Why Real Estate Owners, Investors Are More Inclined To Use Bitcoin For Property Transactions
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It was only a matter of time before cryptocurrencies began to permeate the commercial real estate industry.
Slowly but surely, sellers are broadening their buyer pools by accepting bitcoin transactions when trading property, and landlords across the country are increasingly accepting bitcoin for rent payments.
“Cryptocurrency is becoming the biggest move in terms of modifying the way people make transactions, most notably in real estate. So if you pit residential against commercial — it really depends,” Tariq AlWahedi, founder of new travel platform Cryptobnb said. “Right now we are seeing the craze hit both industries, equally.”
Bitcoin is already widely accepted in the restaurant and retail industry. Retailers like online player Overstock.com, Subway, online electronics retailer Newegg and KFC in Canada accept bitcoin payments. Even the world's largest online travel agency, Expedia, allows patrons to pay for hotel bookings using bitcoin.
As for real estate transactions, the use of bitcoin and other digital currency is still fairly nascent.
“People often see taking bitcoin as a risk, and while bitcoin is certainly volatile, we think it’s measured off a bit and will become more stable,” Magnum Real Estate Group President Ben Shaoul said.
Shaoul was among the first to adopt bitcoin for commercial real estate transactions.
He is repurposing a former nursing home at 62 Ave. B on the Lower East Side of Manhattan. The project, called Liberty Toye, is being redeveloped into hipster condos that Shaoul will allow buyers to purchase using bitcoin. He is also developing a condominium at 196 Orchard St. in New York City. The 96-unit complex will go for $700K to $1.5M.
In hopes of attracting younger tenants, New York City-based Brookliv is accepting bitcoin rental payments for a brownstone in Fort Greene, and the company is not alone. Beverly Hills-based Hubilu Venture Corp. acquired apartments near the University of Southern California for which it is accepting bitcoin rental payments.
Bitcoin is also widely used in Miami, which is not a surprise considering that is a gateway market for foreign investors and foreign buyers are much more comfortable with the cryptocurrency than American companies, CNBC reports. In December, an individual put a Miami penthouse condo up for sale for 33 bitcoins, which was valued around $544,500 at the time, and specified they will not accept any other form of payment. In Seattle, a homebuyer just used bitcoin and other cryptocurrencies for the downpayment on a home last month.
This is the latest trend in the industry aimed at attracting investors not easily intimidated by technology. Joel Leslie — co-founder and partner at Propify, a blockchain-based real estate marketing solution platform — said using bitcoin to make payments is just as simple as using Apple Pay. The primary difference being Apple Pay pulls money directly out of your bank account, while bitcoin pulls money out of your bitcoin wallet.
“The evolution of cryptocurrencies will be exciting to see as time goes on,” Shaoul said. “Much like the internet, we are seeing more of a commonality with just how important cryptocurrency is in the world, rather than without.”
Though bitcoin prices ended 2017 red-hot and broke several records, it is starting the new year off on a low note.
The currency began 2017 worth a mere $950 before jumping to exceed $10K by Nov. 28. Not even a full 30 days later, the currency was grazing $20K in value. It has since dropped to $11,268.53 as of Jan. 25.
Using cryptocurrency to purchase real assets comes with risks. The likelihood of the currency either soaring high or plummeting low in value is great.
To avoid losing out on money, Propify's Leslie said cashing out the bitcoins as soon as the transaction is complete and the property has traded hands is the safest bet.
“If you’re buying a new retail space in SoHo or something like that … you would buy the bitcoin at a certain amount, and the transaction would need to be very instantaneous,” Leslie said. “[The seller] would withdraw that money and put it in the relevant currency they need.”
Another digital currency that could completely disrupt the real estate industry is ethereum, known for its “smart contracts” that are written on the ethereum blockchain — the technology underpinning the cryptocurrency.
Ethereum is the second-most-adopted cryptocurrency around the globe, after bitcoin, Leslie said. Unlike bitcoin, when investors use ethereum to purchase property, they can stipulate things within the smart contract that are binding and enacted as soon as buyers pay up. For example, sellers can stipulate ethereum coins are to be transferred immediately following the transaction, and it will happen instantly.
“[Ethereum] is a digital currency that is getting a lot of hype right now because of the change it’s doing to real estate. [You] can write a lot of