Crypto And Real Estate: Direct ownership of a real estate by DirtiCoin would transform DirtiCoin from a currency into security. It would also burden DirtiCoin owners with the problems commonly associated with direct ownership of the real estate. The most problematic burdens of real estate ownership are:
- liquidity
- transferability
- tax consequences
- regulatory burdens
- operating losses
Liquidity
As noted elsewhere, real estate is largely an illiquid investment. Liquidating real estate costs time and money. In contrast, liquidating an investment in DirtiCoin is as quick as the chosen currency exchange permits. Done through a digital exchange it will be nearly instantaneous. If done through the DirtiCoinMinting (the Company), at most, it will take no more than three business days.
Crypto And Real Estate – Transferability
When you invest in stocks, a key feature enabling stock trading is the presence of a strong market where sellers can readily find buyers. With stocks and bonds, the volume and extent of trades is extensive. The ability to reliably compare investments is robust and understood well by many people.
None of that is true with real estate. The real estate investing market is highly fragmented. Even though it is a large market, it is often heavily influenced by local market conditions. This local influence makes it especially difficult to compare one real estate investment to another. The risks and business side of real estate is not understood by most people. They are complicated and it takes both time and money to get well educated in real estate. A lack of knowledge can easily cost you hundreds of thousands of dollars. This fragmentation and lack of ability to readily compare one real estate investment with another make it difficult to quickly get into or out of the real estate.
“Tokenized” Real Estate
Many companies have recently begun touting the transferability of real estate investments in the form of “tokenized” real estate. Tokenization uses blockchain technology to better enable fractional ownership of real estate. Unfortunately, the tokenization of real estate does not resolve the lack of transferability. This is because each individual real estate investment is a unique value proposition. Just because you call the two different real estate investments tokens, and give them matching names, it doesn’t make them interchangeable. Each property represented by a token is on a different piece of ground, with a different building, and a different street address.
In contrast with nearly every other real-estate-related investment, DirtiCoin is entirely fungible. One DirtiCoin is worth the exact same as every other DirtiCoin. You are totally insulated from the illiquidity of direct real estate ownership. The problems of transferability arising from real estate are eliminated. DirtiCoin can be easily transferred directly into BTC, ETH, USD, or another liquid asset. You can do all that without any attorney’s fees, notaries, a trip to the courthouse, or payment of transfer taxes. You can’t do it that easily when you directly own real estate.
Crypto And Real Estate – Tax Consequences
Direct investment in real estate results in many and varied tax consequences. Some are positive and some are negative. Requirements around depreciation, cost recovery, and many others create a substantially complex tax situation. One wrong move can cost you thousands.
Buying DirtiCoin is not free of tax consequences. When you buy DirtiCoin you get a simple tax compliance situation. You how much the DirtiCoin cost when you bought it (cost basis) and how much it was worth when you sold it. These are the same tax consequences you currently experience with any currency exchange (e.g., FOREX), or stock exchange (e.g., NYSE).
Regulatory Burdens
Real estate syndication and real estate investment trusts (REITs) are two common ways that many people band together to directly invest in real estate. However, real estate syndications have many regulatory requirements which often prohibit who can invest. REITs carry many regulatory burdens which often drive down the returns. They also are more complicated than many stock purchases and are definitely more complicated than currency exchanges.
Blockchain technology, and recent regulations changes, have significantly lowered the hurdles to fractionalized real estate interests. Unfortunately, the regulatory burdens are still substantial and can depress returns for investors.
Buying DirtiCoin gives you some key benefits of real estate by combating volatility and inflation. It does not put any special regulatory compliance burden on you.
Crypto And Real Estate – Operating Losses
When you invest directly in real estate and the investment fails to perform as expected things can get ugly. The losses directly and proportionally impact your financial wealth. This is the risk part of the “risk versus rewards” element of investing. The risk of loss is one of the primary reasons most of our securities regulations exist today. The government has taken great pains to ensure that investment promoters fully and accurately disclose the risk of loss that goes with any investment in real estate.
There are no investments devoid of the risk of loss. However, the pleasant reality is that DirtiCoin allows you to gain the inflation-hedging and volatility reduction benefits of real estate without requiring you to become particularly knowledgeable of all the risks, rewards, and operational mechanics of real estate investing. The Company manages the processes and bears most of the risks. The Company’s financial model is built to manage and absorb nearly all of the risks of real estate ownership. When bad things happen, and they will, your potential loss is minimized. It is offset with other gains and spread across all the properties owned by the Company. All DirtiCoin buyers share their own tiny portion of risk from any adverse events.
The Indirect solution
DirtiCoin does not directly hold real estate investments. The Company directly holds all the real estate used to back the value of DirtiCoin. The investments held by the Company are in various geographic parts of the USA. Therefore the impacts of losses are spread across many real estate investments. This also means they may be more than offset by gains in other investments. Individual property losses and individual property only affect the value of DirtiCoin indirectly.
The Company, which directly owns the real estate backing DirtiCoin value will manage losses. They will also generally absorb the losses and gains of specific real estate through its operating revenues. Geographic dispersion insulates DirtiCoin from large-scale impacts from specific markets. However, a nationwide, or worldwide, loss or gain of real estate value could respectively decrease or increase the value of DirtiCoin.
Crypto And Real Estate – Using Debt
Many real estate investing experts like to entice people to invest in real estate with the lure that banks will lend them money to buy real estate. The nominal idea is that if you have $100k, instead of buying one house worth $100k, you put down $20k on five houses. Then you borrow the $400k to fund the rest of the investment. Turning $100k of cash into $500k of real estate sounds great. Unfortunately, these experts seldom explain the risks of borrowing to invest in real estate. They also gloss over how quickly things can go very badly for you when your investment doesn’t perform as expected. The end result can literally leave you bankrupt.
Unlike many real estate investment funds, the Company does not use leverage to increase the real estate assets backing DirtiCoin. This will constrain the amount of real estate the Company can buy. Leveraging the funding pool created by DirtiCoin sales would expose the wealth entrusted to DirtiCoin to certain risks which could suddenly and dramatically decrease the value of DirtiCoin. We won’t expose our wealth to these potentially devastating financial risks. We won’t expose your wealth to these risks either.
Forced to Sell at a Loss
During the financial crisis of 2008 many owners of revenue-producing real estate found themselves forced to sell profitable properties. They could not renew the loans they had used to acquire those same properties. This wasn’t because the owners were unable to make the payments. It was because government regulators told the lenders to eliminate all exposure to real estate risks. Owners couldn’t get a loan from anyone. Lacking the financial reserves to pay off the loans they had to sell their properties. Though these properties had good cash flows, they were “financially distressed” because they had to repay the loans in full, immediately. Distressed properties often sell at “fire sale” prices to buyers who could pay cash without using any loans. The original owners lost most of their equity and wealth in those sales because they thought it was safe to use loans to invest in real estate.
The Company does not risk your wealth by using it to get loans to buy real estate.
Conclusions
DirtiCoin is not a security. It is not fractional real estate ownership. You don’t get a claim on any piece of dirt when you buy DirtiCoin.
Real estate and liquid assets, held by the Company, back the value of DirtiCoin.
The processes and strategies of the Company are specifically designed to mitigate the risks of direct real estate ownership, protecting the value of DirtiCoin.
The Company makes money from the operation of real estate. The value of your DirtiCoin grows from the increasing value (appreciation) of the real estate the Company holds.