Buying Property With Crypto? Here’s What You Need to Know

Cryptocurrencies such as Bitcoin have become an established part of the financial landscape over the last decade. It is a payment method that is now routinely used across a range of different transactions, and this is expected to grow in line with wider acceptance of paying with a digital currency.

If you are going to be getting in touch with the best realtors in Arlington VA about buying a property, one of the questions you may be asking is whether it is possible to complete the purchase with crypto.

The fact that you are even asking that question confirms how crypto has dramatically evolved from being perceived as a bit of a novelty amongst its peers, to being seen as a legitimate form of currency.

It is now accepted as a method of payment across a wide range of industries, including real estate. That means, despite thinking that buying a property with crypto might have been perceived as unrealistic or simply not feasible, only a short time ago, this payment method is now very much a viable option.

Naturally enough, there are some key issues and pros and cons that you need to think about before you leverage your cryptocurrency into a tangible asset such as property.

With that in mind, let’s delve into the world of cryptocurrencies and take a look at what you need to know if you are thinking about using this method to buy a property.

Understanding crypto

A good starting point would be to have a clear understanding of cryptocurrencies, how they work, and the main pros and cons to think about when using this method for investment purposes.

In simple terms, a cryptocurrency is a digital or virtual currency that is made secure using a method known as cryptography. This security method is designed to ensure that it is considered to be virtually impossible to double-spend or counterfeit this currency.

It is a digital asset that is supported by a blockchain network that is distributed across a plethora of large computers. Although this decentralized structure operates outside of the control of central authorities and governments, these agencies and authorities, including the SEC, routinely regulate cryptocurrency. This means that laws and regulations are in place to provide a level of protection and regulation that is meant to benefit all parties.

The fundamental advantage of cryptocurrency is that it facilitates faster and more cost-effective money transfers. A significant disadvantage is that cryptocurrencies are subject to more extreme price volatility than traditional currencies.

The general consensus appears to be that the pros outweigh the cons when considering the use of cryptocurrency. But how does it work when it comes to purchasing real estate?

A rise in the number of real estate transactions using crypto

In line with a wider understanding and acceptance of cryptocurrencies, there has been an upward trend in the number of real estate transactions being completed using the most widely known cryptocurrency, Bitcoin.

It is fair to say that the real estate industry is one of the most highly regulated sectors, which is perfectly understandable when you consider the large sums of money involved to complete a transaction.

Traditional payment methods are now being challenged thanks to cryptocurrencies. That means there is a growing number of sellers and platforms who are happy and willing to accept Bitcoin as a valid payment option.

What we are witnessing right now is what you could describe as an experimental phase with regard to widespread adoption of cryptocurrencies. That’s why it is becoming commonplace to see big players in the real estate industry trialing this payment method.

Tech-savvy buyers will be delighted at the prospect of leveraging their cryptocurrency in order to buy real estate. Others may be more cautious before diving in, so here’s some key pointers to think about before going ahead.

What are the benefits?

It makes sense to consider what sort of advantages are attached to buying a property with Bitcoin.

Faster completion

One of the most obvious attractions is how quickly you can complete a purchase compared to using more traditional banking options. As you will probably have discovered when buying a property before, the traditional real estate purchasing route is constantly thwarted by delays caused by paperwork requests, various bank formalities, and the escrow process. In contrast, a Bitcoin transaction can be completed in a matter of minutes. The only thing that will cause a potential delay is when there is congestion within the blockchain. Without question, if you want to complete a speedy transaction, using crypto has the capacity to achieve that aim.

Lower transaction fees

Another obvious attraction is reduced transaction fees. It has been demonstrated that using Bitcoin to buy a property can result in a significant reduction in fees.

There are costs attached to traditional payment methods that can be eliminated when using the cryptocurrency route. These include things like fees for wire transfers, bank administration charges, and potential charges for currency exchanges. Paying by Bitcoin is more straightforward and cost-effective. All you usually have to think about is a minimal blockchain network fee.

A great option for international buyers

One of the key advantages attached to a cryptocurrency is that it is borderless. Bitcoin, for example, enjoys a decentralized status, which makes it attractive to international buyers. This is because they won’t have the traditional issues of currency conversion and related fees to contend with.

Enhanced privacy

Discretion is highly prized by many buyers. Cryptocurrency offers a higher level of privacy in comparison to traditional payment methods.

You cannot describe the crypto process as completely anonymous, but it is fair to say that you won’t be subjected to the same level of personal information requests and checks that you usually face using mainstream banking options.

