Crypto Investors Are Now Using Their Digital Wealth To Purchase Real Estate
Savvy crypto investors are now becoming proactive about preserving and growing their wealth in the long term. A lot of them are achieving this by converting their digital assets into real-world assets—real estate properties. As a result, they’ve merged the two industries and created a new norm.
As more and more developers, sellers, and banks accept crypto as payment, real estate properties are fast becoming a savvy way for crypto investors to stabilize their upsides.
Consumer Doubts About Crypto Investing and How These Doubts Are Slowly Dissipating
A lot of people don’t understand the way cryptocurrency works, and even what it is in the first place. So, it makes sense that many of them are reluctant to make a long-term purchase with digital currency that’s reliant on a bunch of servers, zeroes, and ones.
Plus, investing in real estate comes with risks of its own. Why compound that risk with a notoriously volatile digital currency they don’t really understand in the first place?
These are legitimate doubts and questions, which have given many investors pause as they consider investing in real estate with the wealth they’ve accrued from crypto investments.
Yet, in places like Miami, cryptocurrency real estate investing is taking off. And it will only be a matter of time before it starts to spill over into other hot real estate markets in tech-centric cities like New York, San Francisco, Austin, and Los Angeles.
Crypto-Savvy Investors Are Transforming Miami Real Estate
People who have become millionaires (or billionaires) from investing in cryptocurrency are purchasing luxury real estate properties.
Similarly, real estate developers and agents are looking to adopt new ways to accept crypto. From agents luring crypto enthusiasts to their high-end listings with NFT art parties to brokerages hosting crypto seminars for their agents, the real estate industry is beginning to adopt and adapt cryptocurrency as a key part of real estate transactions.
Sellers are getting in on the action, too. Many sellers are making it clear through advertisements that they’re willing to accept cryptocurrency in exchange for their homes. According to Wall Street Journal, all of these tactics have led to many large crypto deals over the past year. This includes the $133 million purchase of a mansion in Bel-Air by the Coinbase co-founder Brian Armstrong.
Additionally, real estate developers in Miami, such as Cipriani Residences Miami, are looking for solutions that work for their business of selling luxury real estate properties, while at the same time offering a seamless crypto buying experience.
And they’ve been able to achieve that with the crypto trading platform FTX. Through its online exchange, the platform can convert cryptocurrencies like Bitcoin and Ethereum into U.S. dollars. This gives crypto buyers the ability to put a pre-construction deposit down on a condominium in Miami.
Whatever crypto asset(s) they own, they can send it from their digital wallet to a traditional escrow account in the equivalent U.S. dollar amount with the tap of a button, in an instant. So, if someone is purchasing a real estate property in $15 million worth of crypto, it will be converted into $15 million in U.S. dollars at the time of the transaction, in real time.
Property Markets Group (PMG) is another real estate development firm that has jumped on the crypto train. In fact, PMG became the first developer to partner with FTX, and began accepting crypto for deposits at their new E11EVEN Residences and Waldor Astoria Residences.
This has equated to crypto deposits for more than 75 condos in both buildings, which all total to over eight figures in pre-sales financing. Since then, PMG has announced that it’s not only accepting cryptocurrency as a form of payment for all pre-sales condos, but also for for-sale condos in all of their real estate developments.
But FTX isn’t the only platform that converts cryptocurrency into fiat money. Crypto real estate buyers can also use websites like Coinify or Bitpay before closing a sale.
No matter which solution crypto buyers use to convert their digital currency, the sheer number of choices they have illustrates just how popular crypto is becoming, even in an industry of tangible assets, such as real estate.
And real estate developers who are accepting crypto as payments for properties are sending a message to everyone in the industry that digital currencies are real estate’s future, and not a fad. Not only are other firms in the industry taking heed, but also many crypto investors who have been longing for crypto-based real estate transactions.
High-Profile Crypto Investors Are Converting Their Digital Assets into Real Estate
Hank Wu, a highschooler who often accompanied his parents to scout investment properties, found an opportunity that was more exciting and with the potential to be a lot more profitable—cryptocurrency. He has since made millions off of Bitcoin and other digital currencies like Tether.
