Bitcoin Use Is on the Rise. What Does That Mean for Property Managers?

Jake Belding — Tue, 22 Feb 2022 15:47:39 +0000

In April, 2021, California real estate billionaire Rick Caruso announced his company would begin accepting Bitcoin for rent payments. In March, Morgan Stanley announced it would provide access to Bitcoin funds for wealth management clients, making it the first U.S. bank to do so. What once seemed like a shady currency meant for the darker parts of the web is now going mainstream. In fact, 16 percent of Americans have invested in cryptocurrencies such as Bitcoin, according to a Pew Research study, and even entire nations are giving it legitimacy. With Bitcoin and other cryptocurrencies growing in popularity, more real estate investors and property management companies may follow Caruso’s lead, allowing tenants to pay their rent in crypto. In fact, there are already rent apps that make it possible. It’s easy to feel the pressure to jump on the bandwagon and accept it as an option for rent payments. If your owners or investors are interested in cryptocurrency, or if you’re thinking about getting in on Bitcoin yourself, there are some questions to ask first. Let’s explore exactly what cryptocurrency is, how it’s used, and what property managers should consider before investing.

What is Cryptocurrency?

Bitcoin is just one many different kinds of cryptocurrency (crypto) out there. Crypto refers to any digital currency that is secured by cryptography using blockchain. Basically, it’s virtual money held in a network of shared databases that are encrypted not only for security, but also to keep a record of each transaction in a digital timeline.

What Is Blockchain?

Blockchain encryption records data in “blocks” that you can imagine as buckets. When the bucket fills to the top, information flows into the next bucket, and the two buckets are linked in chronological order. For that reason, blockchain is mainly used to store financial information, such as ledgers and crypto transactions. It’s also used to execute smart contracts, where an action, such as the release of a security deposit, doesn’t take place until a condition is met, such as an apartment inspection. When someone invests in crypto, their shares, so to speak, are held in a crypto wallet until the owner converts them into currency such as the U.S. dollar. Wallets are secure digital storage devices that use both a public key, or address, to which people can send crypto to you, and a private key, or digital code held only by the wallet’s owner.

How Do Crypto Payments Work?

Although it’s referred to as a currency, crypto doesn’t work like dollars or euros at the moment. The only exception to that rule is El Salvador, which has adopted Bitcoin as legal tender. Crypto currencies such as Bitcoin are actually purchased through exchanges, much like stock. The value of crypto moves up and down like stock, as well.

So how does that work for rent payments?

If a tenant pays rent in crypto, they’re simply transferring some of their shares to you, usually via an app. Through the app, owners or property managers can then convert crypto to dollars.

The Pros of Crypto

There certainly are aspects of cryptocurrency that make it appealing. If an owner or investor is weighing their options, here are some pros you can offer them:

Security

At the moment, crypto is stored and distributed over a network of databases that are outside of the control of governments, banks, and other regulating institutions. While that makes investment in crypto somewhat risky, it also guarantees that the currency won’t collapse at a single point of failure, such as a bank going out of business (think Lehman Brothers). And while nothing is totally hack-proof, its blockchain storage system makes it pretty difficult to break into.

Convenience

Since the beginning of the pandemic, the demand for contactless, on-the-go transactions has gained incredible momentum. Crypto provides yet another convenient payment option property managers can offer their tenants. Because of its decentralized nature, there is no third party to go through for money transfers, making transactions from the tenant to the property manager or owner quicker. If you manage properties overseas, cryptocurrency makes international money transfers easier, as well.

Investment

Cryptocurrencies are more of an investment opportunity than a way to pay the bills. Because they function much like company stocks, with fluctuating value, they’re meant to be held onto until you can cash out when the price is high. If you’re a larger property management or investment firm looking to experiment with different investment opportunities, allowing rent payments in Bitcoin, for instance, can get you started in cryptocurrency.

The Cons of Crypto

Bitcoin and other cryptocurrencies get a lot of hype in the media, which may pique your owners’ interest. It’s worth informing them of the risks that are involved, however. And there are a few.

Risk

Of course, the fact that there are no regulating bodies and that cryptocurrency is, essentially, a virtual currency poses some risks. First, while it’s incredibly difficult to hack blockchain networks, it’s not impossible. According to an MIT report, hackers stole almost $2 billion in cryptocurrency between 2017 and 2019, mainly from exchanges. Should a hacker or scammer gain access to your wallet, you could be wiped out in seconds. Like the stock market, the volatility of cryptocurrency poses some risk, as well. If you don’t convert your Bitcoin at the right time, you could lose money.

Lack of Immediacy

As we mentioned earlier, cryptocurrency is not meant for daily transactions. In fact, it can take up to 10 days to convert Bitcoin into dollars. If you or your owners are collecting rent to pay the bills, Bitcoin isn’t going to help. Instead, look at Bitcoin as an investment opportunity. If an owner or investor is keen on offering it as a payment option, they should ensure they have enough money coming in through traditional rent payments to allow them to take on some payments as investment only.

Difficulty Tracking

Bitcoin and other cryptocurrency users are anonymized using a numerical code and different public keys for each transaction. Transactions, therefore, can’t be traced back to the user. That’s bad for two reasons. First, if you have a dispute over payments for services rendered and your client paid with Bitcoin, there won’t be any public record of the transaction, making your case hard to prove. Second, if you are sent the wrong amount by mistake, the transaction is irreversible.

No Government Regulation

If you make a transaction using traditional U.S. dollars, you have the FDIC and other bank regulations to protect your money. Not so with cryptocurrency. Because there’s nothing regulating transactions, you have very few legal protections.

How Property Manager Can Approach Crypto for Rent Payments

In early 2020, almost no one in the property management space was thinking about cryptocurrency. Now, however, the idea of a virtual currency that allows for quick, contactless payment is more appealing to property managers, owners, and tenants alike. Even if you’re not ready to dabble in crypto payments, you may come across an owner or investor who is. Having a knowledge base that can help guide them will add value to your business. And if you have the flexibility to move into crypto payments for interested owners and investors, all the better. Property management companies with no investments of their own will have to figure out transfer rent money paid in crypto to owners and investors. While crypto transactions are quick, creating a new process may take time. If you’re in a position to experiment with cryptocurrency as an investment opportunity, keep an eye on the market and plan your entry carefully. As with all investments, weigh the risks against the benefits before you jump in.

Cryptocurrency – Propertyware