Real estate derivative financial products, index design, trading methods, and supporting computer systems

• US 20070244780A1
• Filed: 03/22/2007
• Published: 10/18/2007
• Est. Priority Date: 03/26/2006
• Status: Abandoned Application

• Current Assignee: Ralph Y. Liu
• Original Assignee: Ralph Y. Liu
• Inventors: Liu, Ralph Y.
• Application Number:
  US11/726,544
• Publication Number:
  US 20070244780A1
• Time in Patent Office: Days
• US Class Current: 705/35
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

In accordance with the principles of the present invention, real estate derivative financial products, index design, trading methods, and supporting computer systems are provided for property owners and investors to temporarily swap their respective economic interests in owning/disowning an underlying property for a certain period of time, directly or through some middlemen. Therefore in addition to the traditional ways of either buying/selling or renting property, the property owner could consider a third new way of dealing with a property. The present invention provides a very straightforward way to enable property owners to protect the gains or prevent further losses in their property equity value. On another hand, the present invention also allows investors to establish an exposure in a potential property equity appreciation or depreciation in a particular neighborhood.

Claims

1. A real estate derivative product comprising a synthetic “

rent”

in real estate that enables a property owner to lock in property equity value for a period of time, while continuing existing legal real estate ownership.

2. The real estate derivative product of claim 1 further comprising a derivative product that utilizes price indices to correlate to the underlying real estate property market.

3. The real estate derivative product of claim 2 further wherein the price indices comprises smallest definable like-kind property neighborhoods and their aggregates based per square area real estate weighted average index.

4. The real estate derivative product of claim 3 further wherein the price indices comprises a postal-code based per square area real estate weighted average index.

5. The real estate derivative product of claim 2 further wherein the price indices comprises a postal-code based per square area real estate median price index.

6. The real estate derivative product of claim 1 further wherein an investor pays the property owner and, if the property value rises representing a gain, the gain belongs to the investor.

7. The real estate derivative product of claim 6 further wherein the property owner pays the investor and, if the property value decreases representing a loss, then the loss is incurred by the investor.

8. The real estate derivative product of claim 1 further including further derivative financial instruments based thereon.

9. The real estate derivative product of claim 1 further including further derivative financial instruments based thereon selected from the group comprising index linked notes, index linked bonds, index linked deposits, and combinations thereof.

10. The real estate derivative product of claim 1 further wherein the real estate index derivative product is quoted.

11. The real estate derivative product of claim 1 further wherein the real estate index derivative product is traded.

12. A real estate derivative product comprising an investor being exposed to property equity value for a period of time by creating a synthetic long position in real estate, without requiring legal real estate ownership.

13. The real estate derivative product of claim 12 further comprising a derivative product that utilizes price indices to correlate to the underlying real estate property market.

14. The real estate derivative product of claim 13 further wherein the price indices comprises smallest definable like-kind property neighborhoods and their aggregates based per square area real estate weighted average index.

15. The real estate derivative product of claim 14 further wherein the price indices comprises a postal-code based per square area real estate weighted average index.

16. The real estate derivative product of claim 13 further wherein the price indices comprises a postal-code based per square area real estate median price index.

17. The real estate derivative product of claim 12 further wherein a property owner pays the investor and, if the property value decreases representing a loss, then the loss is incurred by the investor.

18. The real estate derivative product of claim 12 further wherein the investor pays the property owner and, if the property value rises representing a gain, the gain belongs to the investor.

19. The real estate derivative product of claim 12 further including further derivative financial instruments based thereon.

20. The real estate derivative product of claim 12 further including further derivative financial instruments based thereon selected from the group comprising index linked notes, index linked bonds, index linked deposits, and combinations thereof.

21. The real estate derivative product of claim 12 further wherein the real estate index derivative product is quoted.

22. The real estate derivative product of claim 12 further wherein the real estate index derivative product is traded.

23. A real estate derivative product comprising a derivative product that utilizes price indices to correlate to underlying real estate property market.

24. The real estate derivative product of claim 23 further wherein the price indices are created based on smallest definable neighborhoods of like-kind properties and their aggregates.

25. The real estate derivative product of claim 24 further wherein the price indices are created based on smallest identifiable neighborhood postal-code based per square area real estate weighted average index.

