Bitcoin Forum

The Bitcoin Island idea got me thinking.  Just curious, what do you all think of a real estate investment group through GLBSE?  If I started one, intent upon purchasing real estate for cash and renting it out, would you invest?

Buying houses outright is so cheap these days, especially when you're paying cash and can pick up foreclosures easily, while rental prices are skyrocketing.

Here's a decent example:  http://www.zillow.com/homedetails/285-S-38th-St-Springfield-OR-97478/48377601_zpid/
House that sold in 2006 for $162,000 is currently in foreclosure and for sale at $70k.  Current monthly rental rates for comparably-sized houses in the area are $900-$1000.  Figure, $5,000 to $10,000 in necessary improvements to make it ready for a renter, 20% off the monthly rental fee for a rental agency to take care of finding renters and taking payments, and you're looking at a payback period of < 10 years, plus owning a house that has likely appreciated in value at the end of that period.  And of course, more than one house can be invested in...

Seems like it would be a good way for people who are interested in real estate to get investing in it.  It's difficult to do without a large amount of upfront cash, or large amount of extra monthly income.  Pool a bunch of BTC up front though, and it becomes possible...

I don't think it would be feasible to raise enough BTC on GLBSE, or even through other methods, to actually get something like this going, but if there is enough interest, I will totally try it!  If all went through, I would obviously register a company, and give written notice that ownership is shared through GLBSE, etc, etc.  Details, details.

Thoughts?

I would be interested in this. I would seek a safeguard along the following lines:

At any time, on demand, holders of 1% or more of the shares can convert their GLBSE holding to a regular voting share in the company.

That way, the company never has more than 100 shareholders to deal with (because this is expensive for a company to do), yet there is no limit to the number of small players that can participate throigh the very efficient GLBSE platform. And yet, the GLBSE shareholders are not at risk of becoming "second-class citizens" because they can always group together with others and convert to company shareholders.

This could actually be a good way to do something productive with bitcoins that you're not needing to spend immediately.

More details would be needed but I think its an interesting proposition.

I would be interested subject to the same and only with the conversion option detailed in post earlier.

What does this mean?

Seen it a few times now.

Of course. Stupid me. I hadn't considered indicating subscription like that but makes excellent sense.

If the world of renting property went so smooth.  There are alot more expenses that you haven't included in this.  Also finding a management company that will take care of the property is another story.  I'm not trying to kill your idea here but if you have never done this before it could be a nightmare.  I understand that there won't be a mortgage but all it would take is putting the wrong first tenant in and you could be upside down for the next 1-2 years.  Just some of my thoughts on this.

What would be your monthly net income on this property after all expenses are paid?

The main problem is that this is priced in USD, not BTC.

If I invest 1000 BTC now and BTC jump to 50 USD per BTC in 10 years, I'd be better off clinging to my BTC instead. If I expect BTC to go south in 10 years, this would be a useful investment, but there would be the risk that I can't sell my millions of BTC I get in return to anyone for USD.

Nothing is stopping you from investing in 1000btc and hoarding them too.

Think about such a fund if you would like to own a small piece of many properties, while starving corrupt Banksters of as much of your wealth as possible.

I wonder what SGT Spikes experience in real estate investing is.

Ok, good, so we have interest.

Certainly, a LOT more details would need to be worked out. ribuck, I like your idea of converting GLBSE shares to regular voting shares if they have ownership of at least 1% of the company.

Hashking, you are right - there are more expenses to consider, and I have heard my share of renter horror stories.  Property taxes, for instance, I did not take into account.  My post was built hastily, mainly to gauge interest.  Management companies are easy to find, though I need to get a better handle on exactly how much they charge.  I can't say what my monthly net income on this particular property would be, only estimate it.  Property taxes would be around $1300/year, so that will cut into income.  I'd have to take into account some rate of empty-rental period, as well as some monthly expense based on the risk factor of a renter destroying the place.  At any rate, I'll continue to do more research on all matters, and won't even think about offering a GLBSE until AFTER I am confident that I have accounted for all potential and real expenses.

Of course, we don't have to buy only one house either.