Since becoming wealthy off digital assets, he’s been investing his earnings into real estate. For example, in 2018, Wu purchased seven rental units in West Palm Beach. During the pandemic, he also bought a one-bedroom unit at Madison House—a project under construction in Manhattan—for $1.8 million in cash. In 2021, he closed on another real estate property—yet another condo in Manhattan.
Wu realized that real estate was a more stable and tangible asset class. The young investor, along with other crypto millionaires, is looking for ways to balance their portfolio and protect their net worth from the volatility of cryptocurrency. Many are looking to assets with cash flows that are more predictable, such as multifamily units.
Developer for Ethereum, Lane Rettig, is another high-profile investor expanding into real estate. He bought a 1,500 square foot condo on Central Park North in New York, NY for $3.5 million to diversify his assets.
He and his wife made the down payments in cash because Mr. Retting wanted to keep his Bitcoin. The couple’s loan officer was willing to accept the terms of the transaction after seeing evidence of their income and Mr. Rettig’s crypto assets.
Another crypto influencer who goes by the name “gainzy” on Twitter (refuses to disclose his real name) wanted to escape pandemic restrictions and cold weather in Wisconsin, according to Fortune. So, he bought two Miami condos with cash in 2021 because stocks and crypto were booming at the time.
Instead of actually selling their crypto to buy property, many buyers use their assets as collateral for loans. Then, they can use the loans to buy real estate properties.
How Are Crypto-Based Real Estate Transactions Taking Place?
Some individual sellers are accepting crypto as payment, although rare. That’s because there are companies out there that offer crypto-backed mortgages to people with significant crypto assets who don’t want to incur a significant tax burden for selling at a profit or miss out on potential future earnings.
Unchained Capital, a company based in Austin, Texas, is one of few companies that’s allowing crypto buyers to use their digital assets as collateral for securing a loan to purchase a real estate property. Unchained gives cryptocurrency owners the ability to purchase up to $1 million, being able to secure interest rates between 10% and 14%.
So, when it comes to collateralizing crypto holdings, buyers have multiple options. For example, buyers have the option to use their crypto holdings for 100% of the requested financing price.
So, this would mean that the buyer would need to have $1 million of crypto as collateral for a $1 million mortgage loan. And if this isn’t feasible, crypto investors can choose to borrow against their crypto asset to make a down payment. Then, they’d finance the rest of the mortgage using U.S. dollars or other fiat currency.
But what about sellers who are willing to accept crypto as payment? Those that do often choose to transfer the digital currency to U.S. dollars. They might also give buyers the option to transfer their crypto directly to them without exchanging it for cash.
This would be done through a wallet-to-wallet transaction for a real estate property, where its value could halve or double overnight. And if a seller doesn’t offer this option, a buyer can also sell their crypto to a third party for U.S. dollars. Then, they could use this money to purchase a property of choice.
No matter which method of conversion a crypto buyer chooses, just the fact that there are many methods out there gives investors a great opportunity to convert their crypto into tangible assets like real estate properties. Therefore, investing in real estate is becoming a more accessible option for people who have digital wealth.
And even though it’s rare for a seller to accept crypto as payment doesn’t mean it doesn’t happen at all. For example, the developers of a penthouse at Arte, a Miami condo building, recently sold the penthouse at the building for $22.5 million to a crypto buyer.
Another example is the One Thousand Museum recently closing a deal in cryptocurrency, with the seller immediately converting ether amounting to $7.2 million into U.S. dollars.
But regular home sellers aren’t as eager to hand over their homes in exchange for digital assets. This is because accepting this form of payment can be intimidating.
Yet. many are seeing crypto payments as a great opportunity to build wealth. And some are recognizing that crypto payments are faster and more efficient than traditional deals. This is evident through the many homes that are being sold to buyers who use crypto as a down payment.
Why Is Real Estate an Attractive Way to Diversify for Crypto Investors?
Real estate is one of the best asset classes to invest in because it works well with inflation. That’s because as inflation rises, property values rise as well.
