As new parents, Tiffany and I realize there is not enough time in the day, so we divide and conquer.

One of the things I take lead on is our finances and investments.

At the highest level, my goal (in progress) is to make sure we don’t need to worry about money day-to-day, month-to-month, and ultimately even year-to-year. More specifically, it is about researching investment opportunities, pulling the trigger, and tracking performance / making adjustments along the way.

One of those investments has been a rental property. And even though it has been a cash cow for the past 10 years, knowing what I now know, I don’t think real estate is a great investment.

Here’s why.

Situation 1: I currently owe $2,400 for repairs on an air conditioning unit at the rental property. And even though the issue has been fixed, the HVAC company gave me a heads up that the AC unit is on its last leg and can die any time. If / when that happens, it’ll cost another $8,000 to replace.

Ouch.

Situation 2: last year, there was a storm that ripped shingles off of the roof. I had to drop everything, file an insurance claim, and coordinate with a roofing company to fix it. My deductible (the amount I had to pay on my own for the repair) was $2,000. And now, the cost of my yearly premium has gone up too (due to filing the claim).

Ouch again.

To say the least, I’m not looking forward to these expenses.

On top of these examples, over the years, I’ve also had to chase down tenants for late payments, deal with evictions, and handle a slew of other repairs just to keep the house in good working condition.

Tallying up all the bills, AND the time spent dealing with fires (not literal, thankfully), AND the headaches that come with it, I just don’t think it is worth it…even though I have made money on it every year.

As a matter of fact, I’ve now kicked off the process to sell the rental property and buy a better asset instead (sneak peek: I’m buying more bitcoin).

I want to walk you through my process to arrive at this decision. But first, let’s start with why I bought a rental property at all.

Rewinding the clock

In 2011, I had already worked in the corporate world for 4 years. And during those 4 years, I was extra frugal with spending. Truth be told, even though I had a paycheck coming in every two weeks, I was still living a college lifestyle. That includes living with roommates, eating a lot of Trader Joes frozen burritos, and just figuring out how to stretch every dollar.

All that extra money earned, but not spent, was money that I planned to invest.

Mind you, this wasn’t too long after the 2008 financial crisis where the housing bubble popped. At that time, there were lots of deals in real estate if you could put up the down payment and actually get a mortgage.

Since I saved up, had a steady paycheck, and a clean credit history too, I was able to take advantage.

I bought a single family house in 2011, knowing most likely, I wouldn’t lose money on it. Actually, based on my calculations, I would be cashflow positive because I could charge more for rent compared to my monthly mortgage payment. And when comparing that opportunity vs. keeping cash in a savings account earning a paltry 0.1% interest, it was a no brainer. Making an investment to buy a rental property was a better financial decision.

A store of value

Cash is not a good store of value. It’s a common saying that “cash is trash”. That is because over time, due to inflation, it becomes worth less and less. Back in 2011, that is why I made the decision to get out of cash and into a better store of value, real estate.

Michael Saylor, the CEO of MicroStrategy (a publicly traded company holding multiple billions of dollars worth of bitcoin on their balance sheet) best describes the problem he faced with a big stash of cash on hand. In early 2020 (with COVID wrecking havoc and governments printing money to keep the economy afloat), he realized the money in his corporate savings account was like a “melting ice cube”, and one that was starting to melt away faster than before.

At first glance, it might seem like a melting ice cube means if you had $1 million this year, that it would become $900k the year after, and maybe $800k the year after that.

That doesn’t happen. But the effect is the same.

Instead of the $1 million number dwindling before your eyes, what really happens is that the amount of stuff you can buy with it goes down over time.

This is commonly referred to as your “purchasing power”. And losing purchasing power is bad. That is why even though I couldn’t exactly explain it back in 2011, I knew that buying real estate was a much better store of value compared to cash.

Understanding purchasing power

At the highest level, the purchasing power of your money is just how much stuff you can buy today. Or tomorrow. Or anytime in the future.

And if your purchasing power goes down over time, it becomes harder / takes longer to save up to buy that dream house, to pay for your kids tuition bills, retire early, etc.