26. The real estate derivative product of claim 24 further wherein the price indices are created based on smallest identifiable neighborhood postal-code based per square area real estate median price index.

27. The real estate derivative product of claim 23 further including a funding cost expressed as a floating interest rate.

28. The real estate derivative product of claim 27 further including a funding cost expressed as a floating interest rate such as a London Inter-Bank Offered Rate (LIBOR).

29. The real estate derivative product of claim 23 further including a funding cost expressed as a fixed interest rate.

30. The real estate derivative product of claim 29 further including a funding cost expressed as a fixed interest rate such as an interest rate swap rate.

31. The real estate derivative product of claim 23 further wherein a property owner pays an investor;

the investor pays the property owner;

if the property value rises representing a gain, the gain belongs to the investor; and

if the property value decreases representing a loss, then the property owner will be paid by the investor for the loss.

32. The real estate derivative product of claim 23 further including further derivative financial instruments based thereon.

33. The real estate derivative product of claim 23 further including derivative financial instruments are selected from the group comprising a total return swap, a price return swap, a forward, an option, a real estate index derivative product that utilizes price indices to correlate to the underlying market real estate properties, and combinations thereof.

34. The real estate derivative product of claim 23 further including further derivative financial instruments based thereon selected from the group comprising index linked notes, index linked bonds, index linked deposits, and combinations thereof.

35. The real estate derivative product of claim 23 further wherein the real estate index derivative product is quoted.

36. The real estate derivative product of claim 23 further wherein the real estate index derivative product is traded.

37. A real estate derivative structure comprising:

a property owner paying an investor;

the investor paying the property owner;

if the property value rises representing a gain, the gain belongs to the investor; and

if the property value decreases representing a loss, then the property owner will be paid by the investor for the loss;

such that the property owner will be protected from fluctuations of the property value.

38. The real estate derivative structure of claim 37 further including a funding cost comprised of a floating interest rate.

39. The real estate derivative structure of claim 38 further including a funding cost comprised of a floating interest rates such as a London Inter-Bank Offered Rate (LIBOR).

40. The real estate derivative structure of claim 37 further including a funding cost comprised of a fixed interest rate.

41. The real estate derivative structure of claim 40 further including a funding cost comprised of a fixed interest rate such as an interest rate swap rate for a certain maturity.

42. The real estate derivative structure of claim 37 further wherein the payment of the property owner and the payment of the investor are offset and netted out.

43. The real estate derivative structure of claim 37 further wherein the value of the property is determined through an appraised value.

44. The real estate derivative structure of claim 37 further wherein the value of the property is determined through a real estate price index.

45. The real estate derivative structure of claim 44 further wherein the value of the property is determined through a smallest identifiable neighborhood postal-code based per square area real estate index and their aggregates.

46. The real estate derivative structure of claim 37 further including a real estate index derivative product expressed an annualized percentage, but determined by multiplying a property value and prorating the property value for periodic payment amount.

47. The real estate derivative structure of claim 46 further wherein the real estate index derivative product is quoted.

48. The real estate derivative structure of claim 46 further wherein the real estate index derivative product is traded.

49. The real estate derivative structure of claim 37 further including further derivative financial instruments based thereon.

50. The real estate derivative structure of claim 37 further including further derivative financial instruments based thereon selected from the group comprising index linked notes, index linked bonds, index linked deposits, and combinations thereof.

51. A real estate derivative structure comprising:

an investor paying a property owner; and

if the property value rises representing a gain, then the gain belongs to the investor;

such that the property owner receives the payment regardless of whether a gain is realized.

52. The real estate derivative structure of claim 51 further wherein the property owner provides an offset against the property owner payment while avoiding risk of property depreciation.

53. The real estate derivative product of claim 52 further wherein notional amounts of the property owner payment and the offset payments are the same.

54. The real estate derivative product of claim 52 further wherein notional amounts of the property owner payment and the offset are the not the same.

55. The real estate derivative product of claim 52 further wherein starting dates for the property owner payment and the offset are the same.

56. The real estate derivative product of claim 52 further wherein starting dates for the property owner payment and the offset are not the same.

