Bitcoin & Real Estate 101: Maintenance reserves

Since the introduction of Bitcoin in 2009, real estate has faced digital disruption in its role as a store of value and property. Digitisation optimises almost all value-preserving functions. Bitcoin is rarer, cheaper to maintain, easier to access, more liquid, easier to move and harder to confiscate, destroy or tax. However, if you are running a successful real estate development business, it probably wouldn't be a good idea to stop overnight and turn all your attention to Bitcoin. Due to the high debt burden that real estate development brings and which must be paid back.

The construction of real estate is usually financed by debt. Rental income from completed 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 a property carries a lot of risk, because bitcoin is volatile and therefore not suitable for planning monthly interest payments.

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 (which means that the inflation rate will decrease over time). If the supply of a money remains almost constant or decreases and the demand increases, 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.

If you own a property and don't want to sell, it's extremely important to build reserves in bitcoin for maintenance to weather future inflation and regulatory pressures that cause maintenance costs to skyrocket.

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. No central authority can inflate the supply of 21.ooo.ooo bitcoin, which could otherwise lead to loss of purchasing power.

You can use various bitcoin-only service providers to buy bitcoin. In Europe, there are companies like Relai and Bitcoin Reserve. In the US you can use Swan Bitcoin and in Canada BullBitcoin. I have personally had positive experiences with Relai. I have not used the other companies but have had good feedback from others.

By using your rental income to buy bitcoin, you can continue to secure your income, have the necessary money to pay off any debts but at the same time accumulate bitcoin.

You need to build and manage your bitcoin treasury with care. Bitcoin is very volatile. It's important to only convert part of the rental income into bitcoin (5-20% seems reasonable) so that there are always enough liquid reserves to be able to service ongoing maintenance costs and outstanding debts.

Bitcoin maintenance reserves are a long-term treasury management strategy outside of the current uncertainty of the traditional banking system. I'm fed up with the behaviour of most banks. Their service and opinions change with central bank interest rates (which change arbitrarily). Building a bitcoin treasury protects against bad decisions by central banks and gives real estate investors the opportunity to become more independent.

When stored in cold storage, those bitcoin are the holders alone and are not at risk of default by third parties, including banks and exchanges, or rising monetary inflation and arbitrary central bank decisions.

I want to point out that you have to act sensibly and not take unnecessary risks. Bitcoin speculation can ‘break your neck’. You must be able to wait 5-10 years before using bitcoin reserves in order to benefit from bitcoin's long-term price appreciation. It is also of importance to note whether a property is privately owned or through a company, as this can have tax implications for owning and selling bitcoin. Discussing this in detail is beyond the scope of this article. You can talk to a tax advisor you trust or actively seek one who is knowledgeable about Bitcoin and its tax implications. If you decide to get started with Bitcoin, start slowly and increase your commitment over time as you gain confidence. In the beginning, the process can be overwhelming. Don't let that discourage you.

More on Bitcoin & Real Estate

• Bitcoin vs Real Estate: What is the better store of value?
• Bitcoin vs. Real Estate: Which is the more resilient store of value in times of crisis?
• Real estate vs. Bitcoin: Dismantling the cash flow narrative
• The Role of the Monetary Premium in Real Estate
• Why bitcoin is digital real estate
• Why every real estate investor should own bitcoin
• Why bitcoin is pristine collateral for lending
• Bitcoin & Real Estate 102: Is leveraging real estate to buy bitcoin a good idea

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