Bitcoins, digital wallets, ICOs, and other cryptocurrency terms are increasingly invading the real estate space and news headlines. Not all of the coverage has been positive, but it has been a riveting rollercoaster ride for real estate professionals, entrepreneurs, and others interested in the newest innovations, technology, and alternative currency. What does it all mean? How are these digital currencies being used in real estate today? What’s in the pipeline? How risky is it? What are the advantages? How do you get started?
Bitcoin, Litecoin, and a gazillion other ‘coins’ are names of new digital currencies. According to Inc., there are already over 1,300 different types of these currencies and coins out there. Hundreds more are in the process of being launched right now. The easiest way to think of this is as a digital currency that you never touch or hold. Like money in your PayPal account that you transfer, but never touch and feel tokens in your favorite video game, or cash reward points on a credit card. You can earn it, transfer it, and spend it, but it is all virtual.
The Good, the Bad & the Ugly
Bitcoin prices rocketed last year, creating incredible returns for those invested in it. Then at the beginning of 2018, it crashed. It dove around 50% in value in almost no time at all. As of March 1st, 2018 bitcoin was trading at $10,740 per bitcoin. That’s down from around $20,000 in December 2017.
Initial Coin Offerings (ICOs) are a lot like IPOs. They are used by individuals, startups, and companies as an alternative way to raise money. Some have used this strategy to raise millions in a matter of hours. However, recent hacks and big companies paying hackers ransoms in the cryptocurrency have led to crackdowns and massive losses. Some which may never be recovered.
The Rise of Crypto in Real Estate
Cryptocurrency has been increasingly making its way into real estate transactions in various ways.
Listing Homes for Sale for Bitcoin
One of the most visible ways that bitcoin has been showing up in real estate is through home listings. A number of sellers and agents have been using this tactic to create more buzz and attention for their properties. Some sellers have insisted on all bitcoin. Others have asked for payments split between US dollars and bitcoins. This may work well for high-end house listings where the most likely buyers may have and want to use their bitcoins for real estate. This appears to be an increasing trend as many have enjoyed big wins in cryptocurrency and are looking for a way to balance that and preserve their gains by converting them into tangible real estate assets.
Renting Homes for Bitcoins
Expedia.com has been increasingly taking on Airbnb-style vacation rental listings. The massive travel booking site also accepts bitcoins. For many, this may be an increasingly popular way to lease and rent. Especially with more individuals holding small amounts of cryptocurrency, and a larger percentage of the population adopting a more nomadic lifestyle.
Crypto as a Real Estate Business
There are also physical cryptocurrency exchange offices and stores. More of these may be franchised and pop up in order to increase traction in the market, and build trust with those slow to adopt the currency or who want to do business in person, offline. For owners and operators of these commercial properties, cryptocurrency could become a real estate business much in the way that Mcdonald’s is.
Real Estate Fundraising with ICOs
One of the most popular ways entrepreneurs are trying to incorporate digital currencies into real estate transactions today is by creating new currencies and tokens for buying, renting, trading, and investing in real estate, without having to conduct a traditional transaction. This is more like buying shares in a company that may own real estate.
The Advantages of Using Cryptocurrency in Real Estate
There are many potential benefits and uses for cryptocurrency in real estate, including:
- Privacy when buying property
- Easier international and overseas transactions
- Liquidity in real estate investing
- Reducing the cost of real estate transactions
- Avoiding tax on transferring property rights
- Gaining attention in the press
- Balancing the security of brick and mortar real estate with the flexibility of bitcoin.
The Dangers of Getting Involved with Cryptocurrencies
There are also many risks and dangers of getting involved with cryptocurrencies:
- Losses due to hackers.
- No downside protection and hard collateral.
- Bad actors and entrepreneurs with no real estate experience
- Hyper volatility
- Control over currency prices held by very few influencers
- Risk of new regulations.
One of the biggest risks and fears in this space is that regulators will step in, crackdown, and either take control over or squeeze operators hard. Fortune reports the biggest of such moves so far happening at the end of February 2018. The SEC (Securities and Exchange Commission) began firing out new subpoenas to those connected with various ICOs, demanding extensive amounts of their data. This follows a December 2017 criminal suit against a firm that used an ICO to raise $15M. The SEC sees these offerings as securities, and as such has regulatory governance over them. This should be a clear warning for promoters to make sure they are following securities laws, regulations, and filing requirements.
Cryptocurrency has been hot. Despite recent issues with crazy value fluctuations people still believe in it, and that it is the future. Digital currencies have many applications in real estate, with many potential benefits for promoters, investors, individual buyers, sellers, renters, and the market itself.
Still, individuals and businesses do need to be careful, but it will be exciting to see what is coming next, and what works, even though it is unlikely to be a smooth ride. UpNest.com is a technology-driven platform to find top real estate agents from San Francisco, CA to New York, NY. It’s perfect for ICO promoters looking for inventory and deal flow for their platforms. As well as for individuals still sticking to a more traditional and proven method of buying property, but who still want to save big when they buy and sell.
For now, the average individual who both wants to buy a home and participate in bitcoin may find it is better to keep these two investments separate. Buy your home, and take a little cash and buy a part of a bitcoin for a few hundred dollars. Then you won’t feel as if you missed out, but aren’t risking your home and entire investment portfolio on virtual money either. If your bitcoin blossoms, then use your gains to pay down your home mortgage or buy investment properties. If you are feeling more adventurous, then get out there and test the waters with different currency options. Just don’t put in more than you can afford to lose.