A good way to achieve diversification

As the saying goes, having all of your eggs in one basket is not always the best idea. Applying that analogy to holding cryptocurrency, it makes sense to take advantage of an opportunity to diversify your assets. That’s why converting some of your Bitcoin into a tangible asset like property could be so attractive. Investing in real estate using crypto could be seen as a smart strategy, as it checks a couple of important boxes, namely diversification of your assets and investing in an asset that has the potential to appreciate, namely real estate.

There are challenges to be aware of

Naturally enough, there are some potential downsides to consider before you dive straight into buying real estate using crypto.

Without a doubt, there are risks and challenges that you need to be fully aware of, especially when using crypto for real estate transactions. One of the most obvious threats is price volatility. There is a potential scenario where the price of crypto fluctuates wildly between the time you agree to purchase a property and the completion date. Obviously, the value of Bitcoin, for instance, could rise, delivering a welcome gain. However, on the flip side, if the value of your crypto takes a dive in the interim period, you will be left with a scenario where you need to make up the shortfall in order to complete the transaction.

Another obvious challenge with your intended use of crypto to purchase real estate is that despite a rise in transactions, using this method is still minimal compared to traditional purchasing options. Without question, the use of Bitcoin in real estate is gaining significant traction, but it would be wrong to suggest that it is a form of payment that is now widely accepted.

You also need to be aware that some jurisdictions still have restrictions in place when it comes to purchasing property using crypto. With that in mind, it makes sound sense to check at an early stage that the vendor and other associated parties are willing and able to accept crypto.

Check for tax implications

Another significant issue to consider is that there may well be some tax implications attached to using crypto to purchase real estate. It is highly advisable to seek professional guidance at an early stage so that you are fully aware of the potential tax issues that you may have to address.

A key point to keep in mind is that a number of government bodies currently regard crypto as property rather than currency. That’s a critical point, as selling crypto to buy a property could potentially trigger a capital gains tax liability.

As with many complex and binding legal transactions, it’s best to be wise before the event rather than after it. Speak to a tax professional at the earliest point in a potential transaction, so that you have a clear understanding of what you are in line to pay in terms of taxes.

Knowledge is power

It is probably fair to say that even if you understand the general concept of a cryptocurrency such as Bitcoin, there is still a fair gap to fill in your knowledge before you could be described as technically competent.

There is no doubt that using crypto for real estate transactions requires a fair level of technical understanding and competency. Any lack of understanding relating to the use of cryptocurrency and wallets could be cruelly exposed and could result in a costly misstep.

It has been known for cryptocurrency to be sent to the wrong wallet, for example, which can prove catastrophic due to irreversible losses. Bottom line, make sure you are entirely comfortable with every aspect of the process before going ahead.

There are legal and statutory hurdles to negotiate

As is always the case with a new form of technology, regulation often takes a while to catch up. This is definitely the case with regard to cryptocurrency regulations around the globe.

What you will quickly discover is that cryptocurrency regulations vary greatly not just on a country-by-country basis, but also at a state level. Some jurisdictions are much more relaxed and positive about using crypto than others. It is also the case that some areas lack a degree of clarity about the use of Bitcoin, for instance, and some places have restrictions that could prove troublesome.

With that in mind, it’s highly recommended that you verify and understand the legal parameters that you will be facing before getting too deep into your real estate transaction.

Going ahead

Having covered all of these bases, it’s time to look at how to proceed with buying real estate using cryptocurrency.

The first step is to get solid confirmation that the seller is willing and able to accept crypto. As already outlined, there’s an increasing number of sellers and real estate agents who are fully onboard with the concept, but it’s always wise to confirm where you stand right at the beginning of the process.

The next step is to carry out the required due diligence for this sort of transaction. Check local laws and appoint a real estate attorney who is familiar and comfortable with handling cryptocurrency property transactions.

Having negotiated these hurdles, your next step would be to agree on a conversion process. A known issue with Bitcoin, for instance, is that it has a reputation for price volatility. That’s why a deal is normally agreed in the local currency, rather than a figure based on the value of your chosen crypto at that time.

Last but not least, you should look at using a trusted platform. This creates a level of trust and transparency that gives everyone a degree of comfort.

When you consider that the first documented purchase of real estate using Bitcoin only took place back in 2017, you begin to appreciate that this is a purchasing method that is still in its infancy. However, acceptance has widened substantially since that time, and with that level of familiarity now baked in, we are highly likely to see a noticeable spike in property transactions completed using cryptocurrency.

When you are contacting a real estate professional in search of a suitable property, you might want to check whether using crypto is an option that you could take advantage of.