outcomes. By simulating a wide range of potential scenarios and outcomes, Monte Carlo simulation can help real estate analysts identify potential risks and uncertainties and develop strategies for mitigating these risks and preserving or increasing property value over time. Some of the limitations to Monte Carlo simulation that must be considered when using this approach for real estate analysis include the need for accurate input parameters and assumptions, the potential for bias or error in the modeling process, and the potential for oversimplification or overcomplication of the underlying system or process being modeled. Artificial intelligence and machine learning (supervised, unsupervised, or semi-supervised) can improve the accuracy of the modeling process.
[0304] Applications of Monte Carlo Simulation in Real Estate. There are several practical applications of Monte Carlo simulation in the context of real estate, including risk analysis, portfolio optimization, and investment analysis. Some specific examples of how Monte Carlo simulation can be used in these applications are discussed below:
[0305] 1) Risk Analysis: Monte Carlo simulation can be used to model potential risks and uncertainties associated with real estate investments, such as market fluctuations, changes in interest rates, and natural disasters. By generating a probability distribution of possible outcomes, real estate analysts can identify the likelihood of various scenarios and develop strategies for mitigating potential risks and preserving or increasing property value over time.
[0306] 2) Portfolio Optimization: Monte Carlo simulation can also be used to optimize real estate portfolios, by simulating the performance of different combinations of properties and investment strategies. By generating a probability distribution of possible outcomes for each portfolio combination, analysts can identify the optimal combination of properties and strategies to maximize return on investment and minimize risk.
[0307] 3) Investment Analysis: Finally, Monte Carlo simulation can be used to analyze the potential return on investment for real estate investments, by simulating the performance of different investment strategies and property characteristics. By generating a probability distribution of possible outcomes, real estate investors can identify the most promising investment opportunities and develop strategies for maximizing return on investment and minimizing risk.
[0308] Real World Example: Monte Carlo Simulation for Real Estate Investment Analysis. A practical application of the use of Monte Carlo simulation in real estate along with the use of artificial intelligence and machine learning modeling—can be illustrated by the following hypothetical example: Assume that the user is a real estate investor who is considering purchasing a rental property, with the goal of renting it out and generating passive income. The property in question is a small apartment building in a rapidly growing urban area, with a current market value of $2 million. The investor has conducted market research and believes that the property will appreciate in value over time, but he is also aware of the potential risks and uncertainties associated with real estate investments, such as changes in market conditions, unexpected maintenance costs, potential financial losses due to a natural disaster. To analyze the potential risks and returns associated with this investment, the investor decides to use Monte Carlo simulation. The first step in this process is to define the input parameters, including market conditions, property characteristics, and each of these potential risks and uncertainties.
[0309] The term “attributes” related to real estate property refers to elements that can affect real estate property. Market conditions, property characteristics, potential risks and uncertainties, etc. are a few examples of many attributes related to real estate property. Market Conditions: The investor identifies several key market conditions that may affect the performance of the property over time, including changes in interest rates, changes in rent prices, and changes in vacancy rates. To model these conditions in the Monte Carlo simulation, the investor defines a range of possible values for each parameter, based on historical data and market projections. Property Characteristics: The investor also identifies several key property characteristics that may affect the performance of the property over time, including age of the building, quality of the construction, and potential maintenance costs. To model these characteristics in the Monte Carlo simulation, the investor defines a range of possible values for each parameter, based on historical data and property inspections. Potential Risks and Uncertainties: Finally, the investor identifies several potential risks and uncertainties associated with the investment, including unexpected maintenance costs, changes in local zoning regulations, and natural disasters. To model these risks and uncertainties in the Monte Carlo simulation, the investor defines a range of possible scenarios and outcomes, based on historical data and expert analysis.
[0310] Once the input parameters have been defined, the investor generates a large number of random samples of these parameters, using Monte Carlo simulation software. For each set of input parameters, the simulation models the performance of the property over a specified period of time, such as 10 years or 20 years. The simulation generates a probability distribution of possible outcomes, including the expected return on investment, the likelihood of different levels of appreciation or depreciation, and the likelihood of unexpected maintenance costs, being affected by a natural disaster, and other risks. The investor can then use this information to make informed decisions about the investment and develop strategies for mitigating potential risks and preserving or increasing property value over time.
