EP36: Buy, Borrow and Die: Bitcoin Style

10/06/19 • 45 min

Consensus Network: Cryptocurrency News & Education

I am in a financial position that may seem somewhat unusual to you. You see, the IRS rewards me for my real estate investments by taxing me less. If, on the other hand, I keep my income in the bank, or invest it in traditional equities or bonds, the IRS shows me no mercy!

Admittedly this is by design. I am a real estate professional. One of the great benefits to that designation is that all of my passive losses flow through my personal tax returns. In other words, all that depreciation and mortgage interest I get by investing in real estate not only builds my net worth, but SAVES me money in the form of tax mitigation. Not a bad deal right?

To illustrate the power of these completely legal tax advantages, remember that with bonus depreciation even limited partners often end up with K1 losses of 50-100 percent of invested capital. Those losses add up in a hurry!

With that perspective in mind, why would I EVER consider investing in anything that is not tax advantaged? Think about the returns I would need to get in order to simply break even with the tax breaks I’m getting from investing in real estate. The returns would need to be HUGE. I’m not going to get that through Vanguard ETFs!

In fact, I truly believe that the only way I can get higher tax equivalent returns on capital is by investing in asymmetric risk type investments. For me, that means a little bit of bitcoin.

You may think I am crazy, but I actually don’t even consider investing in bitcoin all that risky. Sure it’s volatile, but I’m pretty darn sure that 5 years down the line anyone who buys bitcoin today will be pretty happy. I’m less sure about all of the alternative coins/tokens. They may have more explosive returns or they may simply go to zero. But bitcoin going to zero?—ain’t going to happen if you ask me.

Now I don’t overdo it with my bitcoin portfolio. For one, it’s important to have discipline and value add real estate is my bread and butter. In fact, I bought bitcoin with only about 5 percent of my investable assets this year. Aside from its riskier nature, buying bitcoin does not save me any money! It’s not tax advantaged.

So what’s a bitcoin HODLR to do? How about “Buy, borrow, and die”? That’s the mantra of the ultra-wealthy. The idea is that you can borrow against most assets that you own and invest in something else. You don’t get taxed on your loan and you’ve got a way to create liquidity out of an asset that is sitting around waiting to appreciate. If you invest those borrowed funds into real estate, not only do you get the benefit of investing your capital in two places at once, but you also get the tax advantages!

You can do this with all kinds of assets. Traditionally, the wealthy have done this with brokerage accounts and other real estate but also with gold and fine art.

The good news is that these days you can even do it with bitcoin and that’s what this week’s show is all about. Zac Prince is the founder of a cutting edge company called BlockFi. BlockFi is essentially creating financial products from the cryptocurrency ecosystem including the origination of loans and even savings accounts that pay cryptocurrency in interest.

In this week’s Wealth Formula Podcast, Zac tells us all about it and gives us his take on the massive infrastructure that is creeping slowly but surely into the bitcoin ecosystem. Whether or not you buy bitcoin, you are going to want to understand what’s going on in the digital ecosystem because soon it will be part of your every day reality. Don’t miss this show!

In fact, I truly believe that the only way I can get higher tax equivalent returns on capital is by investing in asymmetric risk type investments. For me, that means a little bit of bitcoin.

You can do this with all kinds of assets. Traditionally, the wealthy have done this with brokerage accounts and other real estate but also with gold and fine art.

Previous Episode

EP35: Cryptocurrency and Asymmetric Risk with Teeka Tiwari

Up to 10 percent of my liquid assets are in very risky stuff—specifically digital assets and startups.

A lot of people people think I am being irresponsible—particularly because I have a captive audience with whom I have influence.

Now if I was shooting at the hip and telling you to put all your money in this stuff, I would understand. But even highly volatile investments (ie. gambling) may have their role in your portfolio.

To be clear, every year, I allocate no less than 80 percent of the money I invest into real estate through Investor Club. There are many “wealth advisors” out there who would tell me that’s nuts too—that I would be better with a substantial portfolio of stocks, bonds, and mutual funds. Ain’t gonna happen.

One of the great benefits of becoming financially literate is that you get to make your own decisions and feel confident about them. You don’t need someone with a three month long accreditation course to tell you what makes sense.

In my opinion, residential real estate isn’t risky if you know what you are doing or invest with someone who does. People have to live somewhere regardless of the Dow Jones Industrial Average.

Real estate in the hands of an ambitious immigrant with no money (my dad), ultimately paid for my upper middle-class upbringing and my education through medical school! Why would I consider it risky? The only time my dad got in trouble was when he invested in the stock market.

Now, let’s go back to this buying digital currency thing again. You and I know this is seriously risky. But you know what?— a lot of people have gotten very wealthy off this stuff already and it’s still in its early days.

So let me ask you this. Say you invested $20K into a variety of cryptocurrency projects today and lost it all. Would that kill you? Alternatively, say your $20K became $2 million—is it worth it for you to at least have a chance of this happening in your lifetime?

That’s the kind of analysis you need to do for yourself when considering investments of the asymmetric risk profile variety. Chances are if you are a follower of Wealth Formula Podcast, you are already doing fine. You make a great income and have all the basic things you need to live a happy life. But what if you had exposure to something that could put you in another league of wealth entirely? Would it be worth putting a little capital at risk to make this happen?

It is for me and that is why I invest in cryptocurrency. This is not foolish—this is calculated risk. It is the kind of risk that the wealthy take all the time. It’s how millionaires become billionaires and how ordinary people can make money that they never imagined possible.

In fact, even the largest, most respected university endowments like Yale and Stanford are getting in the game with small allocations in the digital currency space just to make sure they don’t miss out.

And why now? Well—because no one is talking about it. The bull market of 2017 had everyone and their mother investing in cryptocurrencies. Two years later, technology is better and institutional money is starting to get in, but investors don’t seem that interested.

That’s exactly why, if you have not gotten exposure to digital assets, now may be the best time to take the leap. The more you read about this stuff, the more excited you will get!

To help you understand what is going on with cryptocurrency and whether you should consider getting in Consensus Network. He’s a former Wall Street guy with serious credibility with institutional investors and family offices.

He is also a great teacher so make sure you tune into this week’s show.

P.S. To find out EXACTLY why investing in cryptocurrency makes sense NOW, make sure to sign up for Teeka’s upcoming webinar HERE.