Crypto and Real Estate Investing

One of the advantages of real estate investing is that you can hold on to a property that is appreciating in value. It therefore increases the amount of equity, which can be used as collateral for a loan. Banks will go up to 80% LTV (loan to value). Having access to this capital then enables an investor to take some of that equity to buy other investment properties or to make repairs to a new acquisition, or whatever other need. So long as the property being mortgaged has good, positive cashflow, no problem. Unless, of course, you have bad credit, which would slow you down.

Crypto is different from real estate in some fundamental ways. For example, you can buy small amounts of crypto until you have a large amount of crypto. With real estate, you have to buy the whole property in one go. Even a down payment can be considerable. In crypto terms, it's like having to buy BTC in whole units. Not everybody has the cash to plop down $13K on a Bitcoin. But, they may have $20 to buy a few Satoshis of BTC regularly.

Over time, these small investments in crypto can add up to a reasonable position that will enable the owner to borrow against it for a business opportunity or other financial need. Real estate and crypto often allow the owner to eat their cake and have it too, when leveraged. Over time, crypto holdings might be sufficient to add up to a down payment on a property. Imagine going to Celsius, Nexo, or BlockFi and getting a loan, no questions asked other than "how much?". No credit check.

When you sell a property, you could take the proceeds, or a portion, to buy more crypto that you can use as collateral for future loans. You can use this method of shifting money back and forth between crypto loans and real estate to ratchet up your net worth. In this way, you can cut bank loans out of the equation. Crypto and real estate compliment each other nicely because of their unique advantages.

Real estate offers some advantages not possible with crypto. One advantage is that real estate can generate cash flow. Rents can pay down mortgages and generate extra income for the owner. Crypto may be able to generate interest in some cases. However, for the most part crypto is a stagnant store of value unless you are trading it, which is an expensive way to generate yields. In this regard, real estate has the advantage in generating cash flow.

Another advantage that real estate has over crypto is that you can deduct expenses from your taxes. On top of that, it is possible to deduct depreciation. You can't do that with crypto because it is very efficient at not costing the holder anything. Most of the cost of crypto is borne by the miners. For the user, crypto is just a ledger entry. Thus, there is no depreciation or expense to deduct from holding crypto.

On the flip side, crypto has some advantages that real estate does not offer. If a property suddenly loses a tenant, you lose income. On top of that, properties cost money, occupied or not. You have maintenance costs and taxes. Properties cannot simply sit idle. They must produce income to be worthwhile. Crypto, on the other hand, may fluctuate with market prices; but, it won't cost you money to simply hold. You could liquidate the property and park the value in crypto, which would increase your credit line. Now you don't have to worry about an idle property eating you alive.

I think that as the conversation about crypto becomes more pronounced, we will increasingly use it as a store of value rather than currency. I think fiat and crypto can work hand in hand to generate prosperity. In this regard, it may not be so bad that the IRS treats crypto as property. We can financially treat crypto as a property in which our wallet key is the deed. While crypto has some major differences from real estate, the differences complement each other in a seesaw fashion.

Perhaps a more appropriate image is a ratchet. Your position would climb a notch and get locked in as you prepare to go up another notch. Crypto loans can help you buy income producing assets. The income can be stored in more crypto, which would allow you to buy bigger and bigger cash flows.

I currently do not practice any of this theory as I am building up my crypto position. I mistakenly started my crypto journey treating it like a currency. Therefore my crypto savings are still not sufficient for a house down payment. However, I do plan on using leverage to increase my BTC holdings. I plan on borrowing $500 to $1000 at a time to buy more BTC. As I pay the loans off, I'll repeat the process up to owning 1 BTC before "diversifying" into other coins. Eventually, I'll have sufficient crypto capital to get that down payment for an investment property. Even between now and then, the ability to use my crypto to refinance some of the things I currently owe would be extremely helpful. The interest cost savings would be tremendous. The process is no different from a home equity line of credit or mortgaging a property you already own free and clear.

The pieces are there. Crypto is new to the financial world. However, the principles of crypto and what you can do with it are as old as capitalism.

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