Introduction
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 endless. I have selected three areas where bitcoin has helped me. Bitcoin has helped me take my business ventures to the next level by allowing me to easily and efficiently manage my money and accumulate savings. This allowed me to gain self-confidence and look to the future with great optimism. I have less time preference, which means I value the future, which makes me act more consciously in the present. All this had a positive effect on my mental health.
When I was new to bitcoin, I had so many people helping me that I want to share my positive experience with you. This three-part series includes this article, intended for real estate investors, as an introduction. The second part looks at the mental health and well-being benefits of adopting the “bitcoin standard”, such as using bitcoin as a unit of account. The third part explains 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, as well as the positive impact that bitcoin can have on retirement savings.
Reasons Why Should Every Real Estate Investor Own Bitcoin?
Bitcoin is a digital property and should appeal to any real estate investor as such. Real estate benefits from physical scarcity. Bitcoin brought scarcity into the digital realm.
Bitcoin has brought about the first instance of digital ownership. Bitcoin is a digital property. Digital property rights bring the connection between the internet and the economy into the modern age. For example, real estate investors whose business it is to acquire and build physical property are doomed to hold bitcoin because it is a digitised form of physical property.
This statement may surprise you, but in 1995 who would have thought that most stores would also have a digital business in the form of a website or e-commerce store? Of course, ecommerce websites and stores are more similar than bitcoin and real estate, but this is the best comparison to show that real estate investors should invest in bitcoin. I find equations like this useful to explain complex and new technologies like Bitcoin in an understandable way and show why the adoption of such a technology is important.
As I explained in my article Bitcoin Digital Assets, one thing that real estate and Bitcoin have in common is that they both act as a store of value. Theoretically, property is desirable because it generates income (rent) and can be used as a means of production (production). But for the most part, real estate now serves a different purpose.
Given the high monetary inflation of the past decades, keeping money in a savings account is not enough to maintain its value and keep up with inflation. As a result, many people, including high net worth individuals, pension funds and institutions, regularly invest a significant portion of their money in real estate, which has become one of their favorite stores of value. Most people do not need real estate to live in or use for production. They need real estate to 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. The offer is limited, easy to transport, shareable, durable, interchangeable, censorship resistant and not subject to imprisonment. It can be shipped almost for free and at the speed of light to anywhere in the world. On the other hand, real estate is easy to confiscate and very difficult to liquidate during a crisis.
This has recently been demonstrated in Ukraine. After the Russian invasion on February 24, 2022, many Ukrainians turned to bitcoin to protect their wealth, flee money, meet their daily needs and accept transfers and donations. The property had to be abandoned and was largely destroyed.
This could mean that once bitcoin reaches its full potential and people around the world realize it is a better store of value than real estate, the value of physical property could collapse to a usable value and no longer carry a cash premium for use. entails. as a store of value. It may take a long time, maybe several decades, but there is a possibility. That is why it makes sense for you as a real estate investor to get into bitcoin as early as possible. It is common knowledge that those who will implement new technologies will benefit the most.
Real estate investors are experts in using existing real estate as collateral to create debt to buy and build new real estate. As I described in my article “Is using old assets to buy bitcoins a good strategy?” Using existing real estate to pay off debts and buy bitcoin could be an even better business opportunity, as the value of bitcoin is likely to rise faster than the value of real estate. In this way, higher returns can be achieved. Real estate (fully rented property) is the ideal collateral for borrowing to buy bitcoins, as the rent generates income. This way, you never have to sell your bitcoins to pay off your debts, but you can use the rental income.
If my forecast seems too optimistic to you, 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 high.
This should not detract from the lucrative real estate development activities. I’m not asking you to stop developing real estate, I’m asking you to add a bitcoin strategy.
Real estate development is highly dependent on the ability to build creditworthiness. Bitcoin can help here too. The continued adoption of Bitcoin is fueled by its superior monetary properties. Growing adoption is accompanied by rising prices because the supply of bitcoins is limited. There is a positive inverse relationship between acceptance and price. When demand rises and supply remains nearly constant, the price should rise—mathematically speaking.
For you as a developer, this means that the more bitcoins you have, the more collateral you have to finance future property development. Bitcoin should be part of every real estate investment’s strategy as it is the initial collateral that will help you build your long-term creditworthiness.
Judiciously using your property 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 holdings to buy bitcoin can be a great business opportunity — and an opportunity to protect your assets from forfeiture if you have to move. You can of course just sell real estate to buy bitcoin, but that’s a bad idea for two reasons. First, money has been earned in the past from income-generating properties by buying them and holding them for a long time. Second, a property investor typically purchases a property on credit, so rental income is needed to pay off existing debts.
Final Words
I believe the “worlds” of real estate and bitcoin will merge sooner or later. Both assets have similarities and complement each other. Real estate is an income-generating asset (rent), but it is very immobile. Bitcoin generates no income, but is highly liquid and mobile. The two get along well.
The volatility of Bitcoin should not detract from the opportunities it presents. Those who have rejected the Internet have missed out on one of the greatest business opportunities of their lives. Those who refuse bitcoin will face the same fate.
Also, we probably won’t get the same returns from real estate investments as in the past. Since 1971, house prices have risen nearly 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 used a system based on fiat money, with floating exchange rates and no standard money.
Since then, monetary inflation has steadily increased. Real estate has served as an asset for many to keep their money worth. However, Bitcoin serves this purpose much better. This can lead to two things: First, the property may lose a cash premium because it is 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, returns will be many times higher than real estate in the future, because bitcoin is only at the beginning of the journey is acceptance cycle.