What is cryptocurrency, and can you use one to buy a house? Read our guide to understand how you can use cryptocurrency to buy a home.

Table of Contents:

What Is Cryptocurrency: Buying a Home in Crypto

What is Cryptocurrency?

How Does Cryptocurrency Work

How Cryptocurrency is Taxed

Buying a Home in Crypto

The exchange of cryptocurrency for fiat currency.

Get a loan with Cryptocurrency as security.

Cryptocurrency can be sent directly to the seller.

Frequently Asked Questions (FAQ)

Can I buy real estate with crypto?

How do you buy a home with cryptocurrency?

Can I use crypto for a mortgage?

Do estate agents accept cryptocurrency?

What Is Cryptocurrency: Buying a Home in Crypto

Cryptocurrency has gotten a lot of attention recently. Despite recent concerns with wild value swings, individuals continue to trust in it and feel that it is the way of the future. In real estate, digital currencies offer a wide range of uses, with several potential benefits for investors, individual purchasers, sellers, tenants, and the market.

Individuals and commercial crypto property businesses must still exercise caution. If you’re feeling more daring, head out there and experiment with alternative money possibilities. Just be sure you don’t risk more than you can afford to lose.

What is Cryptocurrency?

Cryptocurrency is a form of decentralized online payment system based on the blockchain technology. Crypto may be exchanged for products and services just like actual money, with the exception that not all merchants would accept it as a genuine payment option – but more on that later. Bitcoin, the first cryptocurrency, was launched in 2008 with the goal of popularizing a peer-to-peer payment system that would not require the involvement of a central bank or any other third party. This has made buying real estate with cryptocurrency a popular topic of discussion.

There are a ton of cryptocurrency currencies presently, with Bitcoin, Ethereum, and, most recently, Dogecoin being some of the most widely traded. You may buy cryptocurrencies on a variety of exchange applications and websites, with Coinbase and Robinhood being two of the most popular. Many online brokers now allow customers to invest in cryptocurrency or borrow with their crypto to cash out in real estate with cryptocurrency.

How Does Cryptocurrency Work

So, what exactly is this virtual money, and how does it work? Once you’ve swapped your hard cash for cryptocurrency, a record of your investment is kept on the blockchain.

A record is held on the blockchain to keep track of how much money you’ve invested in cryptocurrencies. A blockchain is nothing more than a database in which data is stored in ‘blocks,’ linked together in the order in which transactions occur. The data entered is irreversible, meaning transactions are available to anybody who wants to access them.

All of your transactions are both traceable and anonymous in the Bitcoin instance. If you have a Bitcoin address that does not identify you as the sender or recipient of funds by name, all of your transactions will be linked to the same Bitcoin address, like a pseudonym or pen name. It becomes more difficult for buyers to acquire real estate using bitcoin since lenders want to know where (and from whom) the money came.

How Cryptocurrency is Taxed

Since the value of most cryptocurrencies is unpredictable, it draws investors who prefer to profit from buying and selling rather than utilizing bitcoin or any other cryptocurrency as a substitute for “real” money. The IRS considers cryptocurrencies to be a capital asset, similar to stocks, which you may acquire and sell in the hopes of generating a profit. This implies it’s liable to capital gains tax.

A capital gain occurs when you sell an asset and benefit from the transaction. A short-term capital gain occurs when you acquire and sell an asset in the same year. A long-term capital gain occurs when you hold an asset for more than a year and then sell it. The amount of capital gains tax you must pay is determined by your income tax rate, the length of time you had the asset, and the costs involved with owning the item, among other factors.

Buying a Home in Crypto

Buying real estate with crypto can only work if two parties agree to it. The first real estate cryptocurrency transaction was a single-family house in Austin, Texas. This transaction was performed via BitPay, a global bitcoin payment service provider since the seller desired the bitcoins to be converted to US Dollars (USD). Because the seller agreed to a certain monetary sum, the buyer is taking on the risk of Bitcoin’s fluctuating value to buy property with crypto.

With cryptocurrency, there are several ways to buy real estate.

The exchange of cryptocurrency for fiat currency.

To use your cryptocurrency to buy a house, you may sell it for USD dollars or other accepted currencies utilizing a service like BitPay, and then use the money to purchase a crypto property. Be aware that you must hold your fiat money in an account in your name for at least two months before it is considered an asset that may be utilized to buy a property, and the IRS may spot an enormous deposit. Keep this in mind as you go. Find out if your profits from the sale of bitcoin are subject to capital gains taxes by consulting your financial advisor or tax attorney.

Get a loan with Cryptocurrency as security.

With the help of companies that provide cash loans for crypto assets, you may borrow money in fiat currency and then use it to buy a home. However, you’ll have to pay a higher interest rate of 8 percent or more than you would with a regular mortgage, and the IRS may flag your account if a considerable volume of money comes into your account. Although crypto’s value may change over time, it will remain in your account if you want to hold onto it as a long-term investment.

Cryptocurrency can be sent directly to the seller.

While it may be tough to locate a seller willing to accept cryptocurrency as payment for a home, many are warming to the idea.