[0311] Insights from Monte Carlo Simulation. Using Monte Carlo simulation, the real estate investor in our example gained several key insights about the potential risks and returns associated with the investment. These insights include: Expected Return on Investment: The Monte Carlo simulation generated a range of potential returns on investment, based on different combinations of market conditions, property characteristics, and potential risks and uncertainties. The expected return on investment was calculated as the average of these potential returns. Based on the simulation, the expected return on investment for the apartment building was, for example, 7.5% per year over a 10-year period. Risk and Uncertainty: The Monte Carlo simulation also generated a range of potential risks and uncertainties associated with the investment, including the likelihood of unexpected maintenance costs, changes in zoning regulations, and natural disasters. By quantifying these risks and uncertainties, the investor was able to develop strategies for mitigating potential risks and make certain decision to assist them in preserving the value of their real estate property.
[0312] Machine learning (“ML”) and artificial intelligence (“AI”) can be used in many practical applications including real estate property. As is well-known in the field of data science, the use of ML models and artificial intelligence to help process and evaluate massive “big data” datasets stored in huge databases which result in humans gaining understanding and insights to support decision-making has become invaluable. ML models and AI are now routinely being used in creating and building predictive models to address real world problems—such as financial losses and property damages related to natural disasters.
[0313] One of the simplest kinds of machine learning problem is known as binary classification. The goal of binary classification is to categorize data points into one of two buckets: 0 or 1, true or false, to survive or not to survive, blue or no blue eyes, identify emails as spam or not spam email, etc. Binary classification can be implemented, for example, by using software algorithms written in a programming language, such as Python.
[0314] Practical Application. One practical application of binary classification can address a problem involving real estate property. Artificial intelligence and a machine language approach can be used with a binary classification scheme to create a model that can aid and assist the property owner and investor with their decision-making. For example, one of the simplest types of machine learning problem, called binary classification, can be implemented by building a model of, for example “real estate properties that has been built within the past twelve months”, “real estate properties that have been sold within the past twelve months” and the “annual property taxes owed by the new owners within twelve months of buying a property”. Alternatively, a binary classification, could be implemented by building a model of, for example “real estate properties that have been built within the past twelve months” and the strike price of different put and call property options associated with each property.
[0315] This information can be used to create a table, the values within the table can be obtained from public records, and then binary classification, AI, and a ML model can be used to analyze the dataset. Using these tools, it is possible to create or “draw” a boundary line that shows the relative clustering and separation of different groups (or subsets) of real estate property with different criteria from another group of properties. Using these tools, the model can be feed data, known as “training data” and real estate properties in this dataset can be assigned to a “buy” or a “sell” classification based on at least one (or more) attributes.
[0316] A user can select specific features such as the “property size”, “price”, “residential”, “office building” or “annual property taxes”. One or more of these features such as, “property size less than 4000 square feet”, can be used as inputs to search the entire database. This can be used as a single filtering parameter to (subset) or create a group of properties that meet this requirement compared to other properties in the dataset that do not meet the criteria. This initial parameter can also be combined with a different filtering parameter, such as “price is less than $200K” and this combination together can result in an output of properties that satisfies both filtering criteria. This special set of properties can then be designated as a “training set” and of data that constitute a class, and this information can be labeled by the model. The model results (or output) could also return information that identifies one property as belonging to Class 1 and a different result, that identifies a different property as belonging to Class 2.
[0317] An investor or user could then use this information to invest in put and call options create long property tax option straddle option positions using this historical data. The decision made by an investor to buy and/or sell a particular leg (contract) of a long option straddle can be automated by using “smart contracts”, along with a software algorithm, artificial intelligence, and a machine language/model approach.
[0318] Over time, for example, the next twelve months, the amount of property taxes owed will change from a minimum value to a maximum value. Information from the smart contract can be used to update the historical databases, such as the property tax database, the post twelve-month real estate property database, the property owner database, etc. The model can be expanded, and multiple additional classes can be created based on the type of real estate property being evaluated. By feeding the model millions of attributes of residential properties and data such as the annual property taxes for these properties, the model can learn from this training data and will be able to improve the number of decision boundaries that are drawn and used in the analysis. This allows the invention to be used for multi-class classification purposes.