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Can You Buy a Home Using Cryptocurrency?

Can you buy a house with Bitcoin or another cryptocurrency? It’s a question an increasing number of people are asking. While using cryptocurrency to buy a house may have seemed outlandish just a handful of years ago, that isn’t the case today. An increasing number of people are getting into the crypto market, and some want to leverage what they’ve gathered to make real-world purchases.

If you’re curious about what it takes to buy a house with cryptocurrency, here’s what you need to know.

cryptocurrency house

What Is Cryptocurrency?

Before digging into the nuances of buying real estate with cryptocurrency, it’s important to understand what cryptocurrency is and how it functions in a financial sense.

In the simplest sense, cryptocurrency is a form of decentralized digital currency. Cryptocurrency is tracked digitally, typically using a technology known as blockchain. With blockchain, there’s a digital distributed ledger that records transactions, effectively logging the movement of the cryptocurrency.

Currently, there are thousands of cryptocurrencies. However, they don’t all have the same function in financial markets. While some of the more popular ones – like Bitcoin, Ethereum, and Dogecoin – may be “spendable,” allowing you to use them to acquire goods and services directly, others are mainly investment vehicles at this point. With the latter, they can be bought or sold for cash, but you may have trouble finding a store that accepts them as payment.

One of the main reasons cryptocurrency isn’t used broadly for transactions is that the sheer number of coins is overwhelming. Additionally, regulations surrounding cryptocurrency are very limited and still developing. That means there is a substantial amount of risk associated with them, as regulators could make unfavorable determinations at any time that harm the value of one, several, or all cryptocurrencies.

If you’re wondering, “What does it mean to mine cryptocurrency?” the concept behind the answer is surprisingly simple, even if the process itself is complex. Typically, when a person wants to mine a cryptocurrency, they have to solve complex cryptographic equations (math problems) using a high-powered specialized computer.

The purpose of the activity is to verify blockchain transactions. When done successfully, the miner adds a block to the blockchain and receives some of the cryptocurrency as a reward for their efforts.

Mining requires a lot of electricity. As a result, some municipalities have either limited or banned the practice in the name of maintaining local grids.

Buying a Home with Cryptocurrency

If you want to buy real estate with crypto, it’s important to understand that the process isn’t as straightforward as using traditional methods, like cash or a mortgage. There can be tax complications, escrow challenges, and similar hurdles that the buyer and seller need to navigate.

However, that doesn’t mean buying a home with cryptocurrency isn’t possible. Here is an overview of the process.

Get the Right Real Estate Agent

If your goal is buying a house with crypto, you need to find a real estate agent familiar with these kinds of transactions. As previously mentioned, the process isn’t the same as using cash or a mortgage to fund the purchase. Since buying property with cryptocurrency is a bit more complex, having someone by your side who is familiar with this approach works in your favor.

Understand Your Options

types of crypto coins

Buying a home using cryptocurrency doesn’t necessarily mean having to transition crypto from your digital wallet to the sellers. While that’s certainly an option, you could also sell your cryptocurrency for cash, allowing you to move forward with the purchase using a more traditional approach.

In some cases, this can be the better option. While a select number of sellers might be open to receiving Bitcoin for real estate, others might find the idea of cryptocurrency unattractive. As a result, you’re limiting the number of properties that may be available to you if you aren’t open to another approach.

Be Ready for the Taxes

There are tax implications of using crypto to buy real estate. The IRS views cryptocurrencies as property for tax purposes. Since that’s the case, you might be subject to capital gains if you withdraw your crypto in exchange for cash. The same is true if you transition it to another party to buy real estate.

Since the tax implications are significant, it’s best to prepare for that expense. Speak with a tax professional in advance to estimate your liability. That way, ensuring you don’t end up experiencing an unanticipated financial hardship come tax season.

Speak with the Seller

As mentioned above, not all sellers are comfortable with letting you buy a property with crypto. Still, you won’t know if it’s an option until you have a conversation.

Depending on how the seller lists the property, you may be able to talk directly. However, you may also have to speak through your real estate agents. In either case, let them know not only that you’re interested in buying the house using cryptocurrency but which coin you’d like to use.

If you’re spending more widely known coins, you may have an easier time than if you’re using one that’s more obscure. As a result, you may want to present familiar coins from your wallet – or even transition altcoins into Bitcoin before attempting to negotiate the purchase – to make the idea more enticing.

However, if the seller declines to accept crypto, you’ll need to make a decision. You can either go with a more traditional approach to buy that property or set your sights on a different home where the seller might be more open to the idea.

Prepare for Price Fluctuations

cryptocurrency

One benefit of using cryptocurrency to buy real estate is that the transaction can move forward quickly. Usually, you’ll just need to send the coins from your wallet to the sellers, a process that can wrap up with surprising speed.

However, the value of any given cryptocurrency can fluctuate significantly in a short period. The pricing can change while you’re completing steps like a home inspection or appraisal or even during a few days’ worth of negotiating.

Price fluctuations may lead to headaches. If the seller was initially hesitant to accept crypto, the movement might lead them to change their mind about moving forward. If the value changes dramatically, there’s a chance that your initial offer will no longer make sense. It may equate to a dollar amount that is far higher or lower than is appropriate for the home, potentially leading to some disagreements.

By knowing this can occur, you can prepare more effectively. For example, you could put contingencies in your offer that address what happens if the coin’s value shifts significantly before the transaction completes. That way, you can ensure the outcome is fair.

Get Ready for Title Insurance and Escrow Company Hurdles

While it may seem like buying real estate with Bitcoin or other cryptocurrencies shouldn’t be too unlike using cash, that isn’t the case. Most escrow companies aren’t prepared to handle this kind of digital asset, leading to potential hurdles when it gets close to closing time.

If you want to buy real estate with Bitcoin or another crypto, you may want to find a title and escrow company that’s set up to handle cryptocurrencies specifically. While it isn’t widespread, an increasing number of companies are making it an option. By finding one that’s already gone down this road, you’ll have an easier time finalizing the purchase.

Should You Buy a Home Using Cryptocurrency?

Buying a house using cryptocurrency is a relatively new concept. As a result, the process is complex, mainly because there aren’t widespread mechanisms for facilitating these transactions. Additionally, since not all sellers are open to the idea, you may have fewer property options.

However, that doesn’t mean buying a home using crypto is a bad idea. If you’re aware of the potential complications and can find a willing seller, it could be the right move for you. Just make sure to do your due diligence. That way, your purchase won’t be derailed by something unexpected.


 

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