Bitcoin has recently been in the news between its record-setting gains, corporate purchases by companies such as Tesla, and several investment firms discussing its merits. What is Bitcoin, and should you, as an investment real estate owner, sell and buy Bitcoin?
This should no way be construed as investment advice. Bitcoin is a speculative and volatile investment, while selling investment real estate will result in substantial tax ramifications.
What is Bitcoin?
There are mysteries of the founder of Bitcoin, who is said to be Satoshi Nakamoto. No one knows the person or where they may be located. Many believe it is actually a pseudonym of a different person, group of people, or government entity.
Bitcoin is a cryptocurrency, or an electronic version of value, that uses the blockchain to verify and store ownership and transactions. Bitcoin has several merits, such as anonymity and ease of exchange, but can be easily stolen if not stored property and is extremely volatile in price.
In 2011, Bitcoin was around $1.00 per coin. Today it fluctuates in the $50,000 range. If you purchased $1,000 of Bitcoin in 2011, it would have a value of $50,000,000 today.
Selling your investment real estate.
Let’s use the example of a strip center purchased in 2011 for $650,000. This investment could be sold today for $2,000,000. In this example, we are looking at a snapshot in time. In reality, the owner’s income and tax benefits over the last decade will not be addressed in this example.
Knowing all the details is important, so the owner has a loan with a current balance of $500,000. They are in the 15 percent federal and 9.3 percent state tax brackets. The net adjusted basis after capital improvements and accumulated depreciation is $875,000.
Selling would result in total taxes (federal, state, and depreciation recapture) of $245,500, leaving after-tax equity of $1,129,500. This is the cash the owner will pocket after taxes, loan payoff, and sale expenses.
It is all in the timing.
This article intends to compare a proven and solid investment such as commercial real estate to a speculative investment such as Bitcoin. I need to mention there are merits to cryptocurrency as an investment and its use, but Bitcoin may not be the one for you. Other cryptocurrencies have a better use case and may prove to be a better investment.
Purchasing Bitcoin in 2011 had much uncertainty involved. Today, many corporations and institutional investors may make it appear like the go-to investment, but your research is important.
In my example, they essentially doubled their investment in ten years, which is not too bad. Plus, they had income and tax benefits along the way. A 1031 like-kind exchange may have been a better option for the investor as they could essentially have had $1,375,000 to use to acquire another property. Using leverage, this could be an acquisition in the range of $5,500,000.
Commercial real estate is my investment of choice. Still, it is good to have a diversified portfolio, and the right cryptocurrency could prove extremely profitable.
Burt M. Polson is the CEO of ACRESinfo.com, a commercial real estate brokerage company, and CEO of StoneMarkerInvestments.com, a private equity real estate fund. Call him at (707) 254-8000 or email burt@acresinfo.com and burt@stonemarkerinvestments.com.
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