Sukrim - you are absolutely right.  This is part of the problem with a deflating currency that no one here likes to address - it discourages investment in other things.  ;)

Chaang - Good point about the taxes.  I suppose it would be interesting to find out if there are any planned property tax hikes.  In the past 5 years, the property taxes have risen by 9.5% on average, but the past two years, it had only risen by 2.1% average.  Certainly, if the economy turns around, I would expect to see the property taxes return to some of their former rates, but the city might even have some hikes planned regardless of the economy.  All of that would need to be taken into account.

Hashking - Aside from my own house, I have not done any other real estate investing.  To tell a little more about myself - I am 25, married for 6 years, graduated with a BS degree in accounting in 2009, and bought my first house in late 2008.  I do believe that my accounting degree helps with "crunching the numbers", and deciding on what investments make sense.  But because I have little experience with real estate investment, I would either rely heavily on my father for advice, or perhaps make him the "president" or key decision maker of the investment group to start with.  He has bought, fixed up, and resold many houses in the past, subdivided land and sold it, and really knows real estate inside and out.  He also currently manages 3 rental properties, including a vacation beach house on the coast.

Now, if I was to manage all of this, I would want to keep some portion of issued shares myself.  What would be a fair percentage to keep?  2%?  5%?  10%?  Obviously, I want to make it worth all of the work that I would be doing on my end, but I don't want it to be an amount that makes it seem unfair to investors.

I'm glad that you have someone who can help you get this started.  I started my business on my own and now it's my full time job.  Alot of my learning was from trial and error.    Being in this business I can tell you that this isn't for everyone.  I know alot of people who tried to get into this business and found out that this wasn't for them.  With in a year of getting started they wanted out. 

Oh, I'm heavily invested in mining operations - this is priced in BTC and pays out BTC - and even though they are linked to exchange prices as well, there's a certain lagging effect.

If GLBSE had a way to accept USD or if you see it as a way to invest USD (e.g. by having "virtual USD" with an average exchange value taken from exchanges but these are never redeemable but can only exchanged for BTC on the page) then it can be interesting. Investing pure BTC though in a USD market is a VERY stupid thing to do, if you're longterm bullish (like a lot of people buying BTC).

Actually I'll try to suggest these virtual USD to Nefario, not sure if he'd dare to do that though.

Hashking - do you mind telling what type of business it is that you are in?

I am confused.  What would be the difference between investing "pure BTC" into a business, versus exchanging USD for BTC, then putting it into the business?  If the price/BTC is $5 today, and you invest 100 BTC into a business, how would it be any different than investing $500 into the same business?  Sure, BTC could rise in price, but at the same time, you could have invested $500 into BTC and caught on to the rise instead of investing in something else as well.

Unless I am missing something?  Always a possibility.  ;)

Example:

Now: 1 BTC = 5 USD, 1 Share = 1 BTC

Future: 1 BTC = 50 USD, 1 Share = 0.2 BTC

In BTC, your share has tanked. In USD your share is now worth twice as much as before! It would make sense to look at your share from the USD side, as your investments + expenses are in USD too, but there's no way to switch to "USD mode" in GLBSE currently, so all people would see would be a loss of 80% of initial investments.

It would make sense to mark this asset "USD side" and display the development of the share price in USD. Trades could still be done in BTC actually (but it would also help there to have an USD value displayed next to them) and payouts will hopefully always be only in BTC on GLBSE.

If you had bought USD valued stock in BTC ~1-1.5 years ago it would have needed to perform insanely well to even have you loose only half of your BTC. If you look at an insanely well performing stock on USD side however it is fine. These effects will hit GLBSE sooner or later too (SATOSHISDEAMON.HORSE for example is valued in USD and pays dividends in USD (converted to BTC) too), better make sure now on what side of the currencies you're working and have GLBSE support that until the next summer bubble approaches. ;)

Ok, so you are talking more about the psychological impact of showing investment returns in a volatile currency (BTC) instead of a stable one (USD)?  Makes sense.  Then again, if looked at from that perspective, the payback could be much quicker if BTC price drops too.  There's no guarantee in the future that BTC price will raise, but if someone believes that BTC is a better investment than real estate, they should invest in BTC, and not real estate.

