It seems like bitcoin has been in the news more and more recently—you’ve likely heard of it, and you may know people who have invested in it, but what is bitcoin, and does it have a use in real estate? Bitcoin is a cryptocurrency; it does away with central banks and uses advanced encryption to secure and regulate funds. There are no third parties involved, meaning that buyers and sellers can make a transaction directly.
But, the real question is can you buy a house with bitcoin? Yes!
Related: Beginners House Buying Checklist
How Buying With Bitcoin Works
Before we get into what you need to buy real estate with bitcoin, it’s important to have at least some understanding of how bitcoin transactions work. Bitcoin is an internet-based cryptocurrency with a decentralized payment system. Every user gets their own anonymous address, and every transaction with bitcoin is fully traceable.
The blockchain technology that it uses is basically a database that co-exists across various locations and gets shared by the community. There’s a significant advantage to these types of systems: there’s not a single center point of failure that is vulnerable to attack.
What Do You Need to Buy Real Estate With Bitcoin?
The only hard requirement to buy real estate with bitcoin is to have an agreement between the buyer and seller to use the cryptocurrency for the transaction. Both parties need to have a bitcoin account, and they should be familiar with the ways that the cryptocurrency and its transactions work.
There’s one important factor that both parties need to be aware of: you cannot reverse a bitcoin transaction. Because of this, the buyer and seller should have some level of familiarity with each other and a mutual level of trust.
Conventional escrow companies don’t usually have the means to deal with cryptocurrency transactions, and they might not have the capability to handle real estate deals involving bitcoin. Recently, cryptocurrency escrow services have started to emerge to handle these real estate deals.
Bitcoin Real Estate Transactions
The value of bitcoin-related to the U.S. dollar constantly fluctuates; buying a house with bitcoin is a bit different than with traditional currencies. The buyer and seller usually come to a mutual agreement for the sale price in U.S. currency rather than bitcoin value. For example, once the buyer and seller agree on a price, the bitcoin transaction will get executed at the closing of escrow, and the buyer will pay using the value of bitcoin at the time of closing.
The first bitcoin real estate deal completed in the U.S. was in Austin, Texas, in 2017. However, U.S. currency was involved when the buyer paid for the home—they converted bitcoin into U.S. dollars at closing to complete the sale.
Another famous bitcoin real estate listing was the Green Bay “Packer House,” which is a home attached to the parking lot at Lambeau Field. Owner and former Facebook executive Chris Murphy listed the property for sale in 2017 for $1 million in bitcoin. The house never ended up selling for bitcoin, and it has a current value between its tax assessment of about $250,000 and the asking price of $1 million in bitcoin.
Advantages of Buying a House With Bitcoin
Many people that have significant holdings of bitcoin have been looking toward purchasing real estate with bitcoin to help diversify their portfolios. When bitcoin is properly handled, transactions can get performed much more quickly than traditional sales.
Another advantage is that there aren’t usually any fees or intermediaries involved in the transaction—buying real estate with bitcoin is a streamlined process. As long as both parties perform their due diligence, there are very few reasons that bitcoin payments cannot offer fast and smooth real estate transactions. Some sellers may request that you convert the bitcoin to U.S. dollars at the time of sale, but that doesn’t affect any of its advantages.
Related: Benefits of Buying a Home
Risks of Buying Real Estate With Bitcoin
The main risk of buying a house with bitcoin comes from the instability in cryptocurrency prices. If you sold your home for $500,000 when bitcoin was at its highest ($19,800 each), you would have received approximately 25 bitcoins for your property.
If you had exchanged that currency for U.S. dollars right away, there would be no risk. But, if you chose to keep the money in bitcoin, you would have taken a massive loss—bitcoin is now worth about 40% less than it was at its peak. Because cryptocurrencies aren’t legally regulated, it’s impossible to know which direction their value will go in the future.
Even with the risks, many sellers are advertising their properties for sale with bitcoin. Real estate agencies across the U.S. have begun to accept bitcoin as payment and even for deposits.
How Bitcoin Transactions Work
Bitcoin transactions are slowly entering the real estate world, but how does the process work? In principle, the only thing that you need to buy a house with bitcoin is a purchase agreement between the buyer and seller. Because traditional currencies are mostly resistant to market changes, the volatility of bitcoin means that these transactions are only possible if both parties agree to use it in the real estate deal.
Once the transaction is complete, the seller can choose to hold on to the bitcoin (see the risks of this above), or they can use one of many services that can exchange it for traditional currency.
Is Bitcoin in Real Estate’s Future?
There are several ways you could answer this question. When you look at the taxes that must be paid when purchasing a house, it’s typically the same whether you use traditional currencies or bitcoin, but that also depends on the country where the transaction takes place.
At this time, you can buy a house with bitcoin without paying any additional costs, but the volatility of cryptocurrencies can be a risk that some sellers aren’t willing to take. For those who are familiar with the market and use of cryptocurrencies, the opportunity to buy real estate with bitcoin is a step forward into the future.
Are you looking to secure a mortgage loan to get into your dream home? Get in touch with the loan brothers at Mares Mortgage, and see what we can do for you!
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