for real estate where the cryptocurrency was sold (rough- ly at closing) and the cash was used to purchase real estate. If your cryptocurrency can be easily liquidated this works. But, c’mon. This is cheating. You can buy any real estate for cash. I want to talk about actually trading the cryptocurrency for all or part of the real estate. The first task is finding a seller willing to accept cryptocurrency as payment. This is easier if you have Bitcoin or Ethereum, but, perhaps surprisingly, the most real estate transactions directly for cryptocur- rency have been done with the Troptions tokens. I am personally aware of eight hotels, a $4 million land transaction, and several other real estate transactions done with Troptions. All the Bitcoin transactions that I have seen have been done by liquidating for cash first. One place to find real estate for sale for cryptocur- rency is at Propy.com. Propy allows you to list your property and decide which of quite a lengthy list of crypto and fiat you would accept. As an exercise, you can search for my listing for development land in Mary- land on Propy. There are also brokers who specialize in cryptocurrency for real estate. Feel free to contact me for recommendations. Once you have a willing seller there are still a num- ber of issues to discuss. Since cryptocurrency values are volatile, you need to figure out how and when to value the cryptocurrency. In one transaction I was involved in, the currency was offered at a value set at the time of the offer (and it was 35 times the price by closing). In another we agreed that the volatility risk would be mine (the buyer’s) until closing and the sell- er’s afterwards. There are also logistic issues to be worked out. In my case, the title company would not hold the crypto- currency as escrow or deposit. Since that time there have emerged several companies willing to hold crypto in escrow. One of the most prominent is Prime Trust. Having a third party hold the cryptocurrency in escrow is a much more professional approach, especially for a large transaction. A couple of years ago obtaining title insurance for a transaction was impossible when the transaction involved cryptocurrency. (We had to get title insurance the day after closing). Now there are title companies that will write title insurance in a crypt-RE transaction, and there will undoubtedly be more as these transactions become more common. The actual closing process requires some work. Since sending cryptocurrency is not a process that can
be rescinded (that whole immutability thing), you must have all your ducks in a row before that occurs. In our case we had the seller sign the title, which was held by the escrow agent. We then sent the cryptocurrency and confirmed receipt in our respective wallets. Then the title company recorded the title. It’s not that hard (or that different from a normal closing). It just requires some thought. A couple of cautions about these transactions: First, lenders have real issues with crediting cryptocurren- cy as the down payment. It makes no sense since the cryptocurrency goes to the seller, and it’s up to the seller to value the down payment. Cryptocurrency should be treated like any other asset (like other real estate) used for the down payment. But banks are unlikely to make a loan if your down payment is crypto- currency. Private lenders take note! Here is a niche for you to make a lot of money. Second, don’t forget to figure into your analysis that you may owe capital gains tax on the increased value in your cryptocurrency when you exchange it for real estate. One approach to smoothing out those gains is to give the seller a note secured by the cryptocurrency and paid by the cryptocurrency over some time. You should rely on your own accountant’s advice, but you may be able to treat the cryptocurrency portion as an installment sale and spread the capital gains out over the length of the note. Your seller may find that this approach helps with capital gains exposure as well. There are some real potential advantages of buying real estate with cryptocurrency. It is very easy to move the funds around. As someone who just spent four days trying to get a wire from one bank to another, I can appreciate the relative ease of moving cryptocurrency — even internationally. Of course, you should ensure you are compliant with Know Your Customer (KYC) and anti-money laundering (AML) requirements, but these are easily taken care of by many of the current crypto- currency exchanges. •
Buying Real Estate with Cryptocurrency
HOW CAN THIS “NEW MONEY” WORK FOR YOU?
by Steve Streetman
Steve Streetman, president of StreetSmart Investments, LLC, a commercial real estate investing company, is an avid cryptocurrency investor and has worked in cryptography and high-end computer mod- eling for over 30 years. He teaches commercial real estate investment courses and is a real estate agent with RealInvestors Real Estate Services. His book “Cryptocurrency and Real Estate: How Bitcoin and BlockchainWill Transform Real Estate Investing” is anticipated to release in fall 2019.
ryptocurrencies have been up, and they have been down. As I write this, Bitcoin has just
and true — like real estate. Cryptocurrency is a currency, right? It’s part of its name. So why not buy some real estate with the crypto- currency? It is possible but there are some surprising challenges you may run into. I have seen transactions described as cryptocurrency
dropped below $8,000 (though it is double its price from earlier this year). If you have done well in crypto- currency, perhaps you want to diversify into something else or lock in your gains by moving to something tried
56 | think realty housing news report :: august / september 2019
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