The New Player: Cryptocurrency’s emerging dominance in residential real estate

Paying crypto for a home is not a new phenomenon, but it is proving to be a mover to watch.

The option of throwing down cryptocurrency on a real estate investment was virtually unheard of twenty years ago. Things changed. Since then, we’ve seen coin trades on the move. Increasingly, the new financing player is attending the table of high-profile dealmaking. 

It was less than a decade ago when the virtual currency’s presence in property sales turned heads. The first residential property paid for in Bitcoin in Texas hit the record book on Sept. 18, 2017. The landmark sale was handled by Sotheby International Realty, just nine years after cryptocurrency was introduced.

This transaction, though undisclosed, closed on a lavish, custom built home near the heart of downtown Austin. Sotheby’s broker, Sheryl Lowe, was clearly impressed. “In all my 33 years of closing transactions, I honestly couldn’t have expected something so unique to go so smoothly. In a matter of 10 minutes, the Bitcoin was changed to US Dollars and the deal was done!”

Another record home sale involving cryptocurrency saw the purchase of a Miami Beach penthouse for $22 million. It happened in 2021 after realtors decided to offer crypto financing. Thanks to one of the coin’s perks, the buyer who paid top crypto for the property is unknown. What we do know is the 5,067-square-foot, 12-story oceanfront pad, at $22 million, was the priciest property paid for with the burgeoning wealth-creator, at the time. As of today, the record stands.

The perks of cryptocurrency are real

As it turns out, the use of blockchain technology in real estate transactions has a measurable upside. For instance, the efficacy of the process ensures transparent paperwork available to all parties, making it more efficient than industry standards. Another upside is tokenization. Several parties can easily be a part of a property transaction.

The highs and lows of crypto

A contributing factor to cryptocurrency making a showing at the table is the 2017 crypto surge. Specifically, Bitcoin hit an all-time high of $19,783.06 by December of that year. Public enthusiasm accelerated the trend, yet days later, on Dec. 22, 2017, BItcoin lost 45% off that high, tanking overnight. High volatility persisted. In 2011, Bitcoin soared and crashed, slashing values in half. And again, in 2013, a boom held until a 2015 crash landing. Bitcoin was the top player.

Critics warn of the volatility of this type of investment. One option for using cryptocurrency is to make a down payment with a loan. In this method, a crypto holder can take out a loan against his crypto stash. This is risky, no matter the currency being used, whether Bitcoin or Ethereum, or any coin currency. It works by making payment installments to a crypto lender who will eventually return your crypto on completion of payments toward the loan. Although, most commonly, in real estate transactions, cryptocurrency is converted to dollars at an agreed rate, and used for sale, a down payment, or another financing transaction. However, because of the volatile nature, not just crypto loans, but any investment in cryptocurrency is risky, as brutal stories of wealth deleted attest.

Volatility is not the only problem attending crypto investing and spending. The future is uncertain. An update from the IRS makes the currency a digital property, subject to a capital gains tax. So, as a currency, it is in murky waters, treading unknown territories of transaction costs. And, in real estate transactions, the length of the transaction, up to 90 days on average, opens a window to complicate things even more.

Cryptocurrency is for the bulls

Of course, plenty of bulls are stampeding into the brave new token market. Those who are cashing out can solidify in property assets. So, cryptocurrency is building a strong presence in the real estate market. The Real Deal makes this case following investment choices of young and wealthy, 2021 crypto millionaires. With so much coin hot to deposit, sellers are actively enticing buyers with price drop incentives. In one case, a seller shaved $50,000 off the list price, just for crypto buyers, on a New Jersey property worth $3.9 million.

Real estate developer PMG was a pioneer of this new way to pay, according to Forbes.

PMG led the way as the first sellers to accept crypto for a down payment. PMG Managing Director Ryan Shear said, “We are proud to be the first residential real estate developer to accept crypto deposits in pre-construction condominiums globally.”

Shear claims PMG is all-in on crypto, calling it the future of real estate. The PMG managing director explains, “We saw an opportunity to allow people to diversify their cryptocurrency assets and easily transfer funds into stable, physical real estate.”

But will a willingness by sellers to absorb swelling cryptocurrency accounts turn out to be a sage long-term strategy? It is one thing to watch in residential real estate, a historically steady sector, recently hit with news of the NAR settlement and those uncertainties.