Cryptocurrency is wildly popular now and it is beginning to hit the real estate market. In many nations, cryptos can be used to buy real estate, even if there are a few extra steps that need to be taken.
In August 2014, the first-ever US crypto real estate deal was proposed by a secret buyer, who contacted a Martis Camp realty branch in California, requesting to purchase land with 2,739 Bitcoin.
Later, a couple of transactions took place secretly too. For example, prior to 2018, a villa was purchased in Bali for 800 Bitcoin, and a house in Missouri was sold at the approximately same level.
In September 2017 was the first public crypto real estate transaction conducted successfully. The seller accepted the Bitcoin payment and converted it into USD. However, the price was never revealed.
While the USA has lagged behind in crypto regulations, you can buy real estate in the USA with Bitcoin, and other major tokens. The process may not be as easy as a cash transaction, but real estate deals are never simple.
As long as both parties agree with the contract and payment, with additional support from legal specialists, a real estate deal using crypto can be completed.
There are two separate ways in which people can proceed a property transaction in Bitcoin or other tokens. In some cases, there are specialists that can help with crypto-based real estate transactions, and in others, you will have to do all the legwork yourself.
Here are two of the most popular ways to buy real estate with cryptos in the USA.
1. A Crypto Real Estate Transaction
A house or land can be purchased completely in crypto as long as the buyer and the seller are on the same page, without any participation of a bank or payment service.
In an all crypto transaction, both sides need to have a wallet that is able to send and receive digital coins. That is very simple to do, and should be an easy part of the process.
It is also important to consider the volatility of the crypto markets, and work out a way to deal with this aspect of making a major purchase with tokens. Futures can be used to hedge a position, or the two parties could agree to deal in a fixed amount of tokens.
KYC/AML and Taxes
When making a real estate transaction in cryptos, there is no real need to deal with KYC/AML. As there is no intermediary between the two parties, there is no way for the transaction to be blocked.
Any good title company will be able to establish the legal ownership of the property that is being sold, so the idea that the transaction will be somehow astronomy is out of the question.
For a seller, it is a good idea to consult an attorney if the buyer wants to do business via a Power-of-Attorney, or some other way that hides the true identity of the source of funds.
Both parties will also want to consult a tax professional, as real estate transactions are subject to federal, state and local taxation in some cases.
For example, according to the IRS, in a house sale paid for Bitcoin, not only does the seller need to pay the income tax, but the buyer also has to conform to the same regulations when exchanging their coins into another form of property.
Be sure to take taxation issues into account when making an all crypto real estate transaction, as these kinds of deals aren’t the same as dealing with cash.
The Escrow Question
In normal property sales, some percentage of the total price paid by the buyer will be held in escrow as down payment. The title company or the attorney will manage this escrow and hand over it to the seller after the sale is finalized.
The question in a crypto-based real estate transaction is, how to handle this aspect of the sale, knowing that the value of a token can fluctuate?
Whoever the escrow agent is has to invest in a crypto storage system, and fulfill any other requirements of an escrow agent under local law.
Again, the transaction could be priced in crypto, which eliminates the risk of price variability, but the custodial issues still remain. Be sure to check with a real estate lawyer about this in the area you want to deal in, as it could be a roadblock to making an all crypto real estate transaction.
At present, there are several websites promoting all crypto home listings like AlgoCap or BitHome, and these companies may be worth a look. There also may be other companies out there that do similar things for crypto holders that want to buy real estate, so don’t be in a hurry to make a deal.
2. Crypto-to-Fiat Real Estate Transaction
A more traditional crypto-related real estate transaction type is the crypto-to-fiat transaction, which removes many of the hurdles of the all crypto real estate deal.
Because the seller will ask the buyer to convert his/her crypto into a fiat currency, like US dollars, and deposit it in a bank account, this is very similar to any other real estate transaction out there today.
After the fiat currency is in a bank account, the payment will be proceeded in USD and the seller can have fiat currency in hand to handle the down payment, insurance fees and taxes.
There is no risk of token price volatility with this structure, and aside from swapping crypto for fiat at the outset of the transaction, this method of buying real estate with crypto is the same as a normal transaction.
One big benefit of this structure is that all tax liability is covered when the crypto is swapped for fiat, so the rest of the transaction will be totally normal from a taxation perspective.
Lots of Ways to Use Cryptos
If you are in the USA or Western Europe, it should be pretty easy to buy real estate with your stash of cryptocurrency. Most major crypto exchanges will allow you to cash out your holdings to fiat, which means you can buy just about anything, real estate included!