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Crypto For Real Estate

Good Neighbors
Welcome to the Good Neighbors Newsletter - where we’ll explore the ways in which real estate development and entrepreneurship can combine as a force for good in our neighborhoods.
Below you’ll find 3 sections: (1) A Few Things Worth Sharing, (2) An Exploration, and (3) The Watercooler.
And whether you noticed or not, it’s been a minute since the last Good Neighbors issue. This was a hard one to write. Writing anything has been especially hard lately, which probably means I need to do more of it. Regardless, I’m excited to have you on this journey with me and I hope you find value in the discussion. Cheers!
👏🏻 A Few Things Worth Sharing
  • Three Books:
    1. Greenlights by Matthew McConaughey is so good. I recommend listening to it so you can feel like you’re actually friends with Matthew McConaughey. You’ll be a better person having read this book
      Tribe by Sebastian Junger is a quick, great read about what community really is and how people are wired for it
      This is Water - a brilliant, funny, challenging commencement speech by David Foster Wallace in 2005 that should be read repeatedly throughout your life. You can google it and find the transcript for free but the book is nice to have.
🧭 An Exploration:
Thoughts to challenge how we think about our places, our neighbors, our work, and our future
💸 Crypto for Real Estate
Traditional Finance Will Adapt or Die
Here’s what I initially missed about the crypto world:
We are still in the first inning of this game.
Yes, we have Bitcoin and Ethereum and a bunch of other coins that have gone up a gazillion% in the last 5 to 10 years. But if crypto was a house, these are mostly just the architectural plans. We can see how awesome the house can be, so the plans have become valuable, but let’s not convince ourselves we can actually live in this house yet.
When you see a description of a crypto platform that appears like it’s written in 80% made-up words or jargon, it helps to realize that this is really a bunch of engineers talking to each other about the infrastructure of the crypto house.
Here’s my point:
You’re not too late. You’re not too early. This will absolutely change the world as we know it, and now is the time to learn and find your place in it.
And a warning:
You may find yourself naysaying, focusing on the crazy speculation going on in the crypto world, or predicting when the house will come crumbling down. Remember, the house isn’t even built yet. The best way to be left behind is by insisting the world will not change.
Let’s get our hands dirty. Below is my best attempt at discussing — in the simplest and most practical terms possible — how crypto will change the world. I’ll use real estate as the lens, but it won’t be hard from there to see how much further it will reach.
😬 The Current State of Real Estate Finance
The world of real estate and the world of finance are fully intertwined. It is difficult to talk about real estate without talking about raising money, construction loans, refinancing, permanent loans, interest rates, and what is considered “creditworthy.” In turn, something that is broken in banking or the capital markets quickly trickles down into the real estate world.
Whether you are buying a home, building a home, or developing commercial project, here are a few common experiences:
  • Getting a loan:
    • This is only easy if you don’t actually need to borrow money. Banks sell umbrellas on sunny days, because that’s the only way to get past “the underwriters.” These are the people who only come out at night (so you can never actually talk to them directly) and suck the life out of good bankers and good deals. If you do manage to convince them you are worthy of their time, they wear you down with one-request-a-day, for 112 days in a row, rather than asking for everything up front. If you are trying to borrow $100,000, you’ll typically have to personally guarantee $125,000, which requires quite a bit in liquid assets (cash, stocks, but probably not crypto assets) that you’ll likely need to deposit into the bank loaning you money. On top of that, whether you have $5M or $500 net worth, you’ll need to also show sufficient income. But not just any income will do - it must be from a “real job” with a W-2 or long history. And finally, if you manage to survive the ultramarathon of underwriting, most banks still require notarized “wet signatures” in blue ink with multiple witnesses and legal custody of your firstborn in order to close the loan.
    • Side note: I’m obviously jaded, but there are some really good banks and amazing bankers out there. Over the past three years I’ve spent the majority of my time working with lenders across the entire spectrum of the industry. The problem is the system, not the people. Personally, I have far fewer barriers to getting loans than most. I’m a white male with a strong network of wealthy white males - and this has still been my experience for anything that’s not standard apartments or the equivalent of leasing to a Starbucks. Most are not so lucky, so most don’t even try.