57. The real estate derivative product of claim 52 further wherein maturity dates for the property owner payment and the offset are the same.

58. The real estate derivative product of claim 52 further wherein maturity dates for the property owner payment and the offset are not the same.

59. The real estate derivative product of claim 52 further wherein starting values for the property owner payment and the offset are the same.

60. The real estate derivative product of claim 52 further wherein starting values for the property owner payment and the offset are not the same.

61. The real estate derivative structure of claim 51 further including a funding cost comprised of a floating interest rate.

62. The real estate derivative structure of claim 61 further including a funding cost comprised of a floating interest rate such as a London Inter-Bank Offered Rate (LIBOR).

63. The real estate derivative structure of claim 51 further including a funding cost comprised of a fixed interest rate.

64. The real estate derivative structure of claim 51 further including a funding cost comprised of a fixed interest rate such as an interest rate swap rate.

65. The real estate derivative structure of claim 51 further wherein the value of the property is determined through real appraised value.

66. The real estate derivative structure of claim 51 further wherein the value of the property is determined through a real estate price index.

67. The real estate derivative structure of claim 66 further wherein the value of the property is determined through a smallest identifiable neighborhood postal-code based per square area real estate index and their aggregates.

68. The real estate derivative structure of claim 51 further including a real estate index derivative product expressed an annualized percentage, but determined by multiplying a property value and prorating the property value for periodic payment amount.

69. The real estate derivative structure of claim 68 further wherein the real estate index derivative product is quoted.

70. The real estate derivative structure of claim 68 further wherein the real estate index derivative product is traded.

71. The real estate derivative structure of claim 51 further including further derivative financial instruments based thereon.

72. The real estate derivative structure of claim 51 further including further derivative financial instruments based thereon selected from the group comprising index linked notes, index linked bonds, index linked deposits, and combinations thereof.

73. A real estate derivative structure comprising:

a property owner paying an investor; and

if the property value decreases representing a loss, then the property owner will be paid by the investor for the loss;

such that the property owner will be protected from property value decreases.

74. The real estate derivative structure of claim 73 further wherein the investor provides an offset against the investor payment while benefiting from risk of property appreciation.

75. The real estate derivative product of claim 74 further wherein notional amounts of the investor payment and the offset are the same.

76. The real estate derivative product of claim 74 further wherein notional amounts of the investor payment and the offset are not the same.

77. The real estate derivative product of claim 74 further wherein starting dates for the investor payment and the offset are the same.

78. The real estate derivative product of claim 74 further wherein starting dates for the investor payment and the offset are not the same.

79. The real estate derivative product of claim 74 further wherein maturity dates for the investor payment and the offset are the same.

80. The real estate derivative product of claim 74 further wherein maturity dates for the investor payment and the offset are not the same.

81. The real estate derivative product of claim 74 further wherein starting values for the investor payment and the offset are the same.

82. The real estate derivative product of claim 74 further wherein starting values for the investor payment and the offset are not the same.

83. The real estate derivative structure of claim 73 further including a funding cost comprised of a floating interest rate.

84. The real estate derivative structure of claim 73 further including a funding cost comprised of a floating interest rates such as a London Inter-Bank Offered Rate (LIBOR).

85. The real estate derivative structure of claim 73 further including a funding cost comprised of a fixed interest rate.

86. The real estate derivative structure of claim 73 further including a funding cost comprised of a fixed interest rates such as an interest rate swap rate.

87. The real estate derivative structure of claim 73 further wherein the value of the property is determined through real appraised value.

88. The real estate derivative structure of claim 73 further wherein the value of the property is determined through a real estate price index.

89. The real estate derivative structure of claim 88 further wherein the value of the property is determined through a smallest identifiable neighborhood postal-code based per square area real estate index and their aggregates.

90. The real estate derivative structure of claim 73 further including a real estate index derivative product expressed an annualized percentage, but determined by multiplying a property value and prorating the property value for periodic payment amount.

91. The real estate derivative structure of claim 90 further wherein the real estate index derivative product is quoted.

92. The real estate derivative structure of claim 90 further wherein the real estate index derivative product is traded.

93. The real estate derivative structure of claim 73 further including further derivative financial instruments based thereon.

