Yes, it’s increasingly possible to turn your Bitcoin holdings into tangible assets like a home. As cryptocurrency moves into the mainstream, more and more people are buying homes using Bitcoin.
In this guide, we’ll take you through everything you need to know about buying real estate with Bitcoin, covering the options, processes, and benefits.
The Growing Market Acceptance of Bitcoin
Initially, Bitcoin was used primarily for online transactions within tech-savvy communities. Over time, its value proposition as a decentralized currency attracted more users, and businesses began to recognize its potential. Today, the real estate sector, known for its traditionalism, has also started to adapt.
Early adopters have shown that Bitcoin can be a viable payment method for real estate transactions. From luxury apartments in New York to villas in Dubai, Bitcoin transactions in real estate have been growing in popularity. This week, entrepreneur Grant Cardone listed his $42 million property in Golden Beach, Florida, through a blockchain-based platform.
This all reflects a growing confidence in cryptocurrency as a legitimate form of payment.
Related Content: Bitcoin Adoption in Latin America: Transforming Economies
The Different Ways to Buy a House With Bitcoin
There are several ways to buy a house with Bitcoin:
Cash Out Your Cryptocurrency
The most common method is to convert your Bitcoin into traditional currency, such as USD or EUR, and then use this cash to purchase the property. This process involves selling your Bitcoin on an exchange and transferring the funds to your bank account.
Transfer Crypto from Buyer to Seller Directly
If the seller accepts Bitcoin, you can transfer the agreed-upon amount directly from your Bitcoin wallet to the seller's. This method bypasses banks and other intermediaries, making the transaction swift and direct.
Get a Mortgage with Bitcoin as Collateral
Some platforms, such as Ledn, allow you to use your Bitcoin as collateral for a mortgage. This way, you can retain ownership of your Bitcoin while securing the necessary funds to buy a house.
Read more: Crypto Backed Mortgages - What You Need To Know
Take Out a Crypto Loan
Platforms like Ledn offer Bitcoin-backed loans, allowing you to borrow fiat currency against your cryptocurrency holdings. These loans can provide the necessary funds for a down payment or even the full purchase price of a property, without having to sell your Bitcoin. This option maintains your investment in Bitcoin while enabling you to invest in real estate.
Read more: Best Bitcoin Loans in 2024
Advantages of Buying a House With Bitcoin
Speed and Efficiency
Bitcoin transactions can be completed relatively quickly compared to traditional bank transfers, which can take days to clear.
Lower Transfer Fees
Using Bitcoin can reduce the transfer fees, especially when compared to international money transfers.
Global Reach
Bitcoin's decentralized nature allows for easy transactions across borders.
No Currency Exchange Issues
When dealing with international real estate transactions paid with Bitcoin, Bitcoin eliminates the need to worry about fluctuating and costly exchange rates associated with local currencies.
Enhanced Security
Bitcoin transactions are secured by blockchain technology, reducing the risk of fraud and providing a transparent transaction history.
No Credit Scores
Traditional mortgages heavily depend on credit scores to determine loan eligibility and interest rates. Bitcoin-backed mortgages are more lenient. Since your cryptocurrency collateral reduces the lender's risk, individuals with less-than-perfect credit scores might find it easier to secure financing.
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Risks and Disadvantages of Buying a House With Bitcoin
Volatility
Bitcoin's value can fluctuate significantly, posing a risk to both buyers and sellers in a real estate transaction.
Limited Acceptance
Not all sellers or real estate agents accept Bitcoin, which can limit your options when searching for a property.
Regulatory Uncertainty
Cryptocurrency regulations vary by country and are still evolving, which can complicate the transaction process.
Tax Implications
Using Bitcoin for a large purchase like real estate can trigger tax events, such as capital gains tax, which need to be carefully managed. Always check with a tax advisor if you’re uncertain how you might be affected.
Market Perception
Despite growing acceptance, some parties in the real estate market may still view Bitcoin with skepticism, potentially complicating negotiations.
Can I Use Bitcoin To Pay Off My Mortgage?
Whether you can use Bitcoin to pay off your mortgage depends on your lender. Some forward-thinking lenders are beginning to accept Bitcoin and other cryptocurrencies, but this is not yet a common practice. A simpler option would be taking out a Bitcoin-backed loan to pay off your mortgage.
Read more: Understanding Crypto Loans - The Ultimate Guide
Preparing for a Bitcoin Real Estate Purchase
To prepare for buying a house with Bitcoin, ensure you have a secure and reliable wallet, stay updated on cryptocurrency regulations in your area, and consult with a real estate agent and tax advisor experienced in Bitcoin transactions. Additionally, a legal advisor who understands cryptocurrency can help navigate any legal complexities.
Should You Use a Bitcoin Mortgage?
A Bitcoin mortgage might suit people who want to make the most of their cryptocurrency holdings without selling them. This option is best for those comfortable with the risks associated with Bitcoin's volatility. Traditional mortgages may be better for buyers who prefer stability and predictability in their financial planning.