  • Raise equity:
    • Fundraising is hard, and for most it always will be. Good projects are limited, as are pools of capital to tap into. But it doesn’t have to be quite so hard. For example, firms owned by white men manage 98.7% of the $69 Trillion assets under management in the U.S. Which makes it very interesting that less than 2% of real estate investment capital goes to black developers. Not everyone has the same invitation to swim at this pool. Crowdfunding is a start, but we have a long way to go when the best predictor of crowdfunding success is how large your network already is.
🔐 The Crypto Technology That Matters
There’s a lot of noise in the crypto world, and to the average person it sounds like the language aliens would be speaking as they try to communicate with us earthlings. Here is a simplified view of the pieces that matter, based on my research and current understanding:
The Basics
A few good resources here to build the foundation:
This would be way too long if I tried to provide the basics here as well, so your best bet is to go read/listen to those. But I know how things go, so here’s the tweet version:
We currently live in a centralized finance (CeFi) world. Banks, brokers, CEO’s, and governments make decisions on how and where money flows. Digital currency has the potential to change that. Blockchain technology can remove the need for centralization, remove the middlemen taking slices of the pie each time it moves, provide more transparency of the flow of funds (not less), and provide access to capital + wealth-building opportunities to those locked out of the current system. Decentralized Finance (DeFi) can not be stopped, even if we wanted to.
The Pieces
  • Blockchain
    • This is the technology on which the crypto world sits. A digital “ledger,” or list of transactions that anyone can view and verify. It has the ability to be simultaneously more private, secure, transparent, inexpensive, and accessible. Good review here.
  • Smart Contracts
    • I like the way Eric Jorgenson put it in the thread referenced above: Smart contracts are the “robot lawyers” living inside the computer. “This robot lawyer can observe, validate, and execute agreements between total strangers perfectly, cheaply, millions of times per day.” This is the code that outlines agreements, allows us to remove the intermediaries, and enables decentralized applications to be built for a variety of uses. Good review here.
  • NFT’s
    • Non-fungible tokens. Lots of hype and noise on this one right now. You’ll probably hear people completely dismiss them as useless (not true), or the opposite.
    • Here’s what’s been helpful for me to think about NFT’s:  a dollar bill is fungible, meaning one dollar can be exchanged for any other dollar. It is not unique. An original work of art is non-fungible, meaning there is only one true original. It can be copied, but it is not the same because enough people agree it is not the same. NFT’s, through blockchain technology, create scarcity in the digital world by proving originality. No longer is a copied digital file the same as the original digital file. The difference is the same as the difference between the original Mona Lisa and a perfectly copied Mona Lisa. You wouldn’t know the difference by simply looking at them, but the agreed-upon facts of originality mean everything.
    • Add in a robot lawyer (smart contract) and the next version of the internet is created, bridging the digital and physical realms. Read this thread from Naval for a quick look into what is possible, and this article from Packy (referenced above)
  • TradFi →CeFi → DeFi
    • These are just labels for what we’ve already discussed. DeFi (Decentralized Finance) is global, peer-to-peer, pseudonymous, and accessible.