94. The real estate derivative structure of claim 73 further including further derivative financial instruments based thereon selected from the group comprising index linked notes, index linked bonds, index linked deposits, and combinations thereof.

95. A real estate price index comprising a group of smallest identifiable neighborhood of like kind properties per square area real estate price index having sufficient correlation to hedge the beta of the property value risk, but not the alpha and their layers of aggregates.

96. The real estate price index of claim 95 further including a smallest identifiable neighborhood of like kind properties per square area real estate weighted average price index having sufficient correlation to hedge the beta of the property value risk, but not the alpha.

97. The real estate price index of claim 95 further including a smallest identifiable neighborhood of like kind properties per square area real estate median price index having sufficient correlation to hedge the beta of the property value risk, but not the alpha.

98. The real estate price index of claim 95 further wherein the smallest identifiable neighborhood of like kind properties per square area real estate price index comprises a postal-code based per square foot real estate price index.

99. The real estate price index of claim 98 further wherein the postal-code based per square area real estate price index comprises a Zone Improvement Plan code based per square foot real estate price index.

100. The real estate price index of claim 95 further wherein the smallest identifiable neighborhood of like kind properties per square area real estate price index comprises at least one smallest identifiable neighborhood of like kind properties.

101. The real estate price index of claim 95 further wherein the smallest identifiable neighborhood of like kind properties per square area real estate price index comprises more than one smallest identifiable neighborhood of like kind properties.

102. The real estate price index of claim 95 further wherein the price index comprises a rolling moving average of the price index.

103. The real estate price index of claim 102 further wherein the price index comprises a rolling moving average of the weighted average price index.

104. The real estate price index of claim 102 further wherein the price index comprises a rolling moving average of the median price index.

105. The real estate price index of claim 95 further wherein the real estate price index is utilized for pricing a real estate index derivative product.

106. The real estate price index of claim 105 further wherein the real estate price index is utilized for pricing for a real estate index derivative product that enables property owners to lock in property equity value for a period of time by creating a synthetic “

rent”

position in real estate, while continuing existing legal real estate ownership.

107. The real estate price index of claim 105 further wherein the real estate price index is utilized for pricing for a real estate index derivative product that enables investors to establish an exposure in property equity value for a period of time by creating a synthetic long position in real estate, without requiring legal real estate ownership.

108. The real estate price index of claim 95 further wherein the real estate price index comprises a geographic area and a type of real estate.

109. The real estate price index of claim 108 further wherein the real estate price index comprises a geographic area and a type of residential real estate.

110. The real estate price index of claim 108 further wherein the real estate price index comprises a geographic area and a type of commercial real estate.

111. The real estate price index of claim 95 further wherein the real estate price index is further adjusted by property attributes within the neighborhood.

112. The real estate price index of claim 95 further including adjusting for quantified property attributes.

113. The real estate price index of claim 112 further including adjusting for types of properties.

114. The real estate price index of claim 112 further including adjusting for individual property characteristics.

115. The real estate price index of claim 95 further including excluding unstable outlier properties.

116. A mortgage product comprising a borrower giving a lender the right to use an equity portion of an underlying property for real estate derivatives transactions where periodic mark-to-market activities will either increase or decrease the property equity amount.

117. The mortgage product of claim 116 further wherein the derivative products are selected from the group comprising a total return swap, a price return swap, a forward, an option, a real estate index derivative product that utilizes price indices to correlate to the underlying market real estate properties, and combinations thereof.

118. The mortgage product of claim 116 further wherein a property owner who gives up potential upside appreciation property value gain, acquires downside depreciation protection for potential property value loss or both in a property through derivative transactions;

a property value-gain lost and paid out to a derivative counterparty reflected as an increase of a borrowing amount; and

a property value-loss gained and paid out by a derivative counterparty reflected as a decrease of the borrowing amount;

such that the borrowing amount will fluctuate up and down in tandem with the asset value of the property.

119. The mortgage product of claim 118 further wherein the mortgage payments change to interest only when the property asset value increases as the borrowing amount increases.

120. The mortgage product of claim 118 further wherein the mortgage payments include an amortization amount when the property asset value declines as the borrowing amount decreases.