For the time being, the ordinary person who wants to purchase a house and invest in bitcoin may find it best to keep the two assets separate. Purchase your property, then take a little sum of money and purchase a portion of a bitcoin for a few hundred dollars. You won’t feel as if you’ve missed out, but you won’t be putting your house or whole financial portfolio in danger. If your bitcoin grows in value, you may use the money to pay off your mortgage or invest in real estate. If you’re feeling more daring, head out there and experiment with alternative money possibilities. Just be sure you don’t risk more than you can afford to lose.

Frequently Asked Questions (FAQ)

Can I buy real estate with crypto?

It is possible, but only if both the buyer and seller agree to the real estate and crypto transaction. In addition, you’ll need to locate title insurance and escrow companies that are familiar with bitcoin or crypto for real estate transactions rather than “real world” ones. Bitcoin and Ethereum are the two most popular cryptocurrencies for consumers to use, but there haven’t been many examples of customers using other cryptocurrencies yet.

If you can find a seller that accepts buying a house with crypto, you may have a chance to buy your dream home with cryptocurrency. Cryptocurrency’s growing price has made many people rich, but they do not want to pay the capital gains tax that comes with it, so trading a hazardous asset for a safe one makes sense.

How do you buy a home with cryptocurrency?

Buying real estate with cryptocurrency from a private seller differs from seller to seller. Some people may want to deal entirely in bitcoin, while others may prefer a mix of cryptocurrency and cash. Any transaction in this manner entails the transfer of Bitcoin from one wallet to another.

If the vendor refuses to accept crypto directly, your cryptocurrency will have to be converted to dollars in order to complete the transaction. BitPay can help buyers and sellers with bitcoin real estate transactions. The selling party will send you an email invoice. The buyer receives the invoice and pays it either manually or by scanning a QR code with their favorite crypto wallet. The monies are subsequently sent to the seller via direct deposit using BitPay.

Even if you buy a house using cryptocurrencies, you may need to pay some cash to government authorities and intermediaries.

Essentially, you have three options if you want to buy a house with cryptocurrency. This includes:

1. Converting crypto to purchase real estate into cash for the seller.
2. Get a real estate crypto loan by using your crypto as collateral for the required currency needed to purchase from the seller instead.
3. Find a seller willing to let you buy a house with crypto, transferring directly to their online wallet.

Can I use crypto for a mortgage?

Mortgage lenders cannot accept cryptocurrency-derived funds as a down payment. When you sell and convert cryptocurrencies to cash, lenders don’t have access to a paper trail to monitor a sudden influx of money in your account, so they may be reluctant to grant your loan without evidence of funds.

Do estate agents accept cryptocurrency?

Not all real estate agents accept cryptocurrency when it comes to their commission payment, but it’s not unheard of. You’ll need to locate a crypto real estate agent in your area to determine the type of crypto real estate they accept, as some will be Bitcoin-specific.

What are the pros and cons to buying a home with cryptocurrency?

There are several pros and cons when using crypto to buy a house. While the benefits and drawbacks of buying a property with cryptocurrencies vary depending on the method you choose, here are a few advantages to consider:

Pros

• You’ll be converting volatile asset into a stable asset. Monthly, weekly, and even day-to-day price swings are common in the cryptocurrency market. Whereas property values are more likely to appreciate and decrease over time.
• Compared to traditional real estate deals, cryptocurrency transfers may be conducted far more swiftly. In a typical mortgage-financed property sale, there is a lot of paperwork and many complications that aren’t necessary with a direct bitcoin sale.
• It’s possible to get a better deal. Certain sellers may accept a lower offer if the property is presented in cryptocurrency. If you make a cash or mortgage-backed offer, you may get a better deal.

Despite its many advantages, there is a lack of awareness of cryptocurrency in the real estate industry. The following drawbacks should be kept in mind while purchasing a home using cryptocurrency:

Cons

• Buying real estate with cryptocurrency isn’t accepted by all home sellers or lenders. Not as many sellers are keen to go all in for cryptocurrencies as payment for a real estate transaction, so your home-buying options may be restricted even though trust in Bitcoin, Ethereum, and their rivals is increasing.
• Even for your first house bought with crypto, Cryptocurrency exchanges may be subject to capital gains taxes. According to the Internal Revenue Service (IRS), if you want to get your money’s worth from cryptocurrency, you have to sell it. If you plan to buy a home using cryptocurrency, you should get the advice of a tax professional.
• You’re not protected as strongly in the legal sense when it comes to crypto and real estate transaction. Consumers are drawn to cryptocurrencies because of its high level of security and anonymity. However, if something goes wrong, you may find yourself in a problematic legal situation since transactions are difficult to follow. Speak with a lawyer if you want to learn more about your legal options.
• Mortgage lenders cannot accept cryptocurrency as a down payment for real estate funds. When you sell and convert cryptocurrencies to cash, there is no paper trail that lenders can use to monitor a sudden windfall of money in your account, so they may be reluctant to grant your loan without evidence of funds.
• Crypto’s value is constantly fluctuating. It’s possible that the value of Bitcoin or any other cryptocurrency may triple shortly before the contract is signed; if you make an offer for a property, you may end up paying more than its worth, out of your control.

If you want to purchase a house using cryptocurrencies, do your research and expect to encounter some difficulties. If you’re not sure if you’re cut out to be a crypto pioneer, wait a few years for the real estate sector to become more comfortable with digital currencies before investing in a home using cryptocurrencies. What you can count on is that if you buy a home through Richr’s online service, you can get up to 2% cashback on your property to invest back into crypto. Get the details here.