Real estate for crypto traders

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One of the first U.S. home sales was done by Sotheby’s International in Austin, Texas back in September 2017, when 1 bitcoin was worth $3,429. Since then we saw the price of a single bitcoin nearly hit the $20,000 mark. Experts say, that the first purchase people make with their earnings from crypto trading is a home. This has enforced more and more real estate agencies and developers to adapt to the new trend and give clients the opportunity to pay in cryptocurrencies.

Today, a batch of 50 Dubai luxury flats offered for sale in bitcoin have all been snapped up. Lingerie tycoon Michelle Mone and her billionaire partner Doug Barrowman announced plans in September 2017 for a $327 million property development in Dubai that would see apartments offered for sale in bitcoin.

Barrowman told Business Insider earlier this month: "We allocated 50 out of 1,300 developments. We’ve sold all out. Some bought ones and twos, and one individual bought ten."

Construction has begun at the site, located in Dubai's Science Park, and it is scheduled for completion in 2020. It is being developed by Barrowman's Dubai-registered firm Aston Developments, part of the Knox Group, which manages a £1.5 billion portfolio of assets including commercial property.

Prices range from studio apartments for $130,000 — currently about 15 bitcoins — to two-bedroom apartments priced at $380,000, or about 45 bitcoins. Yet these prices are tied to the dollar value that is set to the apartment and the bitcoin prices will be taken to reflect the dollar value at the time of sale. This eliminates the risk of volatility for the developer and transfers it to the side of the buyer.

How do these sales work?

The process is fairly straightforward for the homeowner involved in a blockchain currency transaction. It’s the buyer who faces more nuance as he or she weighs the tax implications and other considerations before trading their coins in for square footage, experts say.

 

SELLING FOR BITCOINS

In Miami, for example, a financier is seller a 950-square-foot Miami condo with a price of about 60 bitcoins, said Douglas Elliman broker Dean Bloch.
“My seller has been in finance for the past 25 years and he’s decided to sell this place just for bitcoin,” Mr. Bloch said.The seller owns three other homes and is using the sale of the Miami condo as a way to acquire cryptocurrency, the agent said.

Once they get a suitable offer, the transaction works like an all-cash purchase, but instead of using bank accounts, the buyer transfers bitcoins to the seller’s digital “wallet,” which takes about 15 minutes.

The seller would also need a lawyer at the closing—who might accept fees only in dollars rather than bitcoin—and/or find a title insurance company to underwrite the sale, Mr. Bloch said.

A two-bedroom condo traded hands in December for 17.741 Bitcoin, or the equivalent of $275,000 in what Brown Harris Stevens agents Stephan Burke and Carol Cassis said on social media was the first “bitcoin to bitcoin” real estate transaction in the U.S. In past sales that involved bitcoin, the buyer converted the cryptocurrency to fiat through websites like Coinify or Bitpay before closing the sale.

Sellers accepting bitcoin, however, should keep a sharp eye on the daily fluctuations in the currency’s value due to its volatility. They can hedge against potential devaluation by adding a bitcoin premium to the asking price.

BUYING WITH BITCOINS

By contrast, the nouveau riche looking to get something tangible out of their cryptocurrency investment have a bit more to consider. If a seller won’t accept bitcoin outright, then a buyer needs first to sell to a third party for U.S. dollars, euros or another fiat currency.

Property site Redfin reports that its brokers have facilitated a number of deals where buyers sold bitcoins to make the down payment. For instance, one buyer sold two coins, each for over $7,400, to make the down payment on a home in Carlsbad, California.

Not every exchange has gone so smoothly, however. Redfin Agent Carina Isentaeva, based in San Francisco, saw a deal for a luxury home in Silicon Valley fall through when the client couldn’t sell bitcoins in time to make good on his offer.

Even a direct exchange of property for bitcoins holds tax implications a buyer should consider, said Robert W. Wood, a San Francisco-based tax lawyer.

The U.S. government recognizes bitcoin as property and officially under the new tax law starting Jan. 1, 2018, anyone trading cryptocurrency would trigger a capital gains tax.

Mr. Wood compared buying property with cryptocurrency to trading IBM stock for a new home. The home buyer would pay roughly 20% in capital gains tax and another 3.8% net investment tax on the amount their bitcoins had appreciated since they first bought or mined for them. That could be one doozy of a tax bill if the trader got into the crypto game when infant bitcoins were worth less than a dollar.

Bogdan Maslea