Don't Be a Real Estate Investor
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Real estate is a poor wealth battery and an even worse wealth engine.
A wealth engine is a system that generates and accumulates wealth over time. It's a machine with inputs and outputs, where you put in resources and effort, and it produces financial growth.
As you build wealth via your engines, you need to store it somewhere — those are wealth batteries.
Real estate has long been considered the premier wealth battery: a reliable place you can store your economic energy and feel assured that 10, 20 or 30+ years down the line it will still be there.
But will it?
The Problem(s) with Real Estate
Buying and selling real estate comes with hefty expenses like closing costs, real estate agent commissions, legal fees, and potential renovation costs. These costs eat into your returns and make it harder to build wealth efficiently.
“You have to spend money to make money!” - people justifying inefficient wealth engines and batteries.
People love owning real estate for the passive income… one problem with that: real estate isn't remotely passive.
You're responsible for property taxes, insurance, maintenance, and potential vacancy costs. These ongoing expenses can significantly drain your cash flow and reduce your overall returns.
Real estate is notoriously illiquid. Unlike stocks, which can be sold quickly, selling a property takes time, effort, and often involves significant transaction costs (agent fees, legal fees, etc.). This makes it difficult to access your wealth quickly in case of emergencies or opportunities.
Real estate investments are often geographically concentrated, exposing you to local market fluctuations and economic downturns. A downturn in your local market can significantly impact your property value and rental income.
And these are just the problems you can see coming.
What about the ones you can’t?
Unexpected issues like structural damage, mold, problematic tenants, or zoning changes can arise, leading to unexpected costs and headaches.
Once you experience a 3am pipe burst in the same week the police are called to one of your properties, you will truly realize how “active” real estate investing really is.
“It’s not all bad, Matt — talk about that awesome leverage you get in real estate!”
While leverage (using borrowed money to invest) can amplify returns, it also magnifies losses. If property values decline, you could end up owing more than the property is worth, potentially facing foreclosure.
While land generally appreciates, buildings depreciate over time. This means you'll need to reinvest in maintenance and renovations to maintain the property's value and attract tenants.
Managing rental properties can be time-consuming and demanding, requiring you to deal with tenants, repairs, and legal issues. This can detract from other wealth-building activities or require hiring a property manager, further eating into your profits.
Just trying to keep the lights on? Property taxes, insurance, maintenance, and potential vacancy costs all eat into your profits.
Want to exit? There are closing costs including loan origination fees, appraisal fees, title insurance, and more. Problems with the property title can lead to legal disputes and delays in selling.
These costs and delays add up.
Monetary Premium vs Utility Premium
The concept of monetary premium and utility premium helps explain why some assets appreciate significantly beyond their apparent functional value.
A house provides shelter, living space, and a sense of security. A commercial building offers a place to conduct business, generate income, or provide services. This inherent usefulness contributes to its utility premium.
Location, size, condition, amenities, and local market demand influence a property's utility premium.
Monetary premium represents the additional value attributed to an asset because of its ability to act as a store of value, often driven by factors like scarcity, durability, and perceived safety in an uncertain economic environment.
While both premiums contribute to an asset's value, the monetary premium is more susceptible to market sentiment and macroeconomic forces.
Central banks have been printing endless money for the last 20 years and infusing such an increase in money supply that monetary premiums have been inflating across real estate and all other wealth batteries.
What happens to the monetary premium when the music stops and all that free money stops sloshing around?
What’s The Better Option?
Bitcoin has characteristics that give it the potential to absorb some of the monetary premium currently attributed to real estate, potentially leading to a re-evaluation of real estate values in the future.
Bitcoin is digital capital and it is designed to bypass all these weaknesses. You can think of Bitcoin as a superior form of property.
Bitcoin has historically outperformed real estate in terms of percentage gains.
Even the “greatest real estate deals in history” have had trouble keeping up with Bitcoin’s returns.
Bitcoin is easier and faster to buy or sell compared to real estate - liquidity is a huge edge for BTC.
The Bitcoin market operates 24/7, offering more flexibility for trading compared to real estate's traditional business hours. Broader market access. That’s more liquidity.
Unlike real estate, Bitcoin doesn't require property management, repairs, or tenant interactions.
Bitcoin has a limited supply of 21 million coins, which could potentially protect its value against inflation over time.
Bitcoin operates independently of central banks and governments. This decentralization is a major value driver for Bitcoin, and a large part of the reason Bitcoin is being adopted so rapidly worldwide.
Bitcoin's finite supply and digital nature protect it from inflation and physical degradation. Bitcoin's blockchain technology ensures its security and resistance to censorship or confiscation.
How much of the $330T real estate market is monetary premium vs utility?
We will find out the answer to this over the next decade.
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