Can You Buy a House with Crypto?

Asking for a friend, right? Contrary to popular belief by those that haven’t adopted it yet, cryptocurrency —or crypto — is very much legal, it’s not fake and it’s not just for criminals. The process of buying a home with crypto, however, is as heavy and clunky as breaking in a new pair of Doc Martens. Since the real estate industry is notoriously slow to adopt new technology, the perception is that it’s not a legitimate method but that’s where a skilled real estate agent can help. 

We all know the value of diversifying our portfolios and the same goes for crypto. For those who have built up a significant crypto portfolio, “the right thing to do is to take some of that money off the table and diversify,” said Matthew Hougan, CIO at the crypto asset management firm Bitwise. “Selling some of your crypto to buy a house, or diversifying your portfolio to include more stocks and bonds, is a very great thing.”

Let’s break it down.

Cryptocurrency Defined

The first virtual currency, Bitcoin, was created in late 2008 to introduce a form of peer-to-peer payment that didn’t involve a central bank or third party. Crypto is a decentralized online payment system that operates using a blockchain, which is an encryption technique to regulate the generation of units of currency and verify the transfer of funds. Once a user exchanges their real cash for its equivalent amount in crypto online, a record of that investment is made in the blockchain.

Talking Real Estate Challenges Ahead

Experts are predicting broad acceptance by the conventional banking community but it’s not quite there yet. One issue with crypto is the blockchain foundation it’s built on. While all transactions are easily trackable, they’re also anonymously made under an address that’s kind of like a social media handle. This makes buying real estate with crypto complicated when lenders want to verify where (and who) the money came from.

Last week, for instance, lending powerhouse United Wholesale Mortgage announced they’re going to discontinue the rollout of accepting crypto for mortgage payments. This comes after they excitedly announced the pilot program just this summer to accept Bitcoin, Ethereum and Dogecoin. Executives claimed they didn’t have enough adoption for the program (that only ran one month?!) but maybe they got cold feet.

Another issue with crypto is the value is volatile, meaning it can change as much as daily. Home values also change but not as frequent. An offer made with crypto will also experience fluctuations in value during the timeline of the home buying transaction. The uncertainty that a seller might not receive the value they’d hoped could turn them off from accepting crypto as payment altogether.

“Selling some of your crypto to buy a house, or diversifying your portfolio to include more stocks and bonds, is a very great thing.”

Closing Remark: Taxes Shmaxes

Right now, crypo attracts investors looking to profit by buying and selling rather than using it as an alternative to traditional money. Because of this, the Internal Revenue Service (IRS) classifies digital currencies as property and it can trigger a capital gains tax. The amount you pay depends on your income tax bracket and how long you owned the asset. It’s important to work with your favorite tax advisor if you plan to use crypto to purchase a home.

So to answer the question: Yes, you can buy a house with crypto. Remember, the seller doesn’t necessarily have to accept crypto — because it can be converted to cash — but there does need to be an escrow, title or insurance company that’s on board to make the transaction go smooth. Also, even though many sellers will disclose they’re willing to trade crypto for their house in the listing, it’s still not a feature on all sites. So even if it doesn’t say, ask your well-read REALTOR^® to investigate for you!