How to Buy a House with Bitcoin and Other Cryptocurrency

Cryptocurrencies have gained significant media attention and popularity in the last decade. Bitcoin is a type of cryptocurrency, specifically the most popular and well-known of all the digital currencies. Like any other form of currency, blockchain currencies can be used to make and complete purchases and transactions. These forms of payment became popular due to their increased security and because they operate on a decentralized banking system.

Can you buy real estate like this with Bitcoin?

Bitcoin and Ethereum are currently the best digital currencies available on the market. Bitcoin became the most popular and well-known crypto for a few reasons. The first reason is that bitcoin has a much larger volume of digital coin than any other digital currencies. It has more developers and software than altcoins. Altcoins is a term that is used to refer to all other cryptos besides bitcoin. Because of bitcoins expanded network, it has made it a more secure investment than other digital coins. One reason that digital coins became so popular is because they have the potential to reduce overhead banking costs and streamline financial processes to be more efficient. These currencies fluctuate in value based on the market. Like stocks, the amount they can be bought and sold for varies each day. Cryptocurrencies are a relatively new form of currency, which means they aren’t widely used and accepted by most sellers. Despite this, there are still many sellers who accept digital currency as a form of payment. Bitcoin is well-known known for its volatile nature. This is another reason it is not as widely accepted as a form of payment yet, especially regarding larger purchases. Although cryptos can be complicated and nuanced forms of payment, real estate transactions can still be completed with this form of payment.

How to Buy a Home with Bitcoin

The first condition that needs to be met for a real estate sale to be completed with cryptocurrency is for both parties to agree on the accepted form of payment. Additionally, the title insurance and escrow company must also be willing to complete the transaction with bitcoin. Without all parties in agreement, no transaction can take place. One benefit of buying a home with digital currencies is that the transaction can be completed in around ten minutes or less. The second noteworthy benefit of buying a home with bitcoin is decreased fees for both the seller and buyer.

Aside from the benefits of decreased fees and a swift transaction, there are a few things to be aware of when buying or selling a home via bitcoin. Matt Edstrom of GoodLife Home Loans says, “the riskiest part of buying a home with bitcoin is the volatility of cryptocurrency.” The market value of bitcoin and other digital currencies can change from day-to-day. This means if a seller accepts bitcoin as a form of payment and the value of the coin drops by 25% the following day and they haven’t cashed out their coins yet, they could lose 25% of the sale on their home.  On the flipside, it could lead to an increase in income generated on the sale. In one specific case, the seller profited $1.3 million from a real estate transaction completed with crypto. In the same regard, if a buyer completes a transaction with cryptocurrency and the value of their coin increases significantly after the purchase, they miss out on potential earnings.

Permanence is another potential issue that could arise when making purchases with bitcoin. Once a digital currency is sent to another user there is no safety net to get your funds back if they were sent incorrectly or to the wrong person. Even the creator of bitcoin can’t get your money back to you once it’s been sent so be aware of this before you send anyone your bitcoins.

Buyers should also check the legislation regarding bitcoin purchases for the state you are looking to buy a home in. For example, New York requires a BitLicense to make purchases with bitcoin. This license gives you a score to determine how reliable your purchases are. If you’re buying a home in New York you’ll likely need a BitLicense score of 6 to complete your purchase.

It is also important to address the subject of paying taxes on bitcoins. The IRS does not view bitcoins as physical cash, like the money in your wallet. Instead, the IRS considers digital coins as a form of property meaning that your coins are subject to capital gains taxes. Make sure that you are prepared to pay your capital gains taxes on your home purchase so as not to be penalized by the IRS.

Securing a Mortgage with Cryptocurrency

Another element to consider if you’re looking to purchase a home with a cryptocurrency is securing a mortgage. So far, all of the real estate transactions that have been completed with bitcoin have been paid in full, meaning that no mortgage was required. If you want to purchase a home with digital currency but need to secure a mortgage, it can complicate the process.

Most mortgage lenders don’t accept bitcoin or other cryptos as a form of payment, which means you may be able to purchase a home in full with cryptocurrency but won’t be able to secure a mortgage. This could change in the future, but for now, nearly all U.S. mortgage lenders only accept U.S. dollars as a form of payment.

*Digital currencies can always be cashed out for their current USD market value. This allows the person in possession of cryptocurrency assets the option to make purchases with vendors who don’t accept digital coins as a form of payment.

The Steps

Step 1: Determine your budget and decide what kind of home you want to purchase

Step 1: Find a seller who is willing to accept bitcoin as a form of payment

Step 2: Secure an escrow company and title insurance willing to accept bitcoin

Step 3: Have the home inspected

Step 4: Get an appraisal on your potential home

Step 5: Complete all of the necessary paperwork to finalize the sale

Step 6: Set up your bitcoin wallet

Step 7: Send the funds from your bitcoin wallet to the seller’s bitcoin wallet

Step 8: Close the sale

Closing On Real Estate Purchases with Bitcoin

Although it is possible to buy a home with digital coins, it’s not the most readily available option on the market. The selection of homes available for purchase with bitcoin is limited. This means the market for the buyer will be limited. If you’re hoping to find properties that accept cryptocurrencies as a form of payment, check out Open Listings page.

Due to the relative newness of cryptos there is massive room for growth and change. This means that if digital coins continue to increase in popularity, the market for homes for sale with digital currencies will increase. Additionally, the process of completing the sale will also become easier with time.

Sacha Ferrandi of Source Capital Funding Inc. and Texas Hard Money First says that because cryptocurrency is so volatile it may be best to use it to close the deal. “You may be able to sweeten the deal by adding in bitcoin as part of the closing costs. Offering a significant value to the seller may help tip the scales in your favor.”

The associated risk for the seller is much higher than the risk for the buyer. But if the value of the cryptocurrency increases after the deal closes, there is extra earning potential for the seller!

Looking for more great content? Check out our piece on crypto and disaster relief!