Every Real Estate Investor Should Own Bitcoin – Bitcoin Magazine

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This is an opinion piece by Leon Wankum, one of the first financial economics students to write a thesis on Bitcoin in 2015.

Prologue

The following article is part of a series of articles where I aim to explain some of the benefits of using bitcoin as a “tool”. The possibilities are limitless. I have selected three areas where bitcoin has helped me. Bitcoin has helped me take my entrepreneurial endeavors to the next level by allowing me to easily and efficiently manage my money and build savings. This allowed me to gain self-confidence and to look to the future with more optimism. I have developed a lesser time preference, which means I value the future, which leads me to act more mindfully in the present. All of this had a positive impact on my mental health.

When I was new to Bitcoin, so many people helped me that I want to share some of my positive experiences with you. The three-part series includes this article, aimed at real estate investors, as an introduction. The second part examines the positive implications for mental health and general well-being when adopting a “bitcoin standard”, for example, using bitcoin as a unit of account. The third part will explain why bitcoin is a better savings vehicle than an exchange-traded fund (ETF), which has been one of the main savings vehicles over the past decades, and the positive impact that the bitcoin can have on retirement savings.

Why Every Real Estate Investor Should Own Bitcoin

Bitcoin is a digital property and should appeal to any real estate investor as such. Real estate capitalizes on physical scarcity. Bitcoin introduced scarcity to the digital realm.

Bitcoin established the first instance of digital ownership. Bitcoin is a digital property. Digital property rights move the link between the Internet and the economy into modernity. Therefore, real estate investors whose business is the acquisition and construction of physical property are destined to hold bitcoin because it is the digitized form of physical property. This statement may surprise you, but who in 1995 would have thought that most retail stores would also have a digital business in the form of a website or an e-commerce store? Of course, e-commerce websites and retail stores are more alike than bitcoin and real estate, but this is the best comparison to show the need for real estate investors to get involved in bitcoin. I find such comparisons helpful in explaining complex and novel technologies like Bitcoin in an understandable way and in showing why adapting such technology is important.

As I explained in my article “Why Bitcoin is Digital Real Estate”, one of the many things real estate and bitcoin have in common is that they both act as a store of value. In theory, owning real estate is desirable because it generates income (rent) and can be used as a means of production (manufacturing). But for the most part, real estate now serves a different purpose. Given the high levels of monetary inflation over the past few decades, keeping money in a savings account is not enough to preserve its value and keep up with inflation. As a result, many people – including high net worth individuals, pension funds and institutions – typically invest a significant portion of their available cash in real estate, which has become one of their favorite stores of value. Most people don’t want real estate so they can live in it or use it for production. They want real estate so they can store value.

However, real estate cannot compete with bitcoin as a store of value. The properties associated with bitcoin make it an ideal store of value. Its supply is limited, it is easily transportable, divisible, durable, fungible, censorship-resistant and non-custodial. It can be sent anywhere in the world at almost no cost and at the speed of light. On the other hand, real estate is easy to confiscate and very difficult to liquidate in times of crisis. This was recently illustrated in Ukraine. After the Russian invasion on February 24, 2022, many Ukrainians turned to bitcoin to protect their assets, take their money with them on the run, provide for their daily needs and accept transfers and donations. The properties had to be abandoned and were largely destroyed. It could mean that once bitcoin has reached its full potential and people around the world understand that this is a greater store of value than real estate, the value of physical property can plummet to utility value and no longer carry the monetary premium of be used as a store of value. It may take a long time, maybe several decades, but the probability is there. Therefore, it makes sense for you as a real estate investor to get involved in bitcoin early. It is well known that those who will adopt new technologies will benefit the most.

Property investors are experts in using existing properties as collateral to raise debt for the purchase and development of new properties. As I detailed in my article “Is Leveraging Legacy Assets to Buy Bitcoin a Good Strategy?” Using existing real estate to incur debt and buy bitcoin is potentially an even bigger business opportunity, as bitcoin’s value is likely to grow faster than real estate. Thus, a higher yield can be achieved. Real estate (fully rented properties) is the ideal collateral to go into debt to buy bitcoin since the rent generates income. Therefore, you never have to sell your bitcoin to pay off your debts, but you can use the rental income. If my forecast seems too bullish, you can also use a small part of your real estate portfolio for such a project, so the risk is relatively low, but the upside potential is still significant.

This should not distract from the profitable business of real estate development. I’m not asking you to stop building real estate, I’m asking you to add a bitcoin strategy.

Real estate development is highly dependent on the ability to build solvency. Bitcoin can help here too. Bitcoin’s continued adoption is fueled by its superior monetary properties. With increasing adoption comes price increases as the supply of bitcoin is limited. There is a positive feedback loop between adoption and price. When the demand increases and the supply remains almost constant, the price must increase – mathematically. For you, as a real estate developer, this means that the more bitcoins you own, the more collateral you have to then finance the real estate construction in the future. Bitcoin should be part of any real estate investor’s strategy as it is an immaculate collateral that will help build your long-term creditworthiness.

Judiciously using your real estate as collateral to borrow money and buy bitcoin can solve another problem: liquidity. Real estate is illiquid and immovable property. In German, real estate translates to “immobilien”, which literally means “to be still”. Using your real estate cash in your income-generating properties to buy bitcoin can be a good business opportunity – and an option to protect your wealth from forfeiture if you have to move. Of course, you can just sell real estate to buy bitcoin, but that’s a bad idea for two reasons. First, historically, money is made from income-producing real estate by buying it and holding it for the long term. Second, a property investor has typically purchased a property with a loan, so rental income is needed to pay off existing debts.

Conclusion

I believe the “worlds” of real estate and bitcoin will merge sooner or later. Both assets share similarities and complement each other. Real estate is an income-generating asset (rent), but it is very immobile. Bitcoin does not generate revenue but is very liquid and mobile. The two get along well.

Bitcoin’s volatility should not distract from the opportunity it represents. Those who rejected the internet missed out on one of the greatest business opportunities of their lives. Those who reject bitcoin will likely suffer the same fate.

Also, we probably won’t see the same kind of return on real estate investments as we have in the past. Since 1971, house prices have increased almost 70 times. This corresponds to the “Nixon shock” of August 15, 1971, when President Richard Nixon announced that the United States would end the convertibility of the US dollar into gold. Since then, central banks have started to operate a fiat currency-based system with floating exchange rates and no standard currency.

Monetary inflation rates have steadily increased since then. Real estate has served as an asset for many to preserve the value of their money. However, bitcoin serves this purpose much better. This can lead to two things: first, real estate could lose the monetary premium of being used as a store of value. Second, if bitcoin (digital property) continues its adoption cycle and replaces real estate (physical property) as the preferred store of value, its rate of return will be many times that of real estate in the future, because bitcoin is only at beginning of its adoption cycle.

In conclusion, as Satoshi Nakamoto said, “You might want to buy some just in case”, or to paraphrase Mark Twain, “Buy bitcoin, they don’t anymore.”

This is a guest post by Leon Wankum. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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