Can you use Bitcoin to buy a home? Up until recently, the answer was “no.” But times are changing – slowly. A few transactions have taken place in the U.S. (more elsewhere) and websites that facilitate Bitcoin real estate transactions have launched. We have a long way to go, however. Here’s why.
The Real Estate Transaction is Complicated
You may think it’s obvious when you buy a home that you pay for it, so you own it. But did the seller actually own it? Did he or she buy it from a legitimate seller? You can only count on it because someone traced a chain of title back to the home’s first recorded ownership. This is where real estate and Bitcoin are actually very similar. To trace the chain of title of real estate, the County Recorder keeps meticulous records that go way back in time. Sound familiar? If you understand blockchain technology, it should. Blockchain is the foundation of all digital currencies, and is a ledger that records every transaction of every digital coin ever made to track the chain of title and verify current ownership.
Bitcoin and Real Estate Seem Like a Natural Match
What’s holding it up? Well, it’s new and people adopt new technologies slowly. Those involved in real estate transactions struggle with security issues (whether or not a digital currency is valid) and the price volatility of the coins.
Credit Cards Were Not Widely Accepted at First, Either
Digital currency is new and therefore perceived as risky. When credit cards were first introduced, they were, too, and large-scale adoption took quite a few years. But today “plastic” is accepted everywhere.
How Do We Overcome the Resistance, Then?
As for volatility, digital currency is an international currency, so international buyers are less concerned about price volatility than U.S.-based buyers, at least for now. After all, the value of a U.S. dollar fluctuates quite a bit, too, from an international perspective. The dollar only seems stable to us because we only deal in dollars. As digital currencies (which aren’t tied to any national currency) gain traction, we’ll become more accustomed to that notion. As for chain of title, blockchain technology – which ensures the validity of ownership of digital currency – is considered very secure, just like county records. Adoption of Bitcoin in real estate transactions is only a matter of time. For now, though, early adopters are out there.
Manhattan Developer Accepts Bitcoin
A Manhattan real estate developer recently agreed to accept Bitcoin as payment for new condominiums, priced from $700,000 to $1.5 million, he is developing on the Lower East Side. What does he plan to do with the Bitcoins? Buy investment-grade art, of course.
Most title and escrow companies won’t yet accept Bitcoin as a deposit on the transaction or for the down payment.
A developer in Minnesota similarly offered at the beginning of this year to accept Bitcoin for a spec home he has under construction. He hasn’t finished the home yet; we’ll see if he changes his mind. The first-ever true Bitcoin transaction took place in Miami in December 2017 when a condominium sold for 17.74 bitcoin. At the time the deal closed, Bitcoin was trading for $15,502 per coin, which represented a value of $275,000. As of this writing, Bitcoin is down to $9,318, so we can only hope the seller cashed out.
What’s Holding Bitcoin Back?
Most title and escrow companies won’t yet accept Bitcoin as a deposit on the transaction or for the down payment. The ones that do accept it so far convert it to cash anyway. Mortgage companies also balk at digital currency. A down payment all in Bitcoin is not acceptable to most lenders, and the seller’s mortgage company will not accept a payoff in it, either. Consequently, to this date all real estate transactions involving Bitcoin have been all “cash” – no mortgage involved.
Tax Consequences of Using Bitcoin
Even if the seller will accept Bitcoin and the title company will work with it in the transaction, you might find yourself with other challenges. If your Bitcoin has appreciated since you bought it, using it to buy something else is the same as cashing it in in the eyes of the IRS. You now owe Uncle Sam some taxes for the capital gain. And they don’t accept Bitcoin. Adoption is coming, however. There is even an organization, called the International Blockchain Real Estate Association, established to promote the use of digital currency in real estate. Founded in 2013, it is “…an educational and trade organization dedicated to implementing blockchain in real estate.” There may come a time when using digital currency to buy real estate is commonplace, but that time is probably a ways off. Maybe you can be the first in your state?
- The International Blockchain Real Estate Association
- Brainer Dispatch
- Realtor Magazine
- Miami Herald