For years, Bitcoin, Litecoin, and other cryptocurrencies have been a hot topic in finance, but it wasn’t until recently that they came into the spotlight in the real estate industry. Already several properties, including luxury and commercial properties, have been purchased using cryptocurrency. A Miami seller made a splash last year when they stated they would only accept Bitcoin for their property, valued at over half a million dollars (it sold for 33 bitcoin).
Young buyers who have profited from cryptocurrency are increasingly looking to diversify their holdings into real estate, and modern sellers know that they need to keep their options open. As buying property with cryptocurrency becomes more common, both buyers and sellers will be subject to the implications, including pros and cons.
Buyer Pros and Cons:
- Diversification. Smart investors know to never put their eggs in one basket, and those who have profited from cryptocurrency may look to real estate – generally considered one of the safest investments – to diversify their portfolio.
- Profit. Investors who have made money from cryptocurrency may wish to lock in their profits, opting out of the volatility of the crypto market. Investing in commercial real estate can be an excellent way to lock in profits through purchase of an appreciating asset.
- Negotiating power. Like cash buyers, crypto investors who make are prepared to make a full offer will have an edge in competitive markets. Increasingly, more and more ads state the seller is “accepting bitcoin.”
- Limited availability. The number of sellers accepting crypto is still relatively small, although crypto transactions are on the rise.
- Opportunity cost. By cashing in their crypto coins for real estate, buyers could miss out on future appreciation of the coin.
- Complicated tax situation. Because it is unregulated, dealing in cryptocurrency can be a tax headache. Trading, exchanging, or spending crypto is generally subject to capital gains tax. To avoid a visit from the IRS, those looking to exchange crypto for real estate should consult an experienced CPA who understands the nuances of cryptocurrency trading.
Seller Pros and Cons:
- Appreciation: If the history of cryptocurrency has taught us anything, it’s that the market is subject to unprecedented growth. Sellers with a high risk tolerance will likely enjoy the profits from future crypto appreciation.
- Audience: Listings that include a caveat for “accepting bitcoin” draw attention, as evidenced by viral posts from earlier this year. Bitcoin enthusiasts generate hype around sellers accepting bitcoin, opening up a new market of tech-savvy buyers.
- Depreciation – The crypto market is extremely volatile, and selling at the wrong time could limit profits, or worse, lead to a big loss.
- Learning curve – For the uninitiated, Bitcoin and other cryptocurrencies present a technological challenge. They must be stored in a “wallet” or virtual exchange. Many online exchange services let users create an account and manage their crypto for free, but be warned that accounts are susceptible to hackers. Always take precautions to ensure security.
- Complicated tax situation. Again, Bitcoin and other cryptos present challenging tax implications for both the seller and buyer. Make sure to consult an experienced CPA who is familiar with cryptocurrency.
Cryptocurrency is positioned to become a major disruptor in the commercial real estate industry. The inherent security and transparency of blockchain technology makes it suitable for mortgage, title, and real estate transactions. Cryptocurrencies are already influencing the way people buy and sell property, with more sellers accepting bitcoin and more buyers ready to cash in. Of course, using crypto as payment comes with pros and cons, so make sure to do your research before investing. For more information on how Cryptocurrency relates to the real estate industry check out this article.
So what do you think? Would you ever buy or sell real estate with bitcoin?