Should I sell my crypto to buy real estate?

In today’s market, making a competitive offer can be stressful and a down payment often serves as a high barrier to entry. When pulling together the funds for a down payment buyers must look at all of their assets–even those they’d planned to hold long-term. Being that crypto assets can be easily converted into fiat currencies (such as USD), it’s become common practice for buyers to liquidate crypto assets to make a down payment. This is unfortunate for a few reasons: the buyer loses out on the potential upside of holding their asset and the conversation often triggers a taxable event. What most buyers holding crypto assets–such as Bitcoin and Ethereum–don’t realize is that they actually have several options when it comes to buying a property with crypto assets. Let’s break down a few of the ways buyers may utilize crypto assets when buying real estate.

How can I use my crypto assets to buy real estate?

There are three main ways to use crypto assets to purchase real estate, not all of which involve selling the crypto assets.

Convert crypto assets to cash

Being that a down payment is typically made in “cash,” traditional logic points towards converting crypto assets into a fiat currency so the cash can then be allocated towards making a down payment. This method is most common, but many speculate it’s mostly due to a lack of knowledge when it comes to alternative options. A 2022 study from Redfin found that 12% of first-time homebuyers sold crypto to make a down payment; this is nearly a 4% increase from 2021.

This method is fairly simple and there are a plethora of well-known service providers that enable crypto investors to trade their crypto for cash. Despite the ease of the process, there are some major downsides to converting crypto assets to cash to make a down payment:

• The crypto assets may appreciate over time and by converting them into cash, you’d be giving up these potential gains. This can be especially painful for those who were early adopters of crypto.
• Converting crypto assets into cash is typically a taxable event. If the crypto assets appreciated between when they were initially bought and ultimately sold, the seller must pay capital gains tax on the transaction. Consult a tax attorney or financial advisor if you plan to go down this road.

If you’d prefer to avoid liquidating crypto assets to make a downpayment you can; there are alternative methods that allow you to keep your crypto intact detailed below.

Transfer crypto directly to the seller

Being that holding crypto assets has become more common, you may be able to build crypto into your offer. In the past few years, sellers have become much more likely to consider offers that incorporate crypto assets. Depending on the seller, you may be able to make an offer with a combination of cash and crypto, or even 100% crypto.

By transferring crypto directly to the seller, this method allows you to avoid converting crypto to cash and, as a result, a taxable event.

But there are also some downsides to transferring crypto directly to the seller.

• You’re still giving up your crypto. Similarly to the last method, by transacting with your crypto you’re not benefitting from future crypto gains.
• Not all buyers will accept crypto. Despite the popularization of crypto, many home sellers may be wary of the asset class’s volatility. If you run into a seller who isn’t comfortable with crypto, they may choose to accept another offer instead, in which case you’d lose out on the property.
• You likely still need to pay for closing costs and other administrative fees with cash. It’s unlikely you’ll be able to finance a real estate transaction solely with crypto assets.

Borrow against crypto assets

The last method to consider allows you to use your crypto to buy a house without having to liquidate or transact with your crypto. This way, you can keep the upside of your crypto and still come up with the necessary cash for a down payment.

The solution is simple–you can borrow against your crypto assets and qualify for a crypto-backed mortgage. There are now lenders that allow you to utilize digital assets as collateral for a loan, some even offer up to 100% financing.

What is crypto collateral?

When using crypto as collateral, you pledge a specified amount of crypto assets to qualify for the loan. The crypto assets are then held in a secure third party custodial account for the duration of the loan. Despite your losing physical custody of the crypto assets, the crypto assets are still yours. When you pay down the loan, your crypto is returned; this way you can still benefit from the upside of holding your crypto assets long-term.

How can crypto loans help you HODL?

HODL, or hold on for dear life, is a term crypto investors use when discussing long-term investing. The idea is to outlive volatile price changes–experienced by crypto assets such as bitcoin or Ethereum–by holding the asset's long-term. According to recent studies, it would seem this investment strategy is growing in popularity: only 28% of Bitcoin currently in circulation has traded hands in the past year. HODL’ers aim to maintain their crypto investments at all costs and wouldn’t consider cashing-out to buy a house. By opting for a crypto-backed mortgage instead of a traditional mortgage, HODL’ers are able to maintain their crypto investments and access the necessary cash to make a competitive offer for a real estate transaction.

Here are a few key benefits of crypto-backed mortgages:

• Maintain your crypto investments and potentially benefit from the assets’ upside.
• Avoid converting crypto assets into cash and, by virtue, a taxable event.
• If you can’t cover a monthly payment you can use your crypto asset as a safeguard. Some lenders allow you to liquidate a portion of your collateralized crypto to cover a payment instead of foreclosing on your property.

Ultimately, crypto-backed mortgages provide crypto investors an opportunity to enter the real estate market all while continuing to participate in the crypto market. This is a crucial financial tool for crypto investors.

Which lenders offer crypto-backed mortgages?

Milo has been at the forefront of crypto-backed mortgages for some time now. Our Crypto Mortgage product is considered an innovative solution designed to bridge the gap between traditional mortgages and crypto loans. Milo’s Crypto Mortgage enables borrowers to leverage their crypto and invest in real estate without selling.

Buy real estate and keep your crypto.

Stop liquidating crypto. Instead, apply for a Crypto Mortgage that compliments your investment strategy.

We make it easy to buy a house and keep your crypto. With Milo, you can:

• Hold on to your crypto and grow your wealth
• Borrow up to $5 million
• Finance up to 100% of your real estate transaction
• Leverage Bitcoin, ETH, and stablecoin
• Receive a competitive interest rate
• Add or withdraw crypto throughout your loan
• Keep on HODLing!

Apply here for a crypto mortgage today with Milo.

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.