Bitcoin is expected to have an impact on the real estate market by providing a new platform for sales. Bypassing the bank middlemen, buyers and sellers could potentially connect in real-time, speeding up the process for transactions significantly across the globe.
Now that cryptocurrencies are entering the mainstream in financial portfolios and financial planning, the ability to buy real estate with bitcoin has become a possibility.
What is Bitcoin and how does it work?
Bitcoin (₿, BTC) is a digital, global currency. It allows people to send or receive money electronically. The mathematical field of cryptography is the basis for Bitcoin's security.
Each Bitcoin is a computer file that is stored in a 'digital wallet' app on a smartphone or computer. People can send Bitcoins (or part of one) to your digital wallet, and you can send Bitcoins to other people. Each transaction is recorded in a shared public ledger that supports the network, called the blockchain.
By design, BTC currency is designed to be user-friendly, requiring no advanced technical knowledge to make transactions with Bitcoin. To get started using it, you install a Bitcoin wallet on your mobile phone or computer. An address, similar to an email, will be assigned to you, which is used as an account to send or receive money. When you send or receive the currency, your Bitcoin wallet keeps a private key which serves as validation that you own the wallet.
Countries that say yes to Bitcoin
Some countries have indirectly assented to the legal use of Bitcoin by enacting some regulatory oversight.
On Oct. 22, 2015, the European Court of Justice (ECJ) ruled that buying and selling digital currencies is considered a supply of services and that this is exempt from value-added tax (VAT) in all European Union (EU) member states. Additionally, some individual EU countries are further developing their own Bitcoin stances.
Other countries that maintain a bitcoin-friendly stance include, the United States, Canada, Australia, and Finland and the list is growing!
Bitcoin advantages in real estate
Bitcoin technology is still in its infancy. The blockchain still has some way to go before it becomes a significant real estate market disruptor. However, some obvious benefits of its use in real estate transactions are already apparent.
1. New transaction platform for real estate
The blockchain enables transactions with online marketplaces or trading platforms by acting as a process that permits asset trading. Sweden’s land registry authority has been testing ways to record property transactions using this technology, which could theoretically save over €100 million each year by eliminating paperwork and resulting in speedy transactions. There is no need for many of the additional fees or intermediaries that can be involved in fiat currency real estate deals, so BTC transactions are quite streamlined by comparison. BTC can accommodate purchases of properties at any price.
2. Fraud prevention
One of the biggest benefits of the Bitcoin currency could have a far-reaching impact on the real estate industry as the blockchain acts to prevent fraud through its private, fully certifiable digital identification. This offers a current and reliable proof of funds, even more so than a bank letter. Secure in the blockchain’s digital ledger, the digital ID can be used for deed transfers, mortgage payments, escrow or other financial scenarios.
3. Facilitates investment
The blockchain encourages investment in real estate by reducing real estate fees and enhancing online security. Another way to invest is through fractional ownership. Rather than saving a larger chunk of upfront funds to acquire a property, investors could buy and sell fractions of their real estate tokens instead. This would bring the property market closer in line to how the stock market works. People with significant bitcoin holdings have been looking at buying real estate with their BTC to diversify their portfolio. Properly handled, BTC transactions can be executed much more quickly than property purchases done through traditional fiat currency methods.
4. Greater transparency
The way that Bitcoin works does encourage greater transparency throughout the complete real estate purchasing transaction. Buyers and sellers store their information securely and it is instantly verifiable, which eliminates dealings with banks and lawyers, saving money. Individual properties could have their own digital identity assigned, with a documented and verifiable chain of ownership. This information would be accessible and fully transparent as the blockchain continues to be decentralized.
As long as due diligence is performed, there is no reason that real estate bitcoin payment cannot offer a smooth, rapid and convenient option to buyers and sellers. If you are considering purchasing real estate with bitcoin, you will be among the early adopters of cryptocurrency.
