The Bitcoin Newsletter #10 - Bitcoin & Real Estate: a guide
Welcome to the 10th edition of The Bitcoin Newsletter
Since sharing my thoughts about bitcoin and real estate, I'm truly grateful for the overwhelmingly positive feedback I've received. At first, I was hesitant to share my ideas, but I've come to realise their importance in further developing my insights. Moreover, I strongly believe that I can assist people in navigating the inflationary pressures of the fiat system and protect their hard-earned money's purchasing power.
In this edition, I aim to address and clarify any misconceptions about bitcoin and real estate. I hope this information will be helpful to all of you.
Best regards,
DEEP DIVE
Bitcoin & Real Estate: a guide.
Real estate has significantly grown in value over the past 50 years, becoming the world's primary asset for preserving wealth and safeguarding against inflation. According to the consulting firm McKinsey, approximately 67% of global wealth, amounting to $330 trillion, is invested in real estate.
In the past, people owned real estate for its utility value, which is characterised by the fact that you can live in it or use it for production. Nowadays, however, people mainly own real estate to store value.
Since the introduction of bitcoin in 2009, real estate has been subject to digital disruption in its function as a store of value. Digitization optimises all functions of value storage.
The properties associated with bitcoin make it an ideal store of value. The supply is finite, it is easily portable, divisible, durable, fungible, censorship-resistant and noncustodial.
The reality is that real estate can not compete with bitcoin as a store of value. Bitcoin is rarer, more liquid, easier to move and harder to confiscate, tax or destroy. It can be sent moved at little cost.
Real estate, on the other hand, is expensive and time-consuming to maintain, can be easily seized, taxed and destroyed, and is very difficult to liquidate or move in times of crisis, as recently demonstrated in Ukraine.
Destroyed house in Bucha, in the Kyiv region, Ukraine, April 6, 2022. Reuters
Bitcoin provides the ultimate form of transferable value because it preserves the encapsulated wealth. If stored properly, its value will continue to increase over time (as long as humankind remains productive) without high maintenance costs or effort.
The days of real estate as a store of value are numbered. From now on, this function will be fulfilled by bitcoin. Of course, it will take a while for most people to understand this. But herein lies the opportunity. The sooner you understand it, the better. When you really understand bitcoin. You don't invest in real estate anymore.
This should not detract from the profitable and necessary business of real estate development. The construction of real estate by the private sector is of paramount importance. Anyone who has been to a Soviet country knows that governments are not very good at planning housing, let alone building it. However, using real estate as a speculative investment is not.
In fact, Bitcoin can help you develop and manage real estate. It gives you more purchasing power over time. For example, for building up maintenance reserves. Or for building credit worthiness. Bitcoin is pristine collateral for lending and is accepted as such by more and more banks worldwide.
Since the real estate development business is very capital intensive, creditworthiness is very important. For you, as a real estate developer, this means that the more bitcoin you own, the more collateral you have to then fund real estate construction in the future.
I have already met several people who have proposed the idea of buying bitcoin to buy real estate in the future. This clearly shows that they do not understand Bitcoin. The fiat system undermines people's minds as well. Not only is bitcoin a better store of value than real estate, it makes the store of value function of real estate obsolete.
As you can see in the chart below, real estate is collapsing in price against bitcoin.
US Real Estate - Home Prices vs Bitcoin, 2021. Ecoinometrics
Over time, the monetary premium that real estate carries will flow into bitcoin. If we assume that bitcoin will absorb 10-15% of the real estate market cap over the next few decades, it has the potential to become a $30-50 trillion asset just by doing so.
That would mean $1.5-2.3 million per bitcoin ($30T/50T : 21.000.000 bitcoin)
For real estate investors, this means asking the question: How can you successfully transition from real estate to bitcoin? In the following I will show you four possible strategies:
Transition strategies from real estate investing to bitcoin:
1. Sell real estate to buy bitcoin
This is obvious. However, it depends on how much debt you have incurred for the purchase of a property. Real estate purchases are usually financed by debt. Rental income from the purchased properties is necessary to pay down debt over time.
Bitcoin is a near-perfect store of value, but it does not generate income, for example to pay off debts. Speculating on bitcoin’s price increase to pay off debt incurred to build or purchase real estate carries a lot of risk, because bitcoin is volatile and therefore not suitable for planning monthly interest payments. This must be decided case by case.
