There’s a new way to invest in real estate — cryptocurrency. Some forward-thinking investors have already used the digital currencies, the most famous of which is bitcoin, to buy real estate. Blockchain — the secure, distributed ledger that permanently records crypto transactions — is the underlying technology that enables cryptocurrencies, and it’s playing a growing role in the industry as well.
If you’re a real estate agent with clients who also invest in real estate, you may start getting questions about this trend.
Below are six of the investor queries you may receive about cryptocurrency and the information you need to answer them.
1. Has anyone invested in real estate with cryptocurrency?
It’s still rare, but yes, people have used cryptocurrency to make real estate purchases. Many of these transactions use a service called BitPay, which converts bitcoin to U.S. dollars. More recently, we’ve started to see sales that only use cryptocurrency.
Here are a few real-world examples of bitcoin used in real estate:
- A New York City property developer recently finalized two condo sales paid for with bitcoin. Those transactions occurred with the help of a third-party company that accepts the cryptocurrency payment and converts it to cash.
- Property sales in the U.K. happened via bitcoin, too. In those cases, the buyers secured their homes without putting forth deposits. Then, purchasers and their estate agents benefit from faster-than-average transactions.
- Miami is another popular market for cryptocurrency home transactions. Many of the for-sale advertisements in that city specifically mention bitcoin as an accepted form of payment.
- There are also dedicated property search websites for people with the desire to pay for their abodes with cryptocurrency. Those let users search for property on the market around the world, regardless of if they want to live in Texas or the French Alps.
2. Is real estate investing with cryptocurrency legal?
Yes, cryptocurrency transactions are as legal as those that use other currencies and are subject to many of the same rules.
Because the technology is so new, there’s a lack of regulation surrounding the coins that has left some feeling hesitant. Crypto is subject to taxes, including capital tax gains, so make sure you follow all tax-related rules.
3. Are there benefits to using cryptocurrency?
For sellers, advertising that you will accept cryptocurrency will likely lead to some free press and good buzz. The currency might also increase in value, earning you extra profit down the road.
For buyers, cryptocurrencies may be a convenient way to pay if they have the currency and the seller is willing to accept it. If a buyer forecasts a depreciation in the value of a coin, much like stock, getting out by trading it for real estate could be a smart move.
Along that same vein, though, it’s also worth noting that cryptocurrency investments likely won’t be as stable as an investment made through a real estate investment trust (REIT), which often have track records that you can verify before investing.
The cryptocurrency market can fluctuate wildly, and what seems like a good investment one day could turn on your client the next.
4. Are there risks associated with using cryptocurrency?
For sellers, accepting crypto can also come with risks and challenges. These currency can be volatile, so timing is essential. Some have also warned of potential crypto market crashes. The transaction could also be trickier legally.
Buyers should be careful of tax implications when making purchases with crypto due to the capital gains and net investment tax involved. They could also potentially miss out on returns if the currency they trade away goes up in value.
5. How can you invest in real estate using cryptocurrency?
There are various options related to real estate investing and cryptocurrency. Some of these possibilities are still in their infancy, but they all hold promise for the real estate sector.
The most straightforward option is a purely cryptocurrency-based transaction. These are still rare, but it’s possible to do business in this way. Another option is using a service like BitPay to convert cryptocurrency into U.S. dollars or another currency.
Various crypto entrepreneurs have launched currency companies for real estate. When you buy their tokens, you are essentially buying portions of properties. Because of these smaller purchases, these coins could enable more people to get involved in real estate investing. It’s also more efficient than other means of buying shares of property.
You can also now obtain loans backed by cryptocurrency through companies like Unchained Capital. Many of these loans, according to the company, are used to buy second homes.
6. What’s next for real estate investing and cryptocurrency?
This question is a bit harder to answer than the others — the real estate market is unpredictable enough on its own. Add in the uncertainty surrounding cryptocurrency, and the future is even harder to make out.
Cryptocurrency does, however, offer some potentially exciting new opportunities for real estate investors.
By all means, encourage your investor clients to look into the possibilities, but make sure they’re comfortable with the risks before getting involved.