Dec 302014
 

Diversify Bitcoin to Real Estate

Full Disclosure: I am currently a customer of HomeUnion and they have agreed to waive 3 months of management fee for this article. The views expressed are my own though.

Bitcoin price has been on a tear this year, with the total market capitalization reaching an all-time high and the price flirting with the psychologically important $1000/BTC mark. 2016 was an interesting year for cryptocurrency in general, with Bitcoin seeing a more than 100% price rise, Ethereum seeing almost 700% price rise, and the launch of many ICOs in the top 20 cryptos from Waves and Lisk to Augur and ICONOMI. With the price frenzy going on in the industry, let’s take a step back and review cryptocurrency in general and Bitcoin in particular from an investment point of view.

Many of my readers are old-timers who still remember Bitcoin trading in the single digits. Now, as the price approaches 4 digits, Bitcoin investors may look to diversify their holdings. Many of the traditional asset classes seem pricey, with the S&P 500 price-to-earnings at over 25, and the Shiller P/E ratio near an all-time high excluding previous economic shocks. This doesn’t mean stocks are not a good asset class, but merely that based on historical data they are unlikely to yield the kind of growth in the next 5 years as the previous 5.

In such cases, real-estate still remains an attractive investment option, as interest rates are still low based on historical standards (though increasing fast). The biggest challenge for long-term Bitcoin holders of diversifying into real estate is that real estate requires active management (as opposed to Bitcoin, which you just hold in your cold wallet and sit back). Managing real estate is not for everyone. Being a Bitcoin investor, when I looked into diversifying my own wealth into real estate, here were some of my criteria:

  • As passive as possible. I don’t want to be called in the middle of the night to fix a toilet.
  • Long time horizon. Even though things move at an accelerated pace in the Bitcoin world, I am looking for investments in the 20+ year time-frame. There is a risk that the Bitcoin experiment might fail in that long time horizon, thus the increased need for diversification. Tech changes faster than real-estate.
  • Little to no monthly cash outflow. I am interested in diversifying now, i.e. when the Bitcoin price is high. I don’t know how the price will do next year. Therefore I would like to have an initial cash outflow of course, but not incremental cash outflows throughout the life of the investment. Ideally, it will be cash-flow positive.
  • Diversification within real-estate. Buying a single house can be risky due to geographic risk, unit-specific risk, etc. I would ideally find a diversified portfolio.
  • Ease of finding the initial investment. I am not a real-estate expert, and don’t want to spend tens or hundreds of hours researching the best properties.

I was able to meet all my criteria via Home Union. They’re a startup that have raised over $20 million from venture capital firms. It has also filed to go public soon. The premise is to make single family homes investing as easy as say stock investing. It ensures that the process can be as passive as is possible, but with the option that you can make it active in the future.

They help you with the following:

  • Selecting a good investment, out of the potential hundreds of thousands throughout the US.
  • Acting as a buyers-agent, and bidding and negotiating on your behalf, and making an offer on your behalf.
  • Helping you with a mortgage, if you need financing. Taking care of the documentation, etc.
  • Doing any rehab on the property without your involvement, to make it rentable for the maximum amount.
  • Search for tenants to stay at the property.
  • Manage the tenancy – collecting rents, attending to emergencies, etc. All the 1am broken toilet calls go to them, not to you.
  • Provide good reporting dashboard and tools to track your proforma returns, actual returns, etc. and also have a single portal for all your rental investments, documents, etc.

From a wealth-diversification point of view, using the services of a company like HomeUnion is especially appealing if you don’t want to manage properties yourself, and like a Bitcoin investment, make it as passive as possible. Not very unsurprisingly, Bitcoin and real-estate have had a symbiotic relationship in the past, with New York’s Bitcoin Center, in the heart of Wall Street, being owned by a real-estate mogul who made it free for all to attend events there, greatly helping promote Bitcoin to New Yorkers and tourists alike. However, investing in Bitcoin-hotbeds like New York and Silicon Valley can get expensive really fast.

For me, taking the step into real-estate investing with Home Union was easy. It helps with diversification, and helps me learn about real-estate. The biggest advantage is I don’t even need to physically see a house before I buy it! It’s all about running the numbers – returns, cash-flow, debt, etc. and ensuring it makes sense. If you’re new to real-estate, I would recommend first reading up some material on single-family homes and investing. One classic that helped me is Building Wealth One House at a Time.

For some reason, Bitcoin has resonated with all the real-estate people I met (especially at the New York Bitcoin Center). Maybe there is some interest the other way around as well. Smart investors know not to put a majority of their wealth in one asset. If you’re in the asset-preservation rather than asset-growth stage of your investment, diversification from Bitcoin wealth should really benefit you. You can check out the investment houses on Home Union for free, and only hire them if some property appeals to you.

Photo Credit: Rodrigo Soldon

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