      • TradFi: Traditional Finance, i.e. Bank of America
      • CeFi: Centralized Finance, i.e. Coinbase, Gemini, Robinhood, etc., in which your funds and tokens are held by a custodian (crypto version of a bank)
      • DeFi: No one but you has access to your funds & tokens, i.e. Aave, Metamask, Binance
      • Good quick overview here
🔮 The Future State
So what does this mean for how things will change on a practical level? Glad you asked. Here’s what I see while standing on the shoulders of people way smarter than me:
  • Savings Accounts
    • As we print more and more dollars, the purchasing power of those dollars will continue to fall. You know this as inflation. Currently, a Bank of America savings accounts pays out about 0.01% interest per year. We are effectively losing money by parking money here, but banks need those deposits in order to have the liquidity to lend out money to people who can prove they have already enough money to not actually need the loan (see above). The moment enough real estate developers begin to hold funds / working capital / profits in crypto instead of a bank, the industry will hit a tipping point
    • With no intermediaries and new incentives to provide liquidity to the crypto world right now, we can do oh-so-much better than our Wells Fargo Premium High Yield First Choice Savings account. Deposit those same dollars in a stablecoin - a DeFi token like $USDC or $DAI that is pegged 1:1 to the U.S. dollar - and you can earn between 8-35% per year on those coins. Check out Blockfi, Celsius, Waves Exchange, or Multis (for a business account). There are plenty of arbitrage and earning opportunities with the current market dynamic, but at the simplest level it makes sense to earn meaningful interest on funds not in use rather than allowing them to slowly turn to dust in your First Advantage Plus Platinum Savings account at BB&T.
    • Next level of learning here is about staking, liquidity pools, the risks involved, and how to guard against those risks with things like insurance (Union Protocol, Nexus Mutual). Happy to cover this in future if there’s interest
  • Loans
    • As of now, most crypto loans are utilized by traders wanting to use their crypto holdings as collateral to likely go buy more crypto. But it is rapidly expanding, and there will be many new lending and borrowing opportunities in the near future. Any entity or individual with assets will have the ability to become a “bank,” and anyone with an internet connection can be a borrower. The smart contract takes the place of the underwriter, attorneys, compliance, and collections. Game on. (A bunch of these are in the early stages but look promising: Centrifuge, Percent, TrueFi, Maple, Goldfinch)
    • Now imagine you can use other forms of collateral for these loans, rather than just crypto holdings. You can get a construction loan, factor your invoices, or refinance your home completely on the blockchain with or without a traditional bank. But we’ll need some kind of bridge that connects the physical (off-chain) world to the crypto world (on-chain). Enter NFT’s.
  • Title
    • As Naval points out, “Public blockchains will be the title registries for everything of value. Ultimately, NFTs will authenticate the world.” Our current system to prove ownership of real estate is a low-tech public registry. We already don’t trust it very much, which is why you have to have a lawyer or a title company do a title search as part of the process when you buy a property. They are middlemen who are authenticating ownership.
    • Municipalities could use NFT’s as deeds to property, providing a record of ownership and transactions that is public and can not be altered. With legitimate proof of ownership on-chain, that property can then easily be used as collateral for loans, fractionalized for multiple owners, and likely hundreds of other things we haven’t even imagined yet!
    • Side note: A fun one to think about is the use of NFT’s to authenticate skills and certifications. Your digital wallet will not only keep your currency, it will be your resumé, your portfolio of expertise, and your body of work. The impact this would have on education and hiring would be profound. (via Balaji)
  • Payments
    • Money will flow based on the smart contracts we enter. Our employment contracts will be smart contracts and we’ll be able to get paid continuously, in real-time, for the work we do (Bitwage). Tenants will pay rent the same way. Investors will automatically receive distributions based on the terms of their investment. The same for lenders, vendors, brokers, and insurance.
So there you go, a few steps into the crypto vortex. It’s going to be a wild ride one way or another. Personally, I’d rather be on top of the bull than trampled by it.
💦 The Watercooler
Chapel Progress
The long road to start construction continues, but we’ve hit our stride and will submit plans for permit at the end of this month. The last few months have been a series of neighborhood workshops, competitive analysis, and honing in our programming and membership options. More on that soon, but below is a sneak peak of the current floor plan. We’ll be offering a unique mix of uses at incredibly accessible prices, and one thing in particular that will be new to Greenville: Kitchen Coworking. All you food entrepreneurs, food trucks, and aspiring restaurant owners…stay tuned.
Finally, the little share button below is the Good Neighbors version of bringing over a tin of cookies to someone who just moved in across the street. You want to be a Good Neighbor, don’t you?? :)
Until next time,
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Matt McPheely
Matt McPheely @mattmcpheely

The Magic of Places and How To Build Them

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Greenville, SC