This is what is happening today. When you save money (but don’t invest it), you are losing purchasing power each year.

Imagine if today, you had $10,000 in a savings account. And with that, it would be enough to renovate the basement and build out a kids play room. But in this scenario, for whatever reason, let’s say you decide not to move forward, and just leave the money in a savings account instead.

Imagine a few years pass by, and now you are serious about renovating. Except now, that same renovation costs $15,000.

When this happens, whether by a little or a lot, it means the purchasing power of your $10,000 has gone down, or as Michael Saylor says, “melted away”. Put another way, you now need to spend $15,000 on something that cost $10,000 just a few years ago.

This is the result of inflation. And now, inflation is rising faster…meaning the ice cube of your purchasing power is melting away faster.

It is why I bought real estate back in 2011. I wanted to make sure that my hard earned savings weren’t going to melt away due to inflation.

Real estate is not a great store of value

Having owned and operated a rental property for 10 years, I now know that real estate is not a great store of value.

Yes, it stores value much better than cash in a savings account. No comparison there.

But when you own real estate, there are a lot of ongoing expenses too. And each of these are a headache to deal with.

Here are some real life examples I’ve dealt with:

• every year, there are unexpected repairs (such as a broken AC unit, a roof that is leaking, or a water pipe that has burst)
• it’s not uncommon for tenants to pay rent late or stop paying altogether. I’ve had this happen more than once. However, I still have to pay the mortgage on the rental property.
• there are periods of time when the house sits empty (ie. in between tenants), but I still have to pay the mortgage
• every year, I have to pay taxes
• every year, I have to pay insurance
• every year, I have to pay a home owners association fee
• before I want to sell, I will have to invest $10k to $20k to remodel from all the wear and tear over the years
• when I want to sell, I will have to pay ~6% commission to a real estate agent

Adding up all of these expenses, you can start to see that it’s not an insignificant amount of money required each year to keep the rental property going.

Hopefully, you can see that while real estate is a better store of value compared to cash, it comes with it own troubles. And these expenses don’t even account for the headaches scrambling to find contractors to fix issues, no matter if it’s the weekend, if I have a busy work day, or if I am on vacation.

What does this have to do with bitcoin?

I’ll get to the punch line. We all need a way protect our savings. No one wants to work their ass off, to save their hard earned money, only to see that money become worth less (ie. have less purchasing power) in the future. I believe that bitcoin is the best store of value to protect your money.

Real estate has played a significant role as a store of value. It’s why international investors buy luxury apartments and leave them empty in New York City (link). And it’s why people own multiple houses around the world.

But as someone who now has owned a rental property for over 10 years, I will not be using rental properties as a store of value anymore. Instead, I will be using bitcoin to do that job.

Why?

• With real estate, there are various monthly / yearly expenses you need to pay. With bitcoin, there aren’t.
• With real estate, selling is a multi-month process. With bitcoin, you can sell it 24/7/365 in a matter of seconds.
• When you sell real estate, you have to pay a 6-10% transaction cost (agent fees, title, lawyer, mortgage origination fees, etc). With bitcoin, the transaction fee to sell on an exchange like Coinbase is 0.5% – 1.5%.
• Historically, real estate has increased in value by 5-10% per year. Bitcoin is increasing at ~200% per year.
• If you buy real estate in an area that gets affected by climate change (ie. hurricanes in Houston that cause flooding, or wildfires in California, etc), you could get wiped out. With bitcoin, there is volatility in the short term. But in the long term, it has proven it can’t be killed, and that means it will keep becoming more mainstream.
• With real estate, for the most part, you need to have 20% down payment to buy. The rental house I own and will be selling shortly will list around $420,000. That means you would need to have $84,000 just to qualify to put in an offer. With bitcoin, you can buy any amount, whether that be $1, $100, or $1 million.

Conclusion

I could keep going on, but after having an “ah ha” moment about these two different stores of value, I am now moving forward to sell real estate and transferring it into bitcoin.

Hopefully, you now have a more rounded out perspective why real estate might not be a great store of value compared to bitcoin!