In the realm of investment opportunities, rental properties have long been a promise of profitability. However, as the bitcoin mining industry matures, supporting services make it easy for anyone to mine bitcoin. While both bitcoin mining and real estate provide exposure to an appreciating asset and revenue stream, between the two, which is the better investment opportunity?
To answer this question, let’s imagine two hypothetical investors: Real Estate Investor Ryan and Bitcoin Miner Bobby.
Today, the average home price in the US is $417,000 (image 1) with an average down payment for a rental property of 27%, Ryan will be in $112,500 from the start. A 10-year mortgage at current interest rates will cost Ryan around ~ $3,500 in monthly mortgage payments. On the other hand, $112,500 will allow Bobby to purchase 18 Antminer S21s via Compass where monthly hosting fees add up to about $3,800 - roughly the same amount as Ryan’s monthly mortgage payment. With the initial downpayment and monthly costs roughly the same, we can now analyze the costs and benefits of each investment opportunity.
Customer Acquisition Friction
Finding new customers can often be a point of stress for any business/investor. As such, Ryan will need to find tenants to fill his empty rental unit to ensure revenue flows. In real estate, idle rental units between tenants (customers) can disrupt revenue. Beyond the unscheduled disruption in revenue, finding new tenants can cost investors, like Ryan, additional financial friction and time loss. However, Bobby never has to look for new tenants (customers), because the bitcoin protocol is a bitcoin miner’s customer, as the Bitcoin protocol will always distribute rewards to miners for securing the network. Essentially, Bobby has a guaranteed customer.
Recurring Costs
The predictability of maintenance and operation costs allow investors to properly financially forecast and set aside resources to cover future expenses. The more unpredictable these recurring costs, the less desirable the initial investment may be. For Ryan, major appliance failures, structural damage (roof, porch, foundation, etc.), or any natural disaster can cause unexpected financial setbacks (image 2). In such an event and where liable, Ryan will have to not only pay out of pocket, which eats into his profits, but may even need to accommodate living arrangements for tenants until repairs are complete should they require a disruption to the tenants’ living areas. On the other hand, Bobby’s ASICs are much lower maintenance, and typically only require minor repairs that can be quickly addressed on-site, resulting in minimal revenue lost. The amount of potential problems with a rental property are exponentially greater than the possible challenges that can occur with ASICs; therefore, maintenance costs for ASICs are simply more predictable and easier to forecast.
Insurance
The ability to insure an investment against Murphy’s Law where “anything that can happen, will happen” is a priceless peace of mind for an investor. So, as the threat of natural disasters rises and major insurers pull out certain states that were once real estate rental unit investment havens, Ryan must now account for potential climate events that could suddenly and negatively impact his bottomline. While the safety net of property insurance dissipates for real estate due to a changing climate, Bitcoin ASICs, when hosted with a company like Compass, can be insured to protect the investor.
Liquidity
In any investment, liquidity is king, as the ability to sell an asset in the event of a changing market or for any reason is highly sought after. Should Ryan need to sell a property quickly, he will likely do so below equilibrium price. Also, it is very challenging for Ryan to sell a fraction of a house should he need some cash. While Bobby, comparatively, could sell anywhere between 1 and 18 of his ASICs should he need cash. Bobby is not only capable of reselling their ASICs to a global market, but he is incentivized to do so as rising bitcoin prices raise the floor asking price for ASICs. Furthermore, Bobby’s revenue is denominated in bitcoin, which is the most liquid asset in the world trading 24/7/365.
Taxes
Taxes are always taken into account with any investment. So, in addition to Ryan’s annual mortgage expense and property management expenses, he will also pay annual property taxes. However, Bobby gets to run his ASICs without any annual taxes.
Squatters
Especially since the pandemic when economic times were the hardest for many tenants, there are dozens of stories where landlords were unable to collect rent for years without legal recourse. With this problem reaching a boiling point (see image 3) in New York City, one of America's most prestigious real estate markets, the reality of Squatter’s rights is something to take seriously. As a real estate investor, Ryan worries that he could get stuck with bad tenants that don't pay rent.
Bitcoin Mining doesn’t have any such legal loopholes that allow someone like Compass to hijack Bobby’s ASICs. Bobby’s ASICs (and his revenue) are safe from squatting.
Permissioned VS Permissionless Networks
A permissionless network simply means that anyone can participate without the approval of a central authority. Real estate investing is a highly permissioned network where the investor must be approved by multiple centralized agencies before being able to invest. Ryan is luckily capable of investing in real estate because he has strong credit. However, many Americans don’t have the credit or income requirements necessary to qualify for a bank-backed mortgage to invest in real estate. Conversely, Bitcoin Mining is fully permissionless - Bobby can mine bitcoin anytime and anywhere (see image 4). With no central authority governing Bitcoin, “If you’ve got the cash, you’ve got the hash!”
In Conclusion
Upon closer analysis, it might be time for real estate investors to not only diversify some of their portfolio into Bitcoin Mining, but seriously consider the cost/benefit analysis from this article as they assess future resource allocation. With a laundry list of challenges for real estate rental units when compared to Bitcoin Mining, Bitcoin mining boasts being a perfect business: one that has less customer acquisition friction, more predictable recurring costs forecasting, is easier to insure, is more liquid, doesn’t deal with squatters and is part of a permissionless network. With Bitcoin Mining only growing in market share and institutional acceptance and adoption, there’s never been a better and easier time to start hashing!
