As a mortgage broker, leverage is essentially my bread and butter, but recently I had a client introduce me to an interesting strategy he was using to grow both his digital assets as well as his physical assets (real estate).
A successful real estate investor, he currently owns nine properties, eight of which are rentals. He had contacted me to begin cash out refinances on all eight of them, leveraging them to about 70 percent of their market value. Asking him if he planned to purchase an additional rental property with the proceeds, he told me he actually planned to throw it into crypto! But that wasn't the end of his plan, he then would move his assets into a NEXO account, and use his crypto as collateral for an additional line of credit, which would then allow him to make a cash offer on any rental property he found, all while his tenants cover a majority of the costs.
NEXO allows him to collateralize his digital assets (Bitcoin in his case) and receive a credit line advance of up to 60 percent of it's value. The NEXO loan matures in 12 months and does not require a monthly payment, simply a lump sum at the end of the term. His plan would be to use the NEXO loan to purchase a property cash and then immediately recoup most of those funds via a traditional cash out mortgage. With the NEXO loan paid off, he gets to enjoy the gains (or losses) from his digital assets, and he secures an additional income generating property to help fund his next investment, whether digital or real estate. He could rinse and repeat the strategy multiple times and secure a new rental property each year if he wished.
That said, leveraging yourself to the hilt is a risky strategy. While real estate tends to be somewhat stable, cryptocurrencies are known for sudden swings. If Bitcoin were to drop substantially even temporarily, NEXO would require him to provide additional collateral or make payments to bring his loan to value down to remain in line with the market. Failure to provide additional collateral or make a payment would force NEXO to liquidate the required amount of collateral. Even on the real estate side, having 9 mortgages can quickly get ahead of you if multiple tenants are unable to pay rent. I would not recommend this strategy for anyone that doesn't have substantial reserves they plan to remain untouched. Using leverage to get additional leverage could easily domino against you if the markets turn.
NEXO is a really interesting project to me, as it disrupts all of the traditional lending models I'm familiar with. They don't require any credit checks, or minimum account balances before they offer you the ability to lend yourself money using your crypto. Most collateralized loans in the non-digital space are much more restrictive. They're even working on a NEXO card that would allow you tap into your crypto at any point and use it like a debit or credit card. You do want to make sure to buy the NEXO tokens in order to get the best rates for both the interest paid to you and the interest you pay on any loans. They're a bit difficult/expensive to snag if you're in the US but the tokens themselves are having a pretty solid run themselves this year so they make a good addition to your portfolio as well as giving you the previously mentioned rate perks.
If you found this helpful or interesting, I'll be showcasing these various strategies as well in my upcoming blogs:
- how to get a mortgage with zero income if you have significant cryptocurrency
- how to minimize your tax liabilities when it comes to real estate and cryptocurrency
Thanks for reading!
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