2. Use part of the profits from your real estate business to buy bitcoin.
You can use part of your profits that you make from the real estate business to accumulate bitcoin if you want to stay focused on real estate. How much is up to you.
To deploy 10-15% of profits into bitcoin seems reasonable to participate in Bitcoin's exponential growth without impacting the core business. With this approach, you still have more than enough capital to continue your existing real estate business and meet all obligations, while buy bitcoin with enough capital to properly position yourself for the digitisation of property. Many retail companies missed the leap into e-commerce and suffered significant business losses as a result. Real estate investors unwilling to delve into Bitcoin will most likely face a similar fate.
3. Using rental income from real estate to buy bitcoin and build maintenance reserves
If you bought a property with the intention of holding it for the long term, or are forced to do so due to large debts, bitcoin is the perfect money to build maintenance reserves as it is disinflationary (meaning there will be less supply over time). If the supply of money remains almost constant or decreases and the demand increases over time, the price of the money increases.
The demand for bitcoin will increase over time due to its exceptional qualities as money and property. This means that bitcoin gives you increased purchasing power in the long term, for example for maintenance and modernisation measures, which are important in order to maintain the value of a property. Given the high levels of monetary inflation in fiat currencies, simply holding the rental income in a bank account is not a sufficient strategy. Inflation will melt the value of your cash flow.
In addition, regulation and ESG requirements will increasingly force property owners to “modernise” in the future. Which is likely to continuously increase property maintenance costs over time. Bitcoin gives you the opportunity to prepare for this.
4. Leverage the value of real estate into bitcoin
Software intelligence firm MicroStrategy famously borrowed to buy bitcoin. The firm uses its earnings to pay off the debt while holding bitcoin for the long term, participating in bitcoin's exponential appreciation in value over time. As of today MicroStrategy holds over 152k bitcoin, which translates into approximately 0.726% of the total available bitcoin supply.
Real estate investors are experts at raising outside capital. Usually for the purchase and development of new properties. Using existing real estate to incur debt and buy bitcoin may be an even bigger business opportunity as the value of bitcoin is likely to grow significantly faster than real estate. Thus, a higher return may be achieved.
Fully rented properties are the perfect collateral for borrowing to buy bitcoin, as the rent generates cash flow. Therefore, bitcoin never has to be sold to pay off debts, instead the rental income can be used to do so. Since the loan is repaid with the rental income, bitcoin's volatility is secondary.
Conclusion
As fiat money loses value over time, people invest their savings in scarce assets, in order to protect their purchasing power. In the past, real estate was the best option, but today it is bitcoin. Over time, therefore, bitcoin will absorb the monetary premium that real estate has accumulated as a store of value in the fiat system.
WORTH TO KNOW
How Bitcoin will make housing affordable again
I released a new article in Bitcoin Magazine, explaining why real estate has become so expensive under the fiat system that has decimated peoples' purchasing power and why under a Bitcoin standard we could expect it to become affordable again. The article was well received by readers. Among others, Swan Bitcoin CEO Cory Klippston shared the article in his daily newsletter "The Daily Bitcoiner" as a recommended read. READ
IDEAS OF INTEREST
Why Bitcoin is digital real estate READ
Why Bitcoin is pristine collateral for lending READ
Why every real estate investor should own bitcoin READ
Bitcoin & Real Estate 101: Maintenance reserves READ
Bitcoin & Real Estate 102: Is leveraging real estate to buy bitcoin a good idea? READ
If you wish to support my work on The Bitcoin Newsletter, feel free to contribute. You have the option to send some satoshis/bitcoin. Your support is greatly appreciated!
My lightning address is: law@getalby.com
My bitcoin address is: bc1qyc9q89wjzmvaw729tj3wsrsfhft53mjycrjxdk
Nostr PubKey
npub1v5k43t905yz6lpr4crlgq2d99e7ahsehk27eex9mz7s3rhzvmesqum8rd9
Resources
Two reasons real estate is world’s most preferred store of wealth READ
Bitcoin vs. Real Estate: Which is the more resilient store of value in times of crisis? READ
Bitcoin vs Real Estate: What is the better store of value? READ
Photo Credit: Bitcoin Sapiens
Disclaimer: the content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Make sure you do your own research before making any investment and be aware of your own risk tolerance. If you like to build on my thoughts, feel free, but please cite me as the source. 2023 - Leon A. Wankum.