Tesla’s announcement yesterday that they purchased $1.5 Billion in Bitcoin made tsunami-sized waves across the world of finance and business. While Tesla is not the first publicly traded company to announce bitcoin holdings (Square, invested $50M into 5,000 bitcoin now worth $235M, and MicroStrategy purchasing $1.1B of bitcoin now worth $3.3B) Tesla’s announcement may be the biggest. It also helps that Elon Musk has a massive fan base with 46M followers on Twitter and devoted Tesla owners.
Within 24 hours of Tesla’s announcement Bitcoin surged upwards 20% to a new high of $48,000.00. CNBC ran continuing news coverage showing that if just 10% of the companies in the S&P 500 follow Elon’s lead, over $100B in Bitcoin will be purchased by blue-chip companies in the near future. Every publicly traded company’s board has to now at least have the discussion, will they hold some bitcoin on their balance sheet?
What About Your Cell Tower Lease?
The billion dollar investment in bitcoin provides context to the cash flow model of a cell tower lease. Cell tower leases typically have rent escalators that escalate at the rate of 2-3% annual. Often we see rent escalators that are even less favorable for property owners, escalating at the rate of 10%, or less, every five years. At that rate the value of the US dollar decreases annually and the lease will not keep up with the rate rate of inflation.
There also comes into account the risk of termination. Cell tower leases can typically be terminated with 30 days notice to the landlord.
So the cell tower lease is not an annuity. The rent will disappear one day, it is not a question of if but when.
Should You Sell Your Lease & Purchase Bitcoin?
To answer this question lets play out a few scenarios.
Let’s say you have a cell site lease paying you $2,000.00 per month with a 3% annual escalator. You contact Airwave Advisors who secures you an offer to purchase your lease for $360,000.00. We assume your personal income is between $40K and $440K and thereby you pay long term capital gains taxes of 15% on your sales proceeds to the IRS. After paying Uncle Sam taxes you have $306,000.00 to invest.
If you invested $306,000.00 in Bitcoin in 2018 when the price was at its lowest in December 2018 at $3,300.00 you could have purchased 92.72 bitcoins multiplied by today’s price of $47,000 would be worth $4,358,181.81.
If you invested $306,000.00 in Bitcoin in December of 2019 when the price was at $7,080.00 you could have purchased 50.84 bitcoins multiplied by today’s price of $47,000 would be worth $2,389,830.50.
If you invested $306,000.00 in Bitcoin in December of 2020 when the price was at $19,000.00 you could have purchased 16.10 bitcoins multiplied by today’s price of $47,000 would be worth $756,947.36.
Now lets run a scenario where you had a wonderful New Years Eve, you closed your sales transaction on the 1st of the year in 2021, and you invested $306,000.00 in Bitcoin on that day when the price was at $32,203.00. You could have purchased 9.50 bitcoins multiplied by today’s price of $47,000 would be worth $446,604.35. A gain of $140,604, or 46%, in 39 days.
If one is willing to take the risk in investing in bitcoin, owning bitcoin has proven over the last few years to have appreciated and to net a property owner unmatched returns when compared to receiving rent on a cell tower lease.
What About The Risks Of Owning Bitcoin?
Any investment comes with risk and bitcoin carries three main risks:
- Bitcoin’s value may decrease after you purchase your bitcoins.
In December of 2017 Bitcoin hit a high of $18,640.00. A year later it fell to a fraction of that value hitting a low of $3,578.21. Appreciation is not a sure thing and investing in the value of cryptocurrency is not a risk everyone is willing to take.
- Someone could get access to your private key and steal your bitcoins.
Anything connected to the internet can be hacked remotely, including bitcoin accounts. If someone were to get your private key they could transfer bitcoins from your digital wallet to their digital wallet. There are ways to prevent and mitigate this risk. Coinbase has the option to turn on two-party authentication, and you can even purchase a hardware ledger off of Amazon to transfer your bitcoin offline. Just don’t lose your hardware ledger.
- You can lose your private key or your ledger.
There are nightmare stories of people owning tens of million in bitcoin on hardware ledgers and being unable to access their bitcoin because they forgot their key. Always put your private key in a safe place (and maybe create a duplicate to put in a 2nd safe place) so this doesn’t happen to you.
So Should You Sell Your Lease For Bitcoin?
The answer comes down to your own personal tolerance for risk and reward. Your cell tower lease won’t pay rent forever, however, Bitcoin appreciation is not guaranteed. If you want to explore selling your lease and deploying this strategy, please give us a call at Airwave Advisors at (888) 443-5101 to discuss further.
About Nick G. Foster
Since founding Airwave Advisors® in 2014, Mr. Foster has added value to over 400 clients ranging from the State of Nevada, City of Beverly Hills, to Habitat For Humanity. Mr. Foster focuses on cell tower lease renewals, buyouts, new lease negotiation, and cell site lease management. Prior to starting Airwave Advisors® Mr. Foster founded and led the Cell Site Services Group within nationwide commercial real estate services leader Cassidy Turley (now known as Cushman & Wakefield).