One of our clients, Elliot Bogod, has experienced the sale of property using cryptocurrency and shares some insights about his experience with us. As founder of several companies, Mr. Bogod shares with us that his clients in recent years are taking advantage of cryptocurrency growth and are being rewarded for their patience.
Mr. Bogod points out some of the latest signs of the growing acceptance of digital currencies by the mainstream financial industry:
- alternative assets like Bitcoin and gold are priced against the dollar
- the U.S. dollar is starting to weaken against the Euro and the British pound
- Visa card will allow payment statements using cryptocurrency
Paypal reported 11.8% revenue increase in Nov. 2020 after enabling crypto purchases. We will see many more signs like these in the future.
Should you consider using Bitcoin when buying real estate?
Yes, you can buy real estate with bitcoin. In the United States, the IRS has classified bitcoin as a form of real property. So, in a unique way, real estate bitcoin transactions accommodate a separate layer of capital investment, (in addition to the real, physical properties that are being bought and sold.)
To use bitcoin to buy real estate there must be an agreement between buyer and seller to use bitcoin and both parties should have bitcoin accounts with some familiarity with how the currency works.
Because BTC’s value in fiat currency does fluctuate, real estate transactions in BTC rely upon mutual agreements between buyer and seller on fiat currency sales prices. For example, if a property price of 5M USD is agreed upon, then the BTC completion of the sale will be executed at the close of escrow using the value of BTC at the exact time the escrow closes.
The very first bitcoin real estate transaction in the U.S. was for a home in Austin, Texas in 2017. The funds were converted from BTC to US dollars to complete the sale.
One aspect of BTC blockchain technology is that once completed the transaction cannot be reversed. If there should be a need to alter or change the transaction, a new transaction must be executed and a new entry into the blockchain ledger made.
When buyer and seller agree upon the price of the property in cryptocurrency, one important issue is Crypto fluctuation during the time prior to closing.
Now that cryptocurrencies are entering the mainstream in financial portfolios and financial planning, they offer the ability to buy real estate with bitcoin.
We asked Mr. Bogod if he had clients who used Bitcoin to invest in real estate. “We’ve had many clients who are interested in using their Bitcoin to purchase real estate properties in New York. However, when it comes time to execute the transaction, many are looking to take advantage of low mortgage rates and converting to dollars. When it comes to down payments, sellers would like to see that contract is secured and most buyers are converting their cryptocurrency and putting down payment in dollars. Sellers have mortgages (and other banking), that are conducted with fiat currency.”
Bitcoin has, so far, been the most accepted cryptocurrency. Generally, the entity or individual accepting payments is receiving the funds in dollars through one of several exchange companies that will convert bitcoin into dollars.
The trend is expected to continue to grow as the price of bitcoin increases and the ability to either purchase directly with bitcoin or exchange the currency becomes common practice. Many investors look at the platform as an opportunity to turn their bitcoin investment into a tangible asset in real property.
In 2018 and 2019, several apartment and commercial real estate sales were facilitated on behalf of developers in New York City. Since then, major companies have begun to accept bitcoin payments. It is anticipated that the real estate industry will follow.
Real estate has long been the best performing investment in modern history. With cryptocurrency, it may soon be commonplace to build wealth through real estate at a fraction of what it used to cost.
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Contributor - Elliot Bogod
Mr. Bogod is the Founder and President of Broadway Realty, which is now fully integrated for pricing apartments and townhouses in cryptocurrency as well as fiat currency - the first real estate company to make it more convenient for the consumers to see how far their crypto investments will take them in NYC. Mr. Bogod is among the first in a group of thirty top Manhattan brokers to receive an NYRS (New York Residential Specialist) designation from the Real Estate Board of New York (REBNY). Elliot is a member of the Real Estate Board of New York and the Realtor Association of Miami-Dade County. He also holds all certifications from the New York Real Estate Institute, Real Estate Division at the Academy of Continuing Education, and Gold Coast Real Estate.