Despite all of that, I kind of agree with you that denominating the investments in USD instead of BTC would make more sense.  Especially if it takes a while to sell all shares... I mean, I wouldn't want one guy to invest $1000 worth of BTC, then the next guy invest $1000 worth of BTC and get twice the share of the investment, just because the BTC price dropped in half between the time the two investments were made.

I couldn't really hold off trading the BTC for USD until the entire IPO is completed if it takes a while either, as a BTC price drop could cause the IPO to not generate enough funds to purchase a property in the first place.

It's an interesting proposal. I also thought something like that when I saw the island thread. And it would be a nice thing, if well executed.

One of the main risk, apart from the already mentioned ones, is the natural degradation of properties due to time. There would need to be a fund to take care of lots of unexpected expenses, but even there, properties inexorably degrade on time and it would require a very careful planning to even have a ROI at all...

Concerning the risk associated with the exchange rate, any clever investor would be absolutely conscious of it. But it doesn't mean that it's not possible, and I don't even think that it discourages investments. I could, for example, invest in something like this as a way to hedge and balance the very long BTC position I have elsewhere. So, such an investment, if well planned and executed, could be really good for diversification, and can bring more long term stability and predictability to BTC.

Thanks for the input!

And yes, certainly some monthly amount should be set aside to prepare for repairs and maintenance.

The problem is that not all investors are clever... ;)
Optional correction/scaling of GLBSE graphs to bump out USD conversion rates would be a great thing to have but as you said, all it takes someone smart who recognizes that Bitcoins in this case are only used to transfer USD and payouts will be scaled accordingly.

To hedge against the risk of "I sell 100 shares this month, but need 500 shares sold to buy anything - next month BTC crashes and I'm out of anything and can't even pay my users any more", you can sell bundles of shares in an amount that you feel comfortable with to trade immediately on MtGox. Say you want to sell 1000 shares at 1 USD each: As soon as there are 1000 buy offers at 0.2 BTC or higher (assuming 5 USD per BTC), you sell 1000 shares, get the BTC to MtGox (or elsewhere) and exchange them to USD. If volatility is SO high that even this bears significant risk, you should try to sell shares OTC via BitPay or other solution providers that do these conversion steps for you.

How about renting the properties for bitcoins ?
We're going to get there eventually so might as well start the process.
The initial purchase will be done in Fiat probably but income could be in bitcoins later.

This group could also buy properties and farmland in exotic places around the world and its shareholders can time share.
And outsiders would need to pay in Bitcoins to rent the place or something.

I think it is a great diversification strategy.

My dear parents will be selling an appartment in a small modest Swiss mountain village in less than 12 months :)

I really like this idea.

Maybe have a percentage of the properties where tenants pay rent in BTC if the idea proves less palatable for other investors.

Obviously it would be nice and may be even possible to pact some rent directly on btc, but doing so, anyway, won't remove the currency risk just like that. The best it would do is changing the direction of the risk...

Remember that the risk works both ways, and you'll have several expenses and liabilities on fiat. So, if btc suddenly plummets and you already arranged all your income in btc, you can end on tragedy...

Some tips to manage it right would be trying to maintain a balanced flow of income (if you buy several properties, for example, you can try to pact some contracts on fiat and some on btc), maintaining enough balanced reserves on both currencies, and heavily using options (http://polimedia.us/bitcoin/mpex.php) to handle the risk as far on time as possible...

You can pay any amount of fiat in bitcoins instead of fiat - but it wouldn't make much sense right now to rent a flat in a monthly rent that is only composed of BTC (e.g. a flat that would typically cost 1000 USD/month for 200 BTC/month). As soon as you say that you change the price depending on the BTC <--> fiat exchange rate, you're no longer renting for bitcoins, you're renting for USD but can get paid in BTC.

