Cryptocurrency in Real Estate

Many mainstream companies are implementing ways to accept cryptocurrency in exchange for payment of goods and services, and real estate is no exception. In fact, cryptocurrency is making its way into real estate in various ways.

While some people view it as a revolutionary financial option that offers its users convenience and autonomy, some see it as a volatile and dangerous disruption. Others have yet to wrap their head around it. Whatever your views, there are several things you need to be aware of when cryptocurrency is used in real estate transactions. But first, let’s take a look at what cryptocurrency is and how it’s making its way into real estate.

What is Cryptocurrency?

Cryptocurrency (often referred to as crypto) is a digital or virtual currency that is conducted, authenticated and recorded on a distributed ledger known as blockchain. Crypto allows secure peer-to-peer transactions via the internet using encryption technology called cryptography. There is no central issuing or regulating authority when it comes to crypto, which means there is little to no federal government oversight. However, in recent months, the Biden Administration released an executive order outlining a comprehensive approach to the regulation of digital assets, including crypto and stablecoins, a form of crypto tied to another asset such as fiat currency (U.S. dollar).

There are several crypto coins on the market. Crypto can be purchased from a broker or online crypto exchange. There are hundreds of exchanges to choose from, each with their own variations of coins and fees. An order for crypto is generally placed with a simple click of a button. Once a purchase is made, a safe and secure storage option, like a crypto wallet, will need to be considered to protect it from theft and cybercriminals.

The Rise of Crypto in Real Estate

The adoption of crypto in real estate is gradually rising. In recent news, popular crypto like Bitcoin and Ethereum have made headlines as trendy forms of payment for luxury properties in Miami and New York. Various real estate firms and brokerages are willing to accept commission payments in crypto and, according to a report conducted by Redfin, one in nine first-time homebuyers sold crypto to help finance a down payment on a home. Let’s take a look at some other examples of how crypto is emerging in real estate:  

* For sale listings: Crypto is showing up in real estate listings. Some property owners have fully embraced crypto and are comfortable selling their property in exchange for it, while others are more inclined to accept a combination of crypto and fiat currency, or utilize a third-party exchange or broker, like BitPay and ForumPay, to convert the entire crypto payment into cash.

* Real estate-backed tokens: The concept of converting real estate shares into digital tokens is a process referred to as tokenization. Although a property cannot be tokenized, a limited liability company (LLC), for instance, can. With tokenization, an LLC is able to fractionalize a certain number of tokens to represent a value equal to an amount of equity each buyer (or member) has in a property it owns. Tokens can be bought, sold or traded on a token marketplace. Once purchased, tokens are transferred to a buyer’s crypto wallet and render property ownership by means of membership interest in the LLC.

Tokenization is a growing trend among real estate investors who use it to diversify portfolios and raise capital more efficiently. Yet, it still has a laundry list of tests to pass before it can be viewed and operated at an industry-grade level.   

* Crypto-backed mortgages: A handful of lenders have rolled out plans to offer crypto-backed mortgage loans for homebuyers. Milo, a Florida-based startup, is the first. By pledging crypto, Milo offers consumers 30-year loans of up to $5 million with rates as low as 6.95 percent. Various other companies have followed suit by offering similar products.

In theory, crypto-backed mortgages work just like traditional mortgages with one difference: crypto is used as collateral. These products can be useful for those who have a lot invested in crypto, but they are still extremely new and come with a lot of risks. For example, if the value of crypto crashes, so will the collateral. Devaluation could prompt a creditor to ask a borrower to pay more crypto or liquidate their assets to compensate for the loss.

As with any real estate investment, due diligence is key. Investors and consumers should make sure they have a concrete understanding of crypto products and related services and seek out a real estate professional who has experience with crypto transactions.  

Crypto and the Closing Process

When it comes to crypto and the closing process, there are certain requirements that investors and consumers need to be aware of:

* Good funds law: Crypto is not a legal tender issued by the government. Therefore, it does not meet the good funds standard for disbursements and other closing-related fees, and many title insurance and settlement service providers do not accept funds in crypto. While the good funds law varies by state, a wire, cashier’s check and a certified check are common examples of good funds.

True crypto transactions, where money is never converted into U.S. dollars, are rare. To ensure a level of security, the American Land Title Association (ALTA) developed best practices that title insurance and settlement service providers should consider when dealing with crypto from consumers. Click here to learn more.

* Anti-money laundering (AML) protocols: Financial institutions, including decentralized finance (DeFi) entities, are required to carry out certain identity verification and background checks referred to as Know-Your-Customer (KYC) protocols that fall in line with AML requirements. Crypto transactions are generally tied to numerical IDs and not names, which means a heightened compliance infrastructure for crypto that can take a week or longer to complete.

* Lender income requirements: The volatility of crypto combined with regulatory uncertainty makes it hard for lenders to assess its level of risk. For this reason, crypto is generally not accepted as a declarable income and may not be included in the calculation of assets as a basis for repayment of the obligation.

* Tax, FinCEN and other state reporting: The Internal Revenue Service (IRS) classifies crypto as personal property for tax purposes. If crypto is sold in exchange for real estate or used to make monthly mortgage payments, it could be subject to capital gains tax. According to FinCEN, crypto is referred to as a convertible virtual currency. That means it is a type of virtual currency that either has an equivalent value of or acts as a substitute to fiat currency, and therefore is considered a fiat currency and does not evade reporting requirements.

The Future of Crypto in Real Estate

Crypto has been around for over a decade, but its use in the real estate sector is relatively new. Despite its novelty, some experts consider it the future of finance, including real estate. Although interest is rising, the overall demand is still relatively low. On one hand, crypto presents many valuable incentives for real estate professionals, investors and consumers for its efficiency and flexibility. On the other, it presents inherent flaws, such as value fluctuations and lack of credibility as tangible collateral in the eyes of most lenders.

So, what role will crypto plan in the future of real estate? Will an increasingly digital marketplace cause demand to rise, or will the emergence of new regulation cause it to fall? These are questions that can only be answered in time. Until then, Old Republic Title is here to be a valuable resource for all your title and closing needs.


This material is for educational purposes only and does not constitute legal advice. Old Republic Title strongly recommends that consumers obtain guidance and advice from qualified professionals, including attorneys specializing in cryptocurrency real estate transactions, real property law, or tax law to get more detailed and current information as to their particular situation.