Could crypto payments for real estate become another notable way for people to invest their BTC, or is the learning curve too steep for wider adoption?
Crypto investors are betting big on real estate this year as the cryptocurrency market continues to grow. New York Digital Investment Group (NYDIG) recently conducted a survey that found that 46 million Americans own Bitcoin, equating to 22% of all adults. While optimistic, some cryptocurrency investors have expressed concerns regarding the security, custody and volatility of digital assets.
For example, Nickel Digital Asset Management, a regulated European investment manager dedicated to the crypto market, surveyed institutional investors and wealth managers from the United States and Europe who collectively have $275 billion in assets under management. Findings show that 76% of these individuals are concerned about the security of their digital assets. The same percentage said this about the size of the market and liquidity, followed by 71% who see the regulatory environment for the crypto market as a major issue.
This in mind, many crypto holders have started investing Bitcoin (BTC) and other cryptocurrencies into less risky assets such as real estate. Ben Shaoul, managing partner of Magnum Real Estate Group, told Cointelegraph that the company has recently been receiving more requests to sell real estate to cryptocurrency holders. According to Shaoul, Magnum began conducting crypto for real estate transactions about three years ago:
“We hadn’t tackled this before since most real estate developers didn’t understand crypto paymements. But we understood what it meant and how we could structure a sale for cryptocurrency. With the help of our legal team, we figured out how to conduct crypto transactions with the consent of regulators. We first sold a few residential units and then we sold a retail condominium in New York about three years ago for cryptocurrency.”
Eric Hedvat, chief operating officer of Jet Real Estate and a special consultant for Magnum, further told Cointelegraph that given the fast-paced growth of today’s crypto market, BTC payments for real estate is more important than ever before since it offers crypto investors an opportunity to grow with cash flow: “The cryptocurrency market has created a vast network of new wealth that wants to find traditional assets to invest in like real estate. There also aren’t many commercial properties for sale to buy with Bitcoin.”
Specifically speaking, Shaoul noted that the income generated from the retail condominium building that Magnum sold for $15.3 million in BTC during 2019 is all credit. “M&T bank has been a tenant in this building since it was built. They are a multi-billion-dollar bank.” This is an important detail, as Shaoul further commented that individuals who have created new wealth with cryptocurrency don’t have a way to monetize it or create a steady income stream:
“This property has over a million dollars a year of free cash flow. This is a very attractive offering for someone sitting on wealth they’ve created in cryptocurrency. This gives them an opportunity to monetize and effectively collect a bond moving forward.”
This has especially become the case due to interest rates in the United States. To put this in perspective, a recent survey conducted by the Financial Times and the University of Chicago’s Booth School of Business found that elevated inflation may make the Federal Reserve raise U.S. interest rates at least twice by the end of 2023. “In an environment where interest rates are where they are now, you can’t monetize into cash and leave your money in the bank and convert,” Shaoul said, adding that as a result, Magnum has been seeing a lot of cash move out of both the crypto and equities markets into hard assets such as real estate.
Piper Moretti, CEO and founder of The Crypto Realty Group, told Cointelegraph that crypto for real estate transactions is indeed becoming more common. Moretti shared that her firm currently has real estate listings available for Bitcoin in Tulum, Uruguay, Puerto Rico and Costa Rica.
Although this is the case, Moretti mentioned that many buyers purchasing real estate with crypto are taking loans out against their cryptocurrency. “Because of capital gain issues and the belief that Bitcoin’s price will reach $100,000 by the end of this year, people are taking loans out against their crypto. This way, they can keep their crypto and still monetize,” she remarked.
Joseph Kelly, CEO of Unchained Capital — a Bitcoin financial services company — confirmed this, noting that the firm has seen about 30%–40% of its loan originations go toward real estate.
But cash is still king for sellers
While Bitcoin and other cryptocurrencies are being used to purchase real estate, it’s important to note that, oftentimes, sellers prefer cash to crypto when dealing with these transactions. Moretti explained, “If a seller receives multiple offers, 99% of the time they’re going to push the cash offers to the top of the pile, even if it’s a crypto conversion because more likely than not they will be receiving the cash at closing.”
To put this into perspective, Sonny Singh, chief commercial officer of BitPay — a Bitcoin payments processor — told Cointelegraph that BitPay has facilitated $100 million in real estate transactions in the past five years. Singh mentioned that crypto transactions can easily be converted to U.S. dollars:
“The first thing that needs to happen is for the title or escrow company to be on board with this process. Sellers can also use the companies BitPay already works with. Buyers can then pay in Bitcoin, and we exchange that to cash. The escrow company now gets the Bitcoin at a cash-pay spot rate immediately. The entire process takes one day, and there is a 1% fee to initiate the transaction.”
Although this is typically the case, Shaoul shared that Magnum keeps a percentage of cryptocurrency obtained through real estate transactions in the company’s treasury. “We keep a portion of this to maintain the same percentage of crypto we’ve been balancing for the last six to seven months.” In order to do this, Shaoul shared that the firm is working with the crypto investment company Galaxy Digital to help manage cryptocurrency gained from real estate transactions.
Are Bitcoin payments for real estate just hype?
While it’s certainly notable that crypto holders have been seeing more opportunities to purchase real estate with digital assets, some industry experts believe that this recent trend has become overhyped.
For instance, Natalia Karayaneva, CEO of Propy — a real estate transaction platform powered by blockchain technology — told Cointelegraph that many of the stories in the media today focus on crypto payments for real estate as if this is a new development. But to Karayaneva’s point, accepting crypto payments dates back to 2014, when BitPay helped facilitate the sale of a Lake Tahoe property that sold for $1.6 million in BTC. In 2014 , a tech entrepreneur also listed his Tiburon, California home for sale for $3.6 million, which was payable in Bitcoin.
Karayaneva believes that blockchain technology being leveraged to facilitate crypto-to-crypto transactions will be the real game-changer for the real estate industry. It is possible to close a real estate transaction entirely in Bitcoin, without any cash conversion involved. Karayaneva explained that conducting transactions this way saves time for both the buyer and seller:
“This saves up to 1% of exchange fees, and blockchain crypto transactions are 100% transparent and immutable. They also allow for smart contracts that let a user create, audit and authenticate documents from any point of the world, in real-time. This eliminates the need for middlemen and minimizes the risk of any payment disputes, as the transaction is completed only if all requirements are met.”
Karayaneva further mentioned that many escrow companies today still don’t want to be involved with crypto transactions, which is why a smart-contract framework is a more attractive option.
Moretti, however, begs to differ, noting that using a blockchain to conduct real estate transactions can be difficult since it doesn’t go through the normal escrow process. “I know this can be done, but it’s clunky. There are also good funds laws we adhere to in California, and it may be hard to get regulators on board with such a solution.”
While it’s too soon to tell whether blockchain technology will be the missing link for real estate transactions, it’s clear that more crypto holders are using Bitcoin to purchase properties today. “People are looking to move unstable assets to a stable asset. And what’s more stable than real estate?” Singh remarked.