Just imagine if I start a pizza business, that sells pizza for 1.5 BTC a piece. Since I can pay for my stuff like cheese, flour etc. in BTC (via Amazon vouchers or so) I never touch USD any more. Still I'll go bankrupt if BTC price tanks, as my pizzas are now dead cheap but to buy the ingredients I suddenly have to hand out 100 instead of 10 BTC. Same goes for rent etc. - even if it's PAID in BTC, it doesn't mean it's PRICED in BTC. Bitcoin is still highly volatile, has a huge inflation compared to fiat currencies and even though they are easier and easier to be used, most products one can buy are priced in fiat in the end and won't keep their current prices should the exchange rate jump in one or the other direction.

I find this idea promising if applied in some ideally still relatively undeveloped tourism destination, like Cambodia, or even developed, if well managed and low taxed. You could even finance a B&B or s/t like that in the same way. With tourists you lower the risk and get higher returns.

For a bitcoiner, it would absolutely make sense to rent a flat, or any other property just for BTC, with a contract priced in BTC instead of fiat, absolutely independently from the exchange rate. I would love to do it, if I could. If you're producing BTC, let say that you have a mining operation and/or any other business and/or investments which yields you a roi in pure BTC, then you don't need to be that concerned about the exchange rate. Obviously, you'll have some expenses in fiat too, but if you reached a point in which you can rent a property for BTC, you surely already know how to manage those very well...


You don't do it that way. If you rent for BTC, you valuate it in BTC. You can't valuate a contract in BTC based solely on the current price on fiat and the exchange rate. You already have some assumptions of where BTC is headed, so you use that to make a pure BTC valuation which factors in all the particularities, expenses and risks you'll need to handle, including but not limited to just your expenses in fiat...


We are all well aware of those particularities of BTC, and I think that we are here because we've managed to handle them until now. Obviously an agreement to rent a property in pure BTC would be risky for both sides, but as a renter you'll be hedging that risk renting other properties for fiat, maintaining a healthy buffer of any currency you need, and with any financial derivative you feel comfortable with...

rdponticelli, it all sounds good until the price of BTC goes UP.  Suddenly, someone who was paying $1,000 in rent might be paying $2,000 in rent.  And you can argue all day that is it still the same price in BTC, but ultimately, no one is going to stand for a doubling of rent.  They'd move out, and we'd have to drop the price of the rent anyway.

May as well allow rent payments in BTC, but tie the actual monthly rental price to USD.  It might be neat to give a slight discount if paid with BTC though, to encourage people to use it instead of USD.

It sounds like there continues to be a lot of support for this idea.  I'll definitely push for it as far as it will go.  We'll see what happens.  ;)

My brother is a real estate broker doing this very same thing (except for using BTC, of course) and I can tell you it isn't as easy as it seems. He had one renter who stopped paying rent and it took him months to fulfill all the requirements necessary to kick the guy out. Meanwhile, he was living there for free and my brother was still making mortgage payments with no income from that property.

Don't get me wrong, it can be profitable, but to stack the odds in your favor, you need:

• A trustworthy and competent property manager. (My brother does this himself, saving that particular expense.)
• Properties you can visit yourself. Even with a good property manager, it pays to be on hand when the inspector goes by, when repairs are being done, before and after renters move in, etc.
• As much knowledge as possible about the neighborhood you're investing in. What's the crime rate like? What businesses are in the area? Schools? Any major developments planned in the area?

Those are just what I've gathered from listening to my brother over the years. I'll talk to him and see what else he recommends.

How about re-fitting some old West ghost town?

https://encrypted-tbn0.google.com/images?q=tbn:ANd9GcQgBqdW8-47QGdBizet8Oa9bIUEvvvtSL0_6mipklSZEGMNNEQ3

Some might come on the cheap:
SOLD! 'Scenic' Wild West ghost town bought by mysterious Filipino church for less than $800,000
http://www.dailymail.co.uk/news/article-2019030/Scenic-799-000-Entire-South-Dakota-town-sale.html (http://www.dailymail.co.uk/news/article-2019030/Scenic-799-000-Entire-South-Dakota-town-sale.html)

Good thoughts edd, thanks.  Everything always seems simple on the surface, indeed.

There's a rental agency around here (Emerald Property Management) who I've heard good things about, and who my dad and grandparents use to rent out their houses.  It warrants further investigation (especially as far as how much they take out of each payment), but it WOULD be nice to have them doing the evicting, etc, since they probably have a fastlane route to go on those.