There are a few mortgage options available.
The Types of Bitcoin-Backed Mortgage Products
Crypto-backed mortgages come in a few different forms, each tailored to specific financial needs.
Secured Loans with Bitcoin as Collateral
Secured loans with Bitcoin collateral involve pledging your cryptocurrency holdings as collateral to secure a real estate loan. In this arrangement, your cryptocurrency acts as a guarantee to the lender that you will repay the loan. If you fail to meet your repayment obligations, the lender can liquidate your cryptocurrency holdings to recover their funds. This type of loan provides access to financing while allowing you to retain ownership of your digital assets.
Read more: What are Bitcoin Loans? And How Do They Work?
Personal Loans with Bitcoin as Collateral
Unlike secured loans specifically tied to real estate, personal loans with Bitcoin as collateral can be used for various purposes, such as debt consolidation, home improvement, or travel. These loans offer flexibility in how you use the funds while leveraging your digital assets as collateral.
Read more: How to Get a Bitcoin Loan in 12 Simple Steps
Smart Contracts for Mortgage Payments Using Bitcoin Holdings as Collateral
Smart contracts are self-executing agreements that automate aspects of the lending and repayment process. When using Bitcoin as collateral for a mortgage, smart contracts can be programmed to manage the collateral and loan repayment automatically. If you fail to meet your repayment obligations, the collateral is automatically liquidated to cover the outstanding loan amount.
What You Need to Do to Obtain a Bitcoin-Backed Mortgage Loan
1. Legal and Regulatory Compliance
- Cryptocurrency Regulations
Adhere to local laws and regulations governing cryptocurrency use and lending practices, which vary by jurisdiction.
- Know Your Customer (KYC) and Anti-Money Laundering (AML) Checks
Complete verification processes requiring personal identification documents and proof of the source of cryptocurrency holdings to prevent illicit activities.
- Taxation and Reporting
Report Bitcoin holdings and transactions for tax purposes as required by local tax authorities. Check with a tax advisor if you’re uncertain how these apply to you.
2. Smart Contract Agreements
- Some mortgages operate through self-executing smart contracts that ensure compliance with loan repayment schedules and collateral management.
3. Collateral Requirements
- Pledge Bitcoin holdings as collateral. This often required over-collateralization to safeguard against market fluctuations.
4. Documentation
- Provide necessary documentation, including identification documents, proof of cryptocurrency ownership, and additional information as required by the lender.
5. Collateral Management
- Lenders may use secure mechanisms like multi-signature wallets or smart contracts to hold and manage the cryptocurrency collateral.
6. Loan Agreement
- Enter into a detailed loan agreement specifying the loan amount, interest rate, repayment schedule, and consequences of default. Thoroughly review the terms before proceeding.
Where Can You Get a Bitcoin-Backed Mortgage?
Ledn enables Bitcoin holders to borrow up to 50% of their Bitcoin’s market value using their loan products.
In 2021, Ledn offered the first-ever Bitcoin-backed mortgage in Canada, allowing borrowers to purchase property of equal value to their Bitcoin collateral, minus interest and fees.
Last year, Ledn partnered with Parallel to enable crypto holders to finance properties in the Cayman Islands using digital assets, allowing them to secure a "Golden Visa" without selling their cryptocurrency.
Other popular platforms offering Bitcoin-backed mortgages include Milo, Figur, and USDC.homes.
Why Ledn?
Ledn stands out in as a Bitcoin-backed loan provider for several reasons:
Fast Access to Cash
Bitcoin-backed loans provide quick access to funds without selling BTC, typically paid out within 24 hours. They can be used to buy a home or do anything else you like.
Tax Efficiency
In many jurisdictions, borrowing against your digital assets is not considered a taxable event, while selling them would be taxable. Some jurisdictions also consider the interest payments to be tax deductible depending on the purpose of the loan. This helps many clients gain liquidity on their digital assets in a tax efficient manner. Please note this varies by jurisdiction, and you should consult a tax professional before taking a Bitcoin-backed loan for tax purposes.
No Monthly Payments
Loans can be repaid at any time without penalties, and no monthly payments are required.
B2X Loans
These combine a Bitcoin-backed loan and a BTC purchase, allowing users to double their BTC balance.
Read more: How to get a loan to buy more Bitcoin
Proof-of-Reserves
Ledn was the first digital asset lending company to complete a Proof-of-Reserves attestation with a Certified Public Accountant, a procedure carried out every six months.
Conclusion
Buying a house with Bitcoin is increasingly feasible. To get started, open an account with Ledn, a trusted platform for your Bitcoin and other crypto assets.
Disclaimer:
This article is sponsored by 21 Technologies Inc. and/or its subsidiaries (“Ledn”) and is for general information, discussion, or educational purposes only and is not to be construed or relied upon as constituting legal, financial, investment, accounting, tax, estate-planning, or other professional advice or recommendation. Please read Ledn’s full Risk Disclosure Statement and Disclaimers.
