How to Buy a House With Crypto: US Edition

Today, more than one-third of small businesses reportedly accept crypto payments, and some speculate that crypto mortgage payments are going to be more common in the coming years.

Fintech platforms such as BitPay, BTCPay, CoinBase Commerce and OpenNode are making it easier to transfer crypto peer-to-peer and even between consumers and businesses, and some mortgage lenders have already begun to experiment with giving consumers the option to pay in crypto.

For instance, United Wholesale Mortgage, the nation’s second-largest mortgage lender, unveiled a short-lived plan last August to start accepting bitcoin payments, but quickly scrapped the program, citing the high costs and regulatory uncertainty.

Yet the thought of buying a house with crypto may be too enticing for developers and innovators to simply give up. While it’s not yet fully normalized, there are still ways you can legally buy a home with bitcoin (BTC), ethereum (ETH) and other crypto assets in the United States – whether through a financial institution or simply as a private transaction between two consumers.

How to buy a house using crypto

For the savvy crypto natives and crypto-curious homebuyers, here are some options that presently exist.

Use your crypto as collateral

One way to leverage your crypto for real estate is to use it as a down payment. A number of new fintech platforms are rolling out products for this very purpose. Crypto lenders like BlockFi, Celsius and Unchained Capital offer crypto-backed loans with annual percentage rates ranging from 1% to 6%. The loans can be used for major purchases of things like autos and real estate.

These companies claim to help everyone from the unbanked to high-net-worth individuals expand their lending options by leveraging crypto assets.

The concept of a crypto-collateralized loan is intriguing in that borrowers don’t have to liquidate their crypto holdings in order to access financing. This prevents the need to cash out your crypto and avoids creating a taxable event in order to buy a house.

The tricky parts about crypto-collateralized loans are that: (A) they aren’t available in all states yet, and (B) it’s hard to determine the loan-to-value (LTV) ratio because cryptocurrencies are highly volatile.

Assuming you get a loan at a 1:1 ratio and use 1 BTC for collateral, you could theoretically get a loan for the market price of $47,500 (the value of BTC at the time of writing). Each lender will have a different LTV equation.

Just remember: Unless you are using a stablecoin such as USDC or USDT, the value of the cryptocurrency backing the loan will likely swing wildly in price. That volatility could affect your LTV in two ways:

  1. If bitcoin’s price leaps to $100,000, you now have an extra $66,000 worth of bitcoin that you could tap into without having to touch your home’s equity.
  2. A drop in prices could alter the LTV negatively, which could trigger something called a margin call. If a margin call was triggered, the lender would require you to deposit more crypto to bring the LTV back to the original level.

That said, there’s some argument that as you build equity in the home, the real estate value will eventually become a large enough part of the collateral to help neutralize or even out the crypto down payment, even if the value of your original collateral drops. The value of real estate, however, rises at a much slower pace than a mooning crypto, and so you could also stand to lose money in the short term. This dynamic illustrates both the risk and potential benefits associated with a crypto-backed loan.

Direct crypto transfer from buyer to seller

There’s nothing stopping two individuals from creating a private agreement to sell a home in exchange for crypto using a direct wallet-to-wallet transfer. It’s probably wise to get your agreement in writing and talk to a lawyer who is familiar with both real estate law and crypto.

This method probably isn’t going to fly if you use a real estate agent, who likely isn’t prepared to receive a commission in the form of crypto. Not to mention that the traditional escrow process will need to go through an accredited bank.

Using NFTs to buy a house

Non-fungible tokens (NFTs) are most familiar as a way to own digital art collectibles. But the digitally coded records known as smart contracts that result when NFTs are minted open up new possibilities for both real estate deeds and payment.

An NFT can both represent the “normal” sale of a piece of real estate and act as a form of payment or collateral or both if the owner or financing institution accepts its value.

A recent Florida house sale demonstrates the first process: In May, the real estate startup Propy sold its first NFT-backed property in the U.S. In the experimental transaction, the owner purchased a 2,000-square-foot house for 210 ETH ($653,000) and received an NFT as proof of ownership. Some industry professionals argue that NFTs are superior records to paper deeds, which can get lost and create ambiguity about a property’s value, size, taxes, sale history and other details. With smart contracts, these specifics will theoretically remain well-documented on a blockchain, where they will live forever.

NFT-backed home sales, however, aren’t the norm, as the logistics are still new. In the case above, the NFT had to be linked to an limited-liability company (LLC), which actually owns the physical property and against which consumers can borrow. This adds an extra step in the process that most consumers aren’t used to. There’s also the question of how an NFT can be accurately valued when used as collateral. Crypto lending protocol Helio, which is working with Propy, advertises no-margin-call loans if the value of your crypto or NFT goes down. However, you will want to make sure the details are clear and in writing.

Cashing out your crypto

Just as you can pay for a house with crypto in a for-sale-by-owner situation, you can also pay in cash just as easily.

Likewise, if you need cash for financing, you can cash out a portion of your crypto holdings to put toward the initial down payment.

Why buy a house with a decentralized asset?

Before you choose one of the above options and move ahead with your real estate purchase, consider why you would want to buy a house with crypto in the first place.

Crypto was created to be a decentralized asset, while the mortgage industry is built upon a structure of lenders and financing – aka centralized banks. It’s a little odd to consider taking out a mortgage from a bank and then use a novel, permissionless and fully decentralized algorithmic currency to pay back the fiat (government) currency that you borrowed in order to buy a physical asset in the real world.

Nonetheless, there are several arguments for trading your digital assets for a physical one. At its core, doing so is a type of arbitrage that helps you blend your portfolio with more kinds of assets. That is, it helps you diversify. Buying a house with crypto is essentially trading a volatile asset for a much more predictable one that historically has appreciated. This may be particularly appealing if you find yourself in a situation where you have more dispensable crypto than fiat currency and want to leverage some of it to buy real estate. Those who bought bitcoin back in 2010, for instance, and are now relishing the fruits of the 2021 euphoric bull market may be in this boat. Early crypto adopters may now find that they now have millions of dollars’ worth of digital assets and feel OK about allocating a percentage of that toward a house or land.

Just remember to factor in capital gains if you plan to cash out your crypto for U.S. dollars, or even if you exchange it to another type of crypto in the process of buying your home.

When you cash out your crypto holdings, make sure to note the price point at which you sold your assets and whether you made a profit or loss from the sale. You will need that information to report capital gains or losses when you do your taxes.

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