Haha, conspirosphere, that might be a good option if I had the time to rebuild an old western town!

As I said, I am going to continue going forward with this idea insofar as research takes me, and it seems practical to do so.  Below are some further thoughts.

Company
I would found a company to encompass these investments.  The company would be based in Oregon.  Any advice related to what company type to choose (especially with the unique situation of potentially hundreds of investors) would be appreciated.

Likely, rather than issuing official shares (at least in the view of the state government), I would treat GLBSE investors as simply that - investors.  Obviously, I would still have a written contract describing the shares of the company, how profit is to be distributed, how expenses are to be paid, etc.  But, I think to avoid additional red tape and paperwork, it would be best to go this route.  Certainly open to opinions on that front though.

Shareholders
For each 100 shares issued, I would be entitled to 7 shares issued to myself.  This is the minimum amount I believe would be acceptable as compensation for management of the company and properties.

The above is subject to change, based on future feedback received.

I would be looking to raise at least $80,000 worth of capital to start with, preferably more.  This is the minimum amount I believe would be required in order to successfully purchase and prepare for rent a stick-built house (I have no plans to deal with older manufactured homes) in the Eugene/Springfield, OR area.

After the initial investment, more public stock could be issued to increase the number of holdings.  While the percentage held by each investor would drop, the total holdings of the company would increase commensurately, and the absolute portion of the company held would remain the same.  In other words, if we doubled the investment to $160,000, and bought two houses instead of one, a $5,000 investment would only buy 3% of the company instead of 6%, but that 3% would still hold $5,000 worth of house.

Revenue and Expenses
All capital investments and expenses would be paid (hopefully) out of shareholder investments.  Profits would be calculated and distributed or reinvested monthly (depending on investor voting) as net income calculated on an accrual basis.  Allowances will be made and cash held for future anticipated expenses as appropriate.

If GLBSE allows it, I might just set it up to where those who want dividends can have them, and those who want to reinvest can have their dividends automatically purchase more shares of investment for them.

Property Management
Exact property management expenses are TBD, but Emerald Property Management has administrative and management fees in the range of 10-15%, based on speaking with two of their clients.  They would likely be my first choice, due to their large local holdings and ability to quickly rent out residences in the area.

In some cases, work on properties to prepare them for rental readiness may be completed by myself or others outside of the professional realm.  In this event, those non-professional workers would be compensated with no more than half of a comparable local professional wage for the same labor.

All of the above is subject to change, and I welcome any further feedback you might have.

Perhaps most importantly: If you are interested in becoming a serious investor in this investment group (i.e., at least $1,000), please PM me.  I need to get an idea of how many large, serious investors I could potentially gather.  If you have concerns about investing a large amount of money with some unknown guy on the internet, please let me know how I can resolve your concerns.  I am an honest person, but at the same time, I don't particularly want to publish my home address for all of the Bitcoin world to know.  But, if that is what it takes, I may even do just that.

Still looking for more feedback on this!

i don't know .. i would rather like if the group was managed by a senior in real-estate investments. someone who knows the market, knows prices, knows developement..

real-estate is quite a difficult field, where you have to take alot of factors into account..

Thanks for the input.  It might be difficult to find someone who is an expert in real estate investing who doesn't already have loads of money, and would scoff at whatever amount could be conjured up by forum members here, but you never know!  I might look in to that, see if I can find anyone local.

Buy my house. https://bitcointalk.org/index.php?topic=66852.0

Haha, tempting, but I'd want to buy property near me so I could inspect it myself, etc.

A simple way to get started is to collect BTC at GLBSE, and invest into a pre-existing Real Estate Investment Trust, then distribute the dividends back through GLBSE. If that grows big enough, you can grow into buying and managing actual properties.

Good idea as well, thanks for the suggestion!

That sounds like a good plan.

Would also assist in building up trust and confidence while at the same time exposing investors to the type of assets such a fund would eventually take on.

My understanding is that most REITs pay quarterly dividends. Are there any that pay more frequently or should we start to encourage GLBSE investors to be a little longer term in their investing ?