Why real estate buyers and sellers would want to use Bitcoin?

Why real estate buyers and sellers would want to use Bitcoin?

April 24th, 2018

Selling your condo for Bitcoin definitely increases your client base in an instant. This digital currency almost dissolves borders. Since Bitcoin has its own value system and does not succumb to the inflation of fiat currency (read real world currency), it makes clients less sensitive to the fluctuations of their country’s currency value.

It also comes in handy for clients living in countries with stringent controls on the outflow of cash. Since these limits are not applicable on Bitcoin, foreign clients can go for higher value transactions. Even better, their government may not be able to track the Bitcoin purchases or even have laws governing out-of-country Bitcoin asset purchases, thereby allowing the buyer to completely fly under the radar of currency controls. However, buyers looking at very high value deals would need to check the transaction limits prescribed by their Bitcoin exchange such as Coinbase, BitPay or CoinKite, in case they intend to use one.

Another reason one might want to sell using Bitcoins is that you would have the choice to hold the Bitcoin in your wallet and use it for future transactions. You could also hold on to the Bitcoin till it hits a profitable value and cash it into dollars using the payment service providers/exchanges mentioned above. This seems pretty lucrative considering that the price for this cryptocurrency has surged 900% since its creation in 2009.

Downsides and risks of selling real estate using Bitcoin

Just like everything else in life, selling real estate for Bitcoin has its downsides. One of the biggest advantages of this cryptocurrency is also its biggest disadvantage – price volatility. If Bitcoin prices can move up quickly to rake in a profit, they can also easily dive southward. So, setting an upper and lower limit (as mentioned above) can give sellers a cushion against this volatility. Also, sellers willing to take Bitcoin for property might want to convert it into cash or purchase something tangible like property or other items to lock in their profit.

Downsides and risks of buying real estate using Bitcoin

One of the most obvious downsides of buying real estate with Bitcoin is needing fiat (real) currency to cover ancillary costs. Purchasing a condo or home comes with additional costs involving inspections, title searches, transfers, legal fees, permits, agent fees, etc. However, not all of these service providers are willing to accept a Bitcoin payment – fiat currency is the only recourse in most cases.

Also, Bitcoin value moves on a day-to-day basis. So, if you’re planning to buy real estate using Bitcoin it would be safe to have extra (digital) cash in your wallet to cover for any last-minute changes that deviate from the price tag on closing day.

Another pitfall of buying real estate with Bitcoin is the lack of loans. While SALT is making loans available for the Bitcoin collateral, a majority of banks and financial institutions are still not comfortable with the idea of backing digital money. You may be able to your Bitcoin “asset” to convert to US Dollars for your down payment, for example, but ultimately you are paying in Dollars.

Though Bitcoin is touted to be an “anonymous currency”, that is not completely true. Each participant of a Bitcoin transaction acquires a sending/receiving public address. Although these addresses run up to 30 characters long and are virtually incomprehensible, they can still be viewed publicly. The repeated use of an address can reveal patterns and ultimately lead to the identity of the owner.

While it is recommended to use a new address for every single transaction, and newer wallet software achieves that, it still does not make you 100% anonymous. Freely available analytical tools and blockchain explorers can link single transactions to form a chain and reveal the owner’s identity. So, while it does provide you with a certain sense of privacy, the Bitcoin user won’t remain 100% hidden.
The IRS prescribed some guidelines for cryptocurrencies such as Bitcoin in 2014. First of all, cryptocurrencies will be treated as property, and not currency, for tax purposes. So, in the eyes of the IRS, you are making two transactions when buying real estate with Bitcoin. First, you are selling property (Bitcoin). Second, you are using the proceeds of that sale to make your purchase. And, each time a property is sold, it has to be reported in your tax forms.

If, at the time of your purchase, the Bitcoins have appreciated in value from when you first obtained them (which most likely they would have), you are liable to pay a capital gains tax on the difference in value. Whether you pay a long term or short term capital gains tax relies solely on how long you’ve held them. If you held them for less than a year, you will be taxed for a short term gain and vice-versa.

Technically, the IRS holds you responsible for listing every purchase you make in a year using Bitcoins and pay taxes on your gains, no matter how small they may be. Even cashing out your Bitcoins makes you liable to pay a capital gains tax. What one must bear in mind is that each and every Bitcoin transaction is stored in the blockchain. This means a highly motivated IRS could end up finding every purchase you make.