The amount a landlord charges for rent also rises with inflation. And the more a landlord charges, the higher their earning potential will be over time. Therefore, when a crypto investor buys an investment property, they can protect their wealth by keeping pace with the rise of inflation.
This is why many crypto investors who have made a fortune from digital assets are turning to real estate as a way to hedge their investment portfolio against inflation. Plus interest rates are historically low, which makes investing in real estate an even more attractive option for the crypto wealthy.
Real estate property represents a cash flow-producing asset, allowing investors to enjoy an ongoing income, which they can use to invest in crypto. At the same time, they’ll also have the security of an asset class that’s a lot less volatile.
With all these benefits in mind, it makes sense that many people who have gained significant earnings from digital currency are selling some of their crypto or using it as collateral to buy a house.
Tax Implications for Buying Real Estate With Crypto
When it comes to learning how to buy real estate with crypto, investors must think about potential risks. Even with the many benefits offered to wealthy crypto investors diversifying their portfolios with real estate, there’s one potential downside to consider, and that’s tax implications.
A recent tax law that took effect on January 1, 2018, stipulates that any investor who trades cryptocurrency would be subject to a capital gains tax. That’s because the IRS now recognizes Bitcoin, Ethereum, and other cryptocurrencies as property.
This means that buyers would be responsible for capital gains tax as well as net investment tax on the amount their crypto coins increased in value ince they first acquired them. In other words, investors will owe taxes on the increase in value of their crypto from when they first bought it.
Therefore, any time an individual sells a cryptocurrency or trades it for another form of property—like real estate—they’re incurring a taxable event.
To avoid tax implications that come with buying properties with crypto, buyers can pay for a property with a loan secured by collateral from crypto assets. Many new startups are capitalizing on this by offering cryptocurrency owners loans backed by their digital assets.
But this leads to another potential concern for crypto investors looking to purchase real estate should pay attention to. For example, they must think about what happens if the value of crypto collateral drops below a pre-determined level.
If this happens, will the borrower be able to make additional collateral deposits or will the crypto be liquidated? Because crypto can be relatively volatile, buyers and sellers alike must think about certain risks involved with buying properties using crypto.
Custody matters are another key consideration. This might concern:
- What entity has custody over the crypto assets being used as collateral
- Where the custodian is located
- What measures will the custodian take to safeguard customer assets
- Whether specific crypto-related insurance policies are in place at the organization
Integrating blockchain technology into crypto-based real estate transactions can alleviate concerns over provenance and custody. Transactions can be completed using non-fungible tokens (NFTs) and non-fungible contracts (NFCs). This is because NFTs are similar to a deed, but the difference is, that their authenticity can’t be replicated, and they can be stored on the blockchain.
The blockchain offers a more secure way to store information, where transactions are recorded with an immutable cryptographic signature. Immutable means unchangeable. Therefore, every transaction—including real estate sales—that’s stored on the blockchain, stays on the blockchain, no matter what.
Taking a more digital approach to real estate transactions can also eliminate the many fees that come with documents, inspections, title searches, and signatures. This can make for faster, more efficient transactions, with the added benefit of saving on typical closing costs.
Real Estate and Cryptocurrency: What Does the Future Hold?
There’s plenty of evidence out there that shows crypto is really making a noticeable dent in the real estate market. While there are still many people who don’t invest in cryptocurrency or even know about it, we can see that there are plenty who do. And as more and more people are using cryptocurrency to invest in real estate, more banks will start to notice and more will eventually allow it.
Real estate is one of those industries that hasn’t really changed much over the years. People are still signing contracts the same way they did in times past. Even with e-signing options, it’s still essentially the same process. There’s limited protection and security when it comes to record-keeping and signing contracts.
But when you bring in non-fungible tokens and non-fungible contracts where everything is recorded in the blockchain, there’s more security.
As a result, sellers and agents feel more comfortable transacting a multi-million dollar purchase. This option will become more and more mainstream as banks adapt and adopt crypto as a viable purchasing tool and solution. The day this happens may come sooner than you think.
Sources:
https://www.wsj.com/story/crypto-millionaires-invest-in-real-estate-6e97184f
https://unchained.com/blog/ultimate-guide-bitcoin-loans/