Crypto Real Estate
What is Cryptocurrency?
A cryptocurrency is a digital or virtual currency designed to work as a medium of exchange. It uses cryptography (ability to solve codes) to secure and verify transactions. As well as to control the creation of new units of a particular concurrency. Essentially, cryptocurrencies are limited entries in a database that no one can change unless specific conditions are fulfilled.
The 2017 crypto boom has both buyers and sellers frantically searching for ways they can capitalize on the explosion. Despite the fluctuations and critics warning of a crypto bubble that will soon burst, cryptocurrency (such as Bitcoin) continue to pop up in new industries. And now, the real estate market is getting involved. But what do you need to know before buying or selling a home with cryptocurrency?
Piper Moretti, CEO of The Crypto Realty Group and a licensed realtor, was involved in the first Bitcoin transaction in Southern California and has since completed several transactions. She shares her knowledge and gives her top five tips to those looking to buy or sell real estate in the crypto space.
Get Some Real Practice
While cryptocurrency is certainly trendy and quickly becoming a fad among high dollar investors, the space isn’t for the uneducated. If you are considering using digital currency to buy or sell a home, do your homework. Understand the market, the risks and how it all works. Moretti suggests you get some practice in by getting verified exchanges like Coinbase or Binance, which allow investors to buy and sell Bitcoin and Ethereum. They behave much like regular stock trading, and users can easily become verified and link bank accounts. Starting out with this type of exchange will allow users to educate themselves on the ins and outs of digital money before jumping into larger pools such as real estate.
Understand the Escrow
As if escrow isn’t tough to understand already, it gets even more complicated in the crypto space. There are two basic options: 1) convert your cryptocurrency to cash and 2) use a crypto-to-crypto transaction. If you are simply planning to convert your crypto to cash, it is treated as a regular cash transaction in the eyes of the title and escrow company. Moretti suggests having the escrow set up with a crypto payment processor, which will take your cryptocurrency and convert it to a USD wire transfer.
If you are after a crypto-to-crypto transaction, it is best to work with a title company that is well versed in blockchain technology and how the title and taxes play out in the conveyance of the property. Startups like Ragnar Lifthrasir’s Velox.re have proven that titles can be conveyed on the blockchain, but the issue arises when the local government requires the purchase price be in fiat for accounting purposes. Knowing what to charge in transfer taxes and title insurance can be difficult. Piper warns that by using the crypto-to-crypto approach, you may have trouble getting the title insurance … although some buyers don’t find title insurance necessary.
It may be easier for all involved to transfer the money outside of escrow, and Moretti has had deals work this way.
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Either way, you choose, Moretti cautions that the terms should be explicitly ironed out on how the money will be converted and transferred to protect both parties.
Find the Right People
Someday, blockchain technology will be the standard with which we operate transactions across the board. Until then, those who are interested in pursuing it must deal with the associated challenges that come along. One of the biggest challenges for using cryptocurrency for real estate transactions is people getting over the initial idea that it is “fake internet money.” Many sellers still don’t want to deal with it. This stigma is changing as cryptocurrency is rising in popularity. Anyone who is open and willing to learn about the technology and how crypto behaves can start using it now, even in real estate. However, while crypto remains in the infancy stage, protect yourself by finding the right people to work with. Interview agents and make sure they are familiar and experienced with the crypto transaction. Find a buyer or seller who is open to creating a BitPay account to receive the wire transfer or a bank who is willing to participate as a 3rd party transfer.
Set the Standard
Using cryptocurrency to purchase or sell real estate has its challenges. Crypto is extremely volatile, and that burden is on the buyer. If you are involved in a cryptocurrency real estate transfer, always use the price of the house in fiat to set the standard. The contract must have specific wording regarding exactly how the crypto will be settled at the end of escrow. For example, if the price of the home is $1,000,000 and the price of crypto is down at the close, the buyer must make up the difference. If the price of crypto surges and the transfer has been made, the surplus should be returned. Protect yourself by ensuring your contract has the details spelled out.
Verify, Verify, Verify
The good old saying “if it seems too good to be true, it probably is” certainly applies to cryptocurrency purchases and sales. Cryptocurrency systems are vulnerable to hacking. “The crypto space is new and fertile ground for money laundering,” says Moretti. Dirty money hid within Bitcoin and others. cryptocurrencies is harder to trace where it came from and to whom it belongs. Educate yourself on anti-money laundering practices and know your customer. “I get calls from overseas ‘buyers’ claiming they have big stakes in the next new token and can’t wait to buy up property in Southern California all of the time.” Be overly cautious. Verify, verify and verify again. Regulators worldwide are implementing additional regulations and guidelines designed to help prevent ill-gotten gains to be washed or utilized, and we will most likely see a drastic reduction in the ability to launder through cryptocurrency. Until then, verify all associated parties.
Cryptocurrency is the newest and hottest way to buy and sell, and real estate is no exception. While there are some great benefits to using digital currency in the real estate market. Buyers and sellers need to do their research and protect themselves. Crypto is relatively new in the real estate world and should be treated as such. Do your homework and understand what you are getting yourself into before you get yourself into it.