How to buy real estate using digital assets

Cryptocurrency is finally seeing real-world adoption, and real estate is one of the most compelling use cases. From high-profile figures like Mayor Francis Suarez, who was one of the first government officials to be paid in crypto, to Milo's $65M+ in crypto mortgage transactions, digital assets are becoming a legitimate tool for homebuyers. While the industry is still evolving, new financing options are allowing investors to leverage their crypto to enter the real estate market. Here’s how:

Sell crypto to buy property all-cash or for a down payment

One traditional approach involves liquidating cryptocurrency assets into fiat currency to purchase real estate outright or to cover a down payment.

Process and considerations

Converting crypto to fiat typically requires using exchanges or over-the-counter (OTC) services, followed by transferring the funds to a bank account for the property transaction. This method, while straightforward, has several implications:

• Tax liabilities: Selling crypto can trigger capital gains taxes, affecting the net proceeds.
• Market volatility: The fluctuating nature of crypto markets means timing the sale is crucial to maximize value.
• Banking challenges: Some financial institutions may scrutinize large deposits from crypto sales, potentially leading to delays or additional documentation requirements.
• Opportunity cost: Liquidating crypto assets eliminates exposure to potential future appreciation, which could result in missed financial gains.

Get a crypto loan

For those seeking liquidity without divesting their crypto assets, crypto loans offer a viable solution.

How it works Investors can use their cryptocurrency holdings as collateral to secure loans, often in fiat or stablecoins. This approach allows access to funds while retaining ownership of the digital assets.

Advantages and considerations

• Quick access to capital: These loans often feature streamlined approval processes, providing faster liquidity compared to traditional loans.
• Preservation of asset appreciation: Borrowers maintain exposure to potential crypto value increases.
• Collateral requirements: Crypto-backed loans typically require a 2:1 collateral-to-loan ratio (e.g., a $100,000 loan requires $200,000 in crypto assets).
• Risk of liquidation: Significant drops in crypto value can trigger margin calls or liquidation of assets.
• Interest rates: Rates may be higher than traditional loans, reflecting the increased risk.

Get a crypto mortgage

Crypto mortgages represent a fusion of digital assets and real estate financing, enabling investors to use their cryptocurrency as collateral for property purchases.

How it works In a crypto mortgage, borrowers pledge their crypto holdings to secure a mortgage, potentially financing up to 100% of the property's value without requiring a traditional down payment. Milo is the only regulated lender currently offering crypto mortgages, providing innovative solutions for crypto investors. The required collateral ratio varies, but a simplified rule of thumb is a 1:1 ratio for 100% financing (e.g., a $500,000 home requires $500,000 in crypto assets).

Benefits Asset retention: Borrowers can acquire real estate without liquidating their crypto holdings, avoiding immediate tax liabilities and maintaining potential for future appreciation.

Simplified qualification: With sufficient crypto assets, the approval process may involve less documentation compared to traditional financing methods.

The evolving regulatory landscape

The integration of cryptocurrencies into traditional finance, especially in real estate, has prompted regulatory bodies to adapt and establish clearer guidelines.

Key regulatory bodies

• Securities and Exchange Commission (SEC): Oversees securities-related activities involving digital assets, ensuring compliance with federal securities laws.
• Commodity Futures Trading Commission (CFTC): Regulates commodity derivatives, including certain crypto assets.
• Financial Crimes Enforcement Network (FinCEN): Focuses on anti-money laundering (AML) regulations within the crypto space.

(Source : KYC Hub)

Recent developments

• Executive support: An executive order was signed to bolster the digital assets industry, signaling a more supportive stance toward crypto innovation.
• Regulatory restructuring: The SEC has shifted its focus, creating a "crypto task force" to formulate clear guidelines, aiming to encourage innovation while protecting investors.
• Legislative initiatives: Bills like the Financial Innovation and Technology (FIT) for the 21st Century Act and the Blockchain Regulatory Certainty Act have been introduced to define when a cryptocurrency is a security or a commodity, expanding oversight of the industry.

Implications for investors A more regulated environment offers greater protection and confidence for investors. However, it's essential to stay informed about jurisdiction-specific regulations that may impact crypto-financed real estate transactions.

Risk mitigation strategies

Investing in real estate using cryptocurrency necessitates careful consideration of potential risks and the implementation of strategies to mitigate them.

• Asset selection: Diversifying crypto holdings and focusing on established cryptocurrencies like Bitcoin and Ethereum can reduce exposure to extreme volatility.
• Lender practices: Choosing lenders that do not engage in rehypothecation (reusing collateral for their own purposes) ensures that pledged assets remain secure. As the industry evolves, aligning with reputable institutions that adhere to regulatory standards is crucial.
• Market awareness: Staying informed about market trends and regulatory changes can help investors make timely decisions, thereby minimizing potential adverse impacts.

Comparing financing options

Understanding the distinctions between various financing methods is vital for investors considering leveraging cryptocurrency for real estate.

The future of crypto in real estate The convergence of cryptocurrency and real estate signifies a broader acceptance of digital assets in traditional markets. As regulatory frameworks solidify and institutional adoption rises, the utilization of crypto for property transactions is poised to become more mainstream. Investors should remain cognizant of evolving regulations and market dynamics to navigate this emerging landscape effectively.

The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.