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Bitcoin vs Real Estate? Is an Investment Property a good call?

Bitcoin presents a generational opportunity.

Bitcoin vs Real Estate? Well I think we discovered the Baby Boomers' real estate secret sauce recipe.

For thirty years, Baby Boomers capitalized on a unique opportunity to amass wealth, often pointing younger generations toward property as the pathway to success, echoing the sentiment, 'We did it, so can you!'

Human psychology intertwines intriguingly with money and investments. One of the most enlightening books I've come across on this subject is 'The Psychology of Money' by Morgan Housel. Housel delves into invaluable lessons on time, greed, and wealth.

Markets move in cycles, and in this post, we'll delve into the 30-year cycle of the Baby Boomer secret sauce that has paved the way for unaffordable Australian property prices, significantly limiting the wealth-building prospects for Millennials and Gen Z.

But fear not, if you're part of Gen Z or Alpha, there are other assets that can help you navigate this landscape.

Bitcoin vs Real Estate is a question we have asked ourselves for a couple of years now, and It's time we broke down the numbers of the realities of downing an investment property.

However, it's essential to note that all the information in this post should not be construed as financial advice. Instead, consider it as valuable data to aid in your future planning and empowerment.



THE AUSTRALIAN CASH RATE

Let's delve into the Australian Cash Rate (Interest Rate), which saw a significant decline from 17% in 1990 to 0.25% in 2020.

Yes, these rates were extraordinarily high. However, it's crucial to remember that the interest the bank paid on savings was also substantial. As individuals saved their paychecks for a deposit, their money was actively working for them.

Moreover, consider that as rates dropped each year, Baby Boomers had more disposable income to either pay down debt sooner or leverage into other assets.

Then, starting from 2020, central banks declared Covid a pandemic and pledged not to raise rates until 2024. However, the reality unfolded quite differently. From 2021 to the end of 2023, the cash rate surged from 0.25% to 4.35%, marking one of the swiftest and most aggressive hikes in history. With central banks reneging on their promise, it's no wonder why trust in them wavers among the public and governments alike.



Australian Historical Interest Rates

MONEY PRINTING - Banks Go BRRRRRRRR

From 1985 to 2023, the Australian government money supply skyrocketed from $23.87 billion to $1.63 trillion.

Australia's currency separated from the gold standard in 1932 and was subsequently pegged to the British Pound, which was backed by gold.

However, in 1966, Australia transitioned away from the British Pound, establishing its independent currency not tied to any precious metals.

This move granted governments a free pass to print their way out of poor decision-making and inadequately planned budgets, often resulting in projects that consistently exceeded their allocated budgets.

Between 2020 and 2023, there was a staggering 60% surge in money printing. It took 35 years to reach $1 trillion, but a mere 3 years to soar to $1.63 trillion.

Australian Historical Money Printing



THE SECRET SAUCE RECIPE!
Now you wonder why Australian house prices were such a great investment for baby boomers? Well it's simple.

Ingredients:
Baby Boomers took out debt to buy property which was 3x the average wage at the time.

Interest only ever went down, so every year they had more money in their pockets to pay down debt.

The governments also printed money every single year adding more dollars to the pockets of boomers.

Immigration gates for students became one of the main economic profits for the country, and aided in higher demand for real estate.

All the above played on simultaneously, and the smart boomers had more and more equity every year that rates decreased allowing them to leverage their portfolios into more real estate.

This year, a shocking truth and tax increase has hit land owners most. A 3x increase for some owners! This poor investor went from $3,375 to $9,150 in land tax... Australian dream or nightmare?

Land Tax - Amid efforts to recuperate from disastrous spending spurred by the pandemic, authorities have turned their focus to land tax, despite its lack of association with Covid itself. Perhaps it's time to redirect attention towards taxing the ones responsible rather than burdening the small-scale investors, the backbone of our communities.

Australian Property Land Tax 2024

let's go over the holding costs and interest of Real Estate based on averages in capital cities in 2024.

Here are the figures for investment property averages. Please forgive us if any amounts do not reflect from your state. We are basing this off our personal property in Victoria, Australia.

Because this property is making a loss, the Australian Tax Office allows you to negatively gear (claim this on your marginal tax income rate). Repeat after me: "Who loves losing money on their investment? NOT ME!"

