It’s not really a question of whether or not cryptocurrencies will play a role in real estate transactions. It’s already happening. The question now is to what extent property buyers and sellers will use cryptocurrencies to settle real estate deals.
Real estate buyers are purchasing luxury properties in the United Kingdom and in the United States.
Modern sellers know that they need to keep their options open, and they understand that young buyers are increasingly looking to cryptocurrency as not only a store of value, but also as a way to diversify their holdings into other investment opportunities.
While many types of cryptocurrency could conceivably be used for real estate purchases, long-established entries like bitcoin and litecoin are almost sure to lead the way.
These cryptos were originally designed to settle peer-to-peer transactions, and they have been around much longer than their newer rivals, and they have proven themselves in all kinds of market conditions.
That makes bitcoin and litecoin good choices for real estate investors and home buyers alike.
The future of using cryptocurrency for real estate transactions
While the future of bitcoin and other cryptocurrencies is still unfolding, there is reason to believe that more real estate transactions will start to adopt cryptocurrencies as a form of settlement.
After putting off home buying for a number of years, many members of the millennial generation are now settling down, starting families, and buying homes. These young buyers are comfortable with cryptocurrencies, and that bodes well for the future of real estate transactions on the blockchain.
A lot will depend, of course, on the price stability of bitcoin, litecoin, and the rest of the cryptocurrency market.
Up to now, the volatility of the cryptocurrency market has kept many investors, and many real estate buyers, on the sidelines. But as the liquidity increases and cryptocurrencies become more mainstream, it’s not unlikely that real estate buyers and sellers will be looking to conduct business in crypto.
Also, real estate is a good companion to cryptocurrencies for investors looking to build a well-rounded and diversified portfolio.
Already many bitcoin millionaires are choosing real estate as a way to diversify their holdings and reduce their future risk. Some of those early bitcoin and litecoin adopters are using their virtual stashes to purchase their own homes, while others are branching out into rental properties and other types of real estate investments.
If their experiences prove to be positive ones, it could open the floodgates for other investors, and pave the way for a new wave of real estate speculation.
Buying a house with cryptocurrency – Exploring the pros and cons
There are a number of potential advantages to buying a home with bitcoin, litecoin, and other forms of cryptocurrency, including:
- The chance to diversify: Buying real estate is a great way for those with cryptocurrency profits to diversify their holdings.
- Locked in profits: For those who have held bitcoin for some time, buying a house can be an excellent way to lock in profits.
- More negotiating power: Cash buyers always have an edge in real estate transactions, and the fact that the cash is in the form of crypto assets does not change that equation because, after all, cryptocurrencies function similarly to cash.
Of course, there are some potential drawbacks to buying a home with cryptocurrency. Here are some of the roadblocks potential bitcoin property buyers might encounter.
- Limited availability: While the number of cryptocurrency real estate transactions is on the rise, the number of sellers accepting this unique form of payment is still relatively small.
- Missing out on future appreciation: If the past is any indication, cryptocurrencies like bitcoin and litecoin could appreciate far faster than houses and apartment buildings. Buyers who turn their virtual coins into real estate could miss out on the future appreciation of the asset.
- Crypto tax implications: The laws governing cryptocurrency and blockchain transactions are quite complicated, and real estate buyers will need to be prepared for that. Buyers should seek out a CPA or tax expert with a deep understanding of the cryptocurrency market and the tax implications.
The pros and cons of selling a house for cryptocurrency
The pros and cons of selling a home for cryptocurrency are similar, but the risks are a little different. Here are some of the potential benefits of selling real estate on the cryptocurrency market.
- Potential for appreciation: If you sell your home for dollars, you have a pretty good idea of the value of the transaction. With cryptocurrency, however, the value of the crypto asset could grow faster than the value of traditional fiat money.
- A wider audience: The more buyers interested in a piece of real estate, the better. Opening up the sale to cryptocurrency buyers could help your home sell faster and for more money.
There are some potential pitfalls to selling your home for virtual currency. Here are some drawbacks to consider.
- A complicated tax situation: the same tax implications exist on the seller side of the ledger, so if you sell your real estate for cryptocurrency, you will need to deal with a complicated tax situation.
- Potential losses: The cryptocurrency market is extremely volatile, and if you sell at the wrong time, you could lock in losses or limit your profit potential.
- The difficulties of storing your cryptocurrency: If you do not already have an account with a cryptocurrency exchanges, you will need to create one, or make arrangements for another type of storage. This can be complicated, and if you make a mistake, you could lose access to your cryptocurrency.
Blockchain Technology and the Future of Real Estate
Whether you buy your next home with bitcoin or just sit on the sidelines, one thing is already apparent – blockchain is changing the face of the real estate market.
The inherent security and transparency of blockchain transactions has a transformative power, one not seen since the creation of personal property.
Blockchain transactions, for instance, have the power to transform how real estate ownership is authenticated. Once completed, the record of the blockchain transaction exists forever, and that could simplify real estate titles and make purchases more secure.
The adoption of cryptocurrencies by governments should speed its acceptance in real estate transactions. This transformation is already underway, and as governments get more comfortable with blockchain technology, adoption rates could rise even further.
It is also important to note that blockchain technology is here to stay, no matter what ultimately happens with individual cryptocurrencies. That bodes well for the real estate market – for buyers and sellers alike.
Editor’s note: This is a guest post written by real estate experts from redfin.com.