You’re not the only one who is thinking about buying a house with Bitcoin, Ethereum, Dogecoin, Litecoin, or another type of cryptocurrency. Although it’s getting more widespread, there are some difficulties to be aware of, and some transactions may become challenging due to the market’s volatility.
Brock Pierce, a former child actor who is now a businessman and the director of the Bitcoin Foundation, is said to be the first individual to utilize cryptocurrency to purchase a home. In 2019, he used $1.2 million worth of Bitcoin as collateral to acquire a loan for a building in Amsterdam.
Although Pierce is a “Bitcoin billionaire,” anyone can invest their bitcoin in real estate. This is how (and some pitfalls to watch out for).
How can I purchase a house with cryptocurrency?
A few options exist for purchasing a home using cryptocurrency.
Exchange cryptocurrencies for cash
Selling your cryptocurrency holdings for fiat money (dollars) through a service like BitPay, then utilizing that money to buy a home, is one of the simplest methods to use your cryptocurrency nest egg to do so. However, bear in mind that it will take at least two months for the fiat money to be regarded an asset that may be utilized to buy a home, and that an IRS audit may result from a deposit that size. Consult your financial advisor or tax attorney if you have any questions about whether the money you earn from selling cryptocurrencies will be subject to capital gains tax.
Obtain a loan with cryptocurrencies
With the help of businesses like Nexo, you are able to utilize your bitcoin as security to obtain a loan in fiat currency, which you may then use to purchase real estate. However, you’ll discover higher interest rates (8 percent or more) than you would with a traditional mortgage, and once more, you can run into problems with the IRS flagging your account when a sizable sum of money enters. On the plus side, your bitcoin will stay in your account and its value can continue to follow market trends if you choose to utilize it as a long-term investment.
Send the vendor your cryptocurrency directly.
Finding a seller who will accept cryptocurrencies as payment for a home can be difficult, but more and more vendors are becoming open to the notion. In reality, some sellers are looking to purchase cryptocurrencies like Bitcoin, Ethereum, and others. In certain circumstances, using cryptocurrency in your offer might help it stand out from the competition.
What advantages do cryptocurrency house purchases have?
Here are a few benefits to think about when buying a house with bitcoin, while the pros and cons may vary based on the option you pick:
You will change one less stable asset into one that is more stable. Cryptocurrency prices can change dramatically from one month to the next, week to the next, and even from one day to the next. On the other hand, real estate is more likely to increase in value and decrease in value over time.
Direct cryptocurrency transfers can go considerably more quickly than conventional real estate transactions. A direct bitcoin sale between two parties avoids the trouble and paperwork involved in a conventional mortgage-funded property sale, just like with a cash transaction.
The price may be better. If an offer is made in cryptocurrency, a seller who prefers to bolster their bitcoin holdings can accept a lower price. You might offer less than you would with a cash offer or one backed by a mortgage.
What drawbacks exist with using cryptocurrencies to purchase a home?
Even though it may be alluring, Bitcoin is still somewhat of an enigma in the real estate sector. Watch out for these issues when thinking about using cryptocurrencies to purchase a home:
Not all merchants take cryptocurrencies. Although confidence in Bitcoin, Ethereum, and their rivals is rising, few real estate sellers are willing to go all-in and accept cryptocurrencies as payment for a real estate transaction, which may restrict your possibilities for homes to buy.
Capital gains taxes can apply to cryptocurrency exchanges. Cryptocurrencies are viewed by the IRS as a form of property, which must be sold in order for you to realize its value in US dollars. To learn how utilizing cryptocurrencies to purchase a home may effect your tax liability, be sure to speak with a tax expert.
In a cryptocurrency transaction, you might not have as many legal protections. Security and anonymity are two of cryptocurrencies’ key benefits for users. However, that makes transactions hard to track, which means that if something goes wrong, you can find yourself in a tricky legal scenario. To learn how you defend yourself, make sure to speak with an attorney.
Money obtained from cryptocurrencies might not be accepted as a down payment by mortgage lenders. Again, because cryptocurrency is anonymous, there is no paper trail that lenders can use to detect a sudden windfall of money in your account when it is sold and converted to cash. As a result, they can be hesitant to grant your loan in the absence of verification of funds.
Cryptocurrency prices are continuously fluctuating. Imagine making an offer of four Bitcoin for a house, getting it accepted, and then witnessing the price of Bitcoin increase by twofold just prior to the contract being signed. Need we say more?