Total Loss: INCOME - EXPENSES = $25,200 - $46,360 = (-$21,160)

If you work, you can claim this on tax. Let us use 25% as it could be more or less. = $5,290 Tax Refund.

Total Loss = -$15,870 per annum.

Yes, I know what you are all going to say. "What about the capital growth?" Yes, but what about the $709,010 of interest you pay, the debt shackles you bear?

The word "Mortgage" comes from the old French lingo "Mort" Dead, "Gage" Pledge or DeadPledge.

I won't even bear you the pain of the costs of SELLING a property. There are plenty more expenses if you wish to sell, and it takes 4-8 weeks for a sale campaign + the settlement period which means you make 0 income over the settlement and still pay the interest on the loan! OUCH!.

Okay okay, I'm not here to beat down the Boomers. because they really are the back bone of what we have today. They had an opportunity and they took it. I'm happy for my parents, and my grandparents. Even though we look at them and say "WHY DIDN'T YOU BUY MORE?!!!" At least they had the chance.

But now those words horrify me with my two sons, 6 and 4, who already Bitcoin kids!
A fear I have as a dad is my two sons saying to us like we said to our parents, "WHY DIDN'T YOU BUY MORE!!!", and every time the Bitcoin price takes off, I also say to myself, "WHY DON'T YOU BUY MORE F^*KIN".

Based on all the data we have, the experiences and cycles we have analyzed, and the opportunity at hand, let us share the opportunity Generation X, Y, Z have to help empower their future so one day, they may not need to take out any debt at all to live in a house, which every person on the planet should be entitled to. A roof over their head.

House prices in Australia are devaluing against Bitcoin.

But how? Jono Spears on Twitter generated a picture that tells a thousands words. Make sure you give him a follow for his work! https://twitter.com/Bitcoinfinity


(The first writing of this blog was on the 20th of Feb 2024, and the comparison had Bitcoin at $79,500 per Bitcoin. Fast forward 17 days, and the price is at $101,554 per Bitcoin, just to add more fuel to this comparison).

For the first time in modern Australian history, Real Estate prices are going DOWN compared to Bitcoin. If you saved in Bitcoin, you could have, in fact, bought more and more properties over time.

This is Generation X, Y, Z's Secret Sauce! The Recipe is in front of us!


We did the "Proof of Work" to verify the yearly gains of Bitcoin each year to offer a transparent comparison. Also, note that I stopped at 2020 because measuring gains prior becomes quite embarrassing to even compare Bitcoin with any other asset, as it averaged almost 600% per annum.

No one has ever lost money on Bitcoin over a 4-year cycle. No one!

So let's start with a modest $10,000 starting balance. Despite Bitcoin averaging a 102% gain every year, let's be conservative and assume a 30% yearly gain over a 10-year investment horizon instead of being tied to a 30-year home loan.

The repayment on investment property minus the income was $21,160 out of pocket, or $1,763 per month. This can be our monthly contribution to a Bitcoin fund.

Fair to say, the expenses side of Bitcoin wins over real estate. Oh wait, the average yearly return is also quite impressive.

We have two scenarios.

  1. Saving in Bitcoin for 10 years using a 30% average yearly return.
  2. Saving in Bitcoin for 30 years using a 10% average yearly return.

These examples provide a substantial margin of safety for future predictions, although not guaranteed and should not be taken as financial advice.

Instead of pumping $1,763 per month into a property to chase paying back the debt shackled to a bank, and dealing with the headaches of managing tenant issues, allocating this capital to a Bitcoin savings plan offers an alternative to the Australian Real Estate Dream.

An account balance estimated at $1,488,163 after 10 years.

Wait, What??????


Why is Bitcoin producing such returns?

Because it's scarce, desirable, and the demand is fast outpacing supply by 10x. Additionally, there is a deflationary characteristic called the Bitcoin Halving that occurs once every 4 years, where in simple terms, fewer and fewer Bitcoins are mined into existence.

Currently, 900 new Bitcoins enter the market each day, and in April, this will decrease to 450 new Bitcoins per day.

If demand stays the same, the demand will be 20x the supply.

Follow us on social media and keep our website on your favorites list for future blog posts where we will uncover more comparisons and verify the Proof of Work for all the data.

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proofofwork@walletofsastoshi.com



references:

https://tradingeconomics.com/australia/money-supply-m1
https://twitter.com/Bitcoinfinity
https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php
https://tradingeconomics.com/australia/interest-rate

Santoshi
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