As property investors it is likely you’ll be aware of Bitcoin (BTC). It is hard to have missed the boom in the relatively new world of cryptocurrencies. But how will these new currencies change the property market? Will they work together in harmony and improve existing processes, such as property transactions? Or will they be dissonant and one destroy the other? In particular could cryptocurrencies such as Bitcoin squash the property investment industry, causing house prices to collapse?
What is Bitcoin?
Understanding how cryptocurrencies work is key to understanding how they could either complement the property industry or work against it.
Bitcoin is a form of cryptocurrency. Cryptocurrencies are a form of digital currency aka online currency. The way these currencies are created makes them nearly impossible to counterfeit. In addition, they are built on decentralised networks which are based on blockchain technology….. Yes we know this is confusing but to simplify, it’s a type of database which isn’t just stored on one computer in one place. It is stored in multiple computers all over the world.
This gives them three unique features:
The transaction data is permanently being tracked and recorded in databases across the world. These transactions are publicly available & can be viewed using blockchain explorers. This means the currency can’t suddenly go missing….
There is no single central authority such as a government controlling the cryptocurrencies, instead all users have equal control. This makes them immune to government interference and/or manipulation.
It allows the facilitation of secure peer-to-peer online transactions, without the need of a third party such as a bank.
How is Bitcoin being used in the property industry?
One way Bitcoin can be used in the property market is to complete property transactions and for rental payments. The first Bitcoin property sale was completed in December 2017, with HM Land Registry agreeing to record the sale price in cryptocurrency. In September of the same year (2017), the founder of The Collective also agreed to accept both deposit and rental payments for his co-living spaces in the currency.
Since these events, this form of payment has only grown in popularity amongst home owners and private landlords. This is likely because cryptocurrencies such as Bitcoin streamline payment transactions for both parties, with lower transaction costs.
In addition to this, “Bitcoin” is currently a buzzword. Everyone is talking about it and the media is eager to get any confirmation that this form of currency is becoming widely adopted. Subsequently, they are jumping to promote and feature any listing which suggests Bitcoin may be accepted as payment. You could question whether this is more of a marketing technique than an actual payment method…
How could bitcoin disrupt the property investment industry?
It certainly looks as if Bitcoin can only improve the property industry, with faster transactions reducing the amount of time it takes to buy/sell a property and the possibility to use the technology it is built on to improve other aspects of the house buy/selling process. However, as Bitcoin grows and becomes more widely accepted could it become so attractive that property investment is no longer needed?
One of the main reasons people invest in property is due to the lack of capital growth of “cash in the bank” and to “make their money work for them” by cash flowing their assets. Until now property seemed like the perfect solution to generate both capital growth and cashflow. However, has a new kid just stepped on the block…
Even though Bitcoin is highly volatile, it is definitely an asset which can give you capital growth. In the last 5 years alone, an investment in bitcoin would have increased by ~12,000%, compared to an investment in property which would have increased by ~20.06%.
This capital growth is expected to continue with many asset managers claim that bitcoin is the new gold and has the potential to have a comparable value. They give predictions that Bitcoin could reach $500,000 by 2030.
However, Bitcoin is renowned for its volatility. One Tweet from the right person can either see the price crashing or rocketing to the moon! For some this makes it too risky. Property is an asset class that is known for being less volatile than the average stock, let alone the average cryptocurrency!
The potential capital growth of Bitcoin isn’t its only attraction….
Increasingly members of the property investment community are realising that Bitcoin is a more passive investment compared to property.
It is quicker to invest (you can buy it on your phone from the comfort of your sofa and there is no lengthy paperwork).
It is more accessible to the general public, as it is logistically easier to invest smaller amounts in Bitcoin than it is in property.
Finally, in a similar way property investors cashflow their properties by renting them, it is possible to cash flow a Bitcoin holding by renting it to institutional investors!
Imagine that, an asset which gives you incredible capital growth, monthly cash flow, zero maintenance fees, and no troublesome tenants; a truly passive investment! Could this be a property investor’s dream come true?!
The future of property and cryptocurrencies such as Bitcoin
It is important with any investment to have a diversified portfolio and property which is known to be a safe investment, offers diversification. Agreed, property investing isn’t necessarily as passive as a cryptocurrency investment. However, there are ways to make property investments more passive.
By instructing a deal sourcer/packager local to the area you wish to invest in, you can use their knowledge to source you an investment property. Often a deal sourcer/packager will also negotiate the purchase price, overlook the purchase of the property, manage any refurbishment required and manage the property using your chosen rental strategy. If you’re already a property investor and are tired of the day-to-day duties of being a landlord, it is still possible to make your property investment passive and minimise your maintenance costs by changing your rental strategy to a corporate let (known as Rent-2-Rent or Guaranteed Rent).
For the time being we believe that property and bitcoin will be inclusive. For one, property is tangible and from our perspective a lot more interesting than Bitcoin or any other cryptocurrency…you can’t exactly add value or redecorate bitcoin to add your personal touch! However, it is well known that the property industry has been one of the last to innovate and make use of emerging technology, so we are excited to see how the use of cryptocurrencies such as Bitcoin develops and how the technology which underlies these currencies could be used to improve processes further, such as the house buying process.
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