With the rise of cryptocurrency technologies like Bitcoin, there’s an opportunity to tap into a new market of real estate investors who prefer cryptocurrency transactions to traditional bank-backed currencies. It’s only a matter of time before Bitcoin will be used in the DC metro area, while Blockchain (a related technology) has the potential to disrupt the industry down the road.
While Bitcoin offers an attractive currency alternative to real estate investors, blockchain promises to offer additional methods of authenticating real estate ownership and transfers. Both have great potential to add value to the industry, but in different areas and with different transformative possibilities.
The learning curve when it comes to cryptocurrency and real-estate transactions can be steep. I’ve been watching this trend for some time now and have a solid understanding of the cryptocurrency market and how it works. Here are a few things you should know if you’re interested in offering Bitcoin real-estate transactions.
What are Bitcoin and Blockchain?
Bitcoin is a digital currency or cryptocurrency that, while still in the experimental phase, is becoming more and more popular for financial transactions. It was originally created, according to coindesk.com, “as an alternative and decentralized payment method.”
Blockchain is one of the systems upon which cryptocurrencies are built. Basically, according to bitcoin.org, “the blockchain is a shared public ledger on which the entire Bitcoin network relies.” Blockchain allows transactions to be recorded, updated and reconciled without a centralized database or ledger.
Benefits of Using Cryptocurrency for Real Estate Transactions
The advantage of Bitcoin and other cryptocurrencies was originally that they avoided the high costs and time delays of international money transfers. Unfortunately, increased fees, oversight and regulation, mean these benefits have decreased for some. Bitcoin is still the most efficient and cost-effective option for international money transfers in many areas, though, and may provide an advantage for those that want to circumvent central bank regulations.
Using cryptocurrency like Bitcoin to purchase real estate means buyers can bypass the typical regulations of central banks. With that comes the ability to get around government-imposed currency limitations. As stated in a January 2018 Forbes article, “the growing popularity of cryptocurrencies and use of blockchain in real estate transactions is especially relevant to facilitate international transactions, where monetary controls may be an issue, and where it’s essential to establish digital trust.”
For example, in late 2016, China increased its capital controls, significantly restricting the amount of Chinese capital that could be invested in foreign markets and specifically prohibiting investment in foreign real estate. But cryptocurrencies could make it possible for Chinese and other foreign real-estate investors to circumvent these restrictions. In addition, cryptocurrencies make it easier for property owners living outside the country, who may or may not be US citizens, to complete both real estate purchase and sales transactions.
Even in dealing solely with domestic real estate deals, the rising popularity of cryptocurrencies make it more likely that realtors, mortgage lenders and settlement companies will be required to understand and navigate cryptocurrency transactions. Over the next several years, the use of blockchain and cryptocurrencies, along with other technologies could significantly shift the way the real estate industry functions, making it possible for entirely digital real estate transactions. It’s already possible for real estate agents to receive cryptocurrency as an option for commission payments, making the transaction instantaneous rather than having to wait for a check to clear.
Of course, cash is still needed for some parts of a transaction. In particular, if a property is encumbered by a mortgage, the mortgage company will be unlikely to accept a payoff in the form of Bitcoin. At this time, properties held free and clear from mortgages are the best cryptocurrency candidates. However, even with real estate brokerages that accept Bitcoin commission, buyers will still need cash to pay for title insurance, services by third party vendors, and local/state transfer taxes. Getting a clear estimate of how much these items will cost can lead to an understanding of how much Bitcoin might need to be cashed out and how much the seller will take home.
If you’re considering purchasing property utilizing cryptocurrency or want to offer Bitcoin transactions to your clients, contact us to set up a consultation today. The complex titling and currency conversions that come along with real estate transactions that utilize cryptocurrency (and may involve property owners who are not US citizens) require a specific level of skill and knowledge that not every closing company maintains. Prime Settlement is taking on the steep cryptocurrency learning curve to ensure we’re the go-to closing company for these real-estate transactions.