September 11, 2024 • 1hr 3min

BTC199: Bitcoin's Collateral in Real Estate w/ Leon Wankum (Bitcoin Podcast)

We Study Billionaires - The Investor’s Podcast Network

In this episode, host Preston Pysh interviews Leon Wankum, a major investor and developer in the real estate space. Leon discusses how Bitcoin is impacting the real estate industry and why real estate developers and investors need to consider adding Bitcoin to their balance sheets and financing strategies. The conversation covers key trends in the real estate market amid rising inflation and interest rates, particularly in city centers. They discuss the markdown of commercial properties, the impact on rental vs. ownership rates, and regional pricing variations. A major focus is on how Bitcoin can serve as collateral for real estate development, acting as a hedge against inflation, and the potential of Bitcoin-backed loans.

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Key Takeaways

Rising inflation and interest rates are significantly impacting the real estate market, particularly in city centers. Higher inflation is increasing capital expenditures (CAPEX) and operational expenses for developers.
Commercial real estate is experiencing a major markdown due to factors like work-from-home trends reducing office demand and higher interest rates making financing more expensive.
Rental rates may increase relative to ownership rates in a high-interest environment as fewer people can afford to buy homes.
There are significant regional variations in real estate pricing that affect investment strategies. Some markets are seeing price drops while others remain strong.
Bitcoin can serve as an effective hedge against inflation for real estate developers by preserving purchasing power better than fiat currency.
Using Bitcoin as collateral for real estate development offers benefits like increased liquidity, faster loan processing, and protection against property confiscation.
Bitcoin-backed loans currently have higher interest rates than traditional financing but rates may decrease as the market matures and competition increases.
Incorporating Bitcoin into real estate financing strategies can improve a company's financial resilience and creditworthiness over time.
The real estate industry needs to adapt to Bitcoin as it may reduce real estate's role as a primary store of value for investors.

Introduction

In this episode, host Preston Pysh interviews Leon Wankum, a major investor and developer in the real estate space. Leon discusses how Bitcoin is impacting the real estate industry and why real estate developers and investors need to consider adding Bitcoin to their balance sheets and financing strategies.

The conversation covers key trends in the real estate market amid rising inflation and interest rates, particularly in city centers. They discuss the markdown of commercial properties, the impact on rental vs. ownership rates, and regional pricing variations. A major focus is on how Bitcoin can serve as collateral for real estate development, acting as a hedge against inflation, and the potential of Bitcoin-backed loans.

Topics Discussed

Impact of Inflation on Real Estate (2:08)

Rising inflation is significantly impacting real estate, especially in city centers
Higher inflation is increasing capital expenditures (CAPEX) and operational expenses for developers
Construction costs have risen 30-40% in some cases over the past 1-2 years
Developers are having to take on higher-interest financing to complete projects started earlier

Markdown of Commercial Real Estate (5:08)

Commercial real estate prices are down significantly in many markets, up to 80% in some cases
Key factors driving the markdown:
- Work-from-home trends reducing demand for office space
- Higher interest rates making financing more expensive
- Increased CAPEX and operational costs
The expense side (CAPEX/OPEX) is being underappreciated compared to occupancy issues

Rental vs. Ownership Rates (8:42)

Rental rates may increase relative to ownership rates in a high-interest environment
Fewer people can afford to buy homes with higher mortgage rates
This could benefit landlords and rental property investors

Regional Variations in Real Estate Pricing (13:15)

Significant regional differences in how real estate markets are performing
Some markets seeing major price drops while others remain strong
Investors need to consider local factors when developing strategies

Bitcoin as a Hedge Against Inflation (19:35)

Bitcoin can serve as an effective hedge against inflation for real estate developers
Preserves purchasing power better than fiat currency over time
Leon gives an example of using 5% of rental income to buy Bitcoin, which grew to 10% of property value
"Bitcoin presents a solution to the housing crisis because it's a superior store of value" - Leon Wankum

Bitcoin Protecting Against Property Confiscation (27:38)

Bitcoin offers protection against property confiscation unlike physical real estate
Real estate is immobile and vulnerable to destruction or seizure
Bitcoin provides a mobile, liquid store of value that can't be easily confiscated

Benefits of Bitcoin as Collateral (33:59)

Using Bitcoin as collateral offers several advantages:
- Increased liquidity compared to real estate
- Faster loan processing (hours vs. months)
- No extensive paperwork or credit checks needed
Can be combined with real estate collateral to create more attractive loan packages

Bitcoin-Backed Loans vs Traditional Financing (34:22)

Current Bitcoin-backed loans have higher interest rates (8-14%) than traditional financing
Rates are high due to limited competition and perceived risk
Expect rates to decrease as the market matures and more lenders enter
Bitcoin loans offer much faster processing - can be approved in hours vs. months for traditional loans
"The increase in efficiency of this type of capital is just mind blowing" - Leon Wankum on Bitcoin-backed loans

Future of Bitcoin in Real Estate Financing (45:40)

Leon predicts Bitcoin will become a standard part of real estate financing
Can improve a company's financial resilience and creditworthiness
Allows developers to rely less on raising rents to cover increased costs
Makes developers more competitive by keeping rents lower
Leon presents a model showing how adding 10% Bitcoin to a real estate project dramatically increases returns

Pushback from Real Estate Industry (53:40)

Common arguments against Bitcoin in real estate:
- Bitcoin doesn't produce cash flow
- Bitcoin has no intrinsic value
Leon counters that value is subjective and Bitcoin is money/savings, not an investment
Real estate's high value comes from its use as a store of value, which Bitcoin does better

Conclusion

Leon Wankum makes a compelling case for why the real estate industry needs to adapt to and incorporate Bitcoin into its strategies. As Bitcoin potentially becomes the dominant global store of value, it may reduce real estate's role in that capacity. By embracing Bitcoin through collateralized loans, as an inflation hedge, and as part of project financing, real estate companies can improve their financial resilience and competitiveness.

The discussion highlights how macroeconomic factors like inflation and interest rates are reshaping the real estate landscape. Bitcoin offers unique benefits in this environment, potentially allowing developers to keep rents lower while still preserving wealth. While there is still skepticism in the industry, Leon argues that understanding Bitcoin's monetary properties reveals its superiority to real estate as a savings technology.

As the Bitcoin market matures, we may see it become an increasingly standard part of real estate financing and investment strategies. Real estate developers and investors should educate themselves on Bitcoin to stay ahead of this potential shift in the industry.