Crypto has become a household name ever since the meteoric rise of Bitcoin in 2017. It has permeated various industries, from stocks to cars to tech. Now, buying products and services with cryptocurrency is no longer a niche trend; it has gone mainstream. This begs the question: Can you buy a house with cryptocurrency?
Surprisingly, the answer is yes. The concept of purchasing real estate with cryptocurrency is innovative and exciting. Let's delve into the world of crypto and real estate to understand how these two seemingly unrelated fields intersect.
The History of Cryptocurrency and Real Estate
Only a year after Bitcoin gained popularity, the first-ever crypto real estate transaction took place in the United States. A Vermont homeowner sold her property using Ethereum blockchain technology on the Propy real estate platform. Propy is a tech startup that advocates for "self-driving" real estate transactions.
Since then, there have been numerous real estate transactions involving cryptocurrencies such as Bitcoin, Ethereum, Litecoin, and even meme currency Dogecoin. The integration of crypto into real estate has opened up new avenues for homebuyers and sellers alike.
Why Are People Using Crypto in Real Estate Transactions?
When you purchase a home with cryptocurrency, you enjoy several benefits. These include discounted prices, faster transactions, and increased stability, facilitated by avoiding loans or traditional cash transactions.
- Discounted prices: Since crypto transactions require fewer intermediaries, many sellers offer discounted prices to buyers who pay with cryptocurrency.
- Faster transactions: Buying real estate with crypto often involves smart contracts and fewer mortgage requirements, resulting in a quicker financial process.
Furthermore, buying a house with crypto provides investing liquidity, easier international transfers, and the satisfaction of being at the forefront of a new trend. However, there are potential obstacles to consider:
- Instability: Cryptocurrency prices are known to fluctuate wildly. This means that the value of your cryptocurrency could change significantly between the time you make an offer on a house and the closing date.
- Finding a seller: The world of cryptocurrency still seems unfamiliar to many people. As a result, it can be challenging to find sellers willing to accept crypto in exchange for their property. Additionally, blockchain real estate transactions are harder to trace, which further adds to the hesitancy of some sellers.
If You Buy a Property With Cryptocurrency, Do You Pay Taxes?
If your crypto real estate transaction is conducted using U.S. dollars as the reference, you can expect to pay typical conversion fees and capital gains taxes upon cashing out. Currently, the IRS classifies cryptocurrency as "property." Therefore, if you use it to buy real estate, you are responsible for paying taxes on any realized value.
However, when conducting wallet-to-wallet transfers, you can avoid property transfer taxes. It's important to seek legal counsel to ensure you navigate the financial implications properly.
How to Buy a House With Bitcoin or Other Cryptocurrencies
Here are a few ways you can purchase a home using cryptocurrency:
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Use crypto as a down payment: Apply your hard-mined crypto assets to the down payment of your new home. Some crypto lenders offer loans backed by cryptocurrency at lower interest rates than traditional lenders. This eliminates the need to cash out your crypto wallet and avoids taxable events. Ensure you compare different lenders for the best rates.
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Buy property directly with cryptocurrency: If you find a seller willing to accept Bitcoin or other cryptocurrencies, you can complete the transaction peer-to-peer without intermediaries. However, traditional escrow processes and legal paperwork are still necessary. Note that real estate agents may prefer receiving commissions in traditional currency.
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Pay your mortgage with cryptocurrency: United Wholesale Mortgage made headlines in 2021 as the first mortgage company to accept cryptocurrency for mortgage payments. Currently, they accept Bitcoin and Ethereum, with more cryptocurrencies expected to be added in the future.
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Use smart contracts: If you have tokenized assets (NFTs), you can trade them for real estate. Alternatively, sellers can tokenize their properties and add them to the blockchain as a "smart contract."
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Convert crypto into cash: If the seller is unwilling to accept cryptocurrency, you can always cash out your crypto and pay in traditional currency.
Final Thoughts
As cryptocurrency continues to integrate into traditional transactions, it will become increasingly normalized in the real estate industry. For first-time homebuyers, conventional financing may still be the safest option. However, for confident crypto investors, the potential for combining real estate and cryptocurrency investments is just beginning.
Whether you choose to buy a home with crypto or opt for traditional methods, it's crucial to protect your investment. Consider purchasing a home warranty from American Home Shield® to safeguard your home systems and appliances against normal wear and tear.
Recommended reading: The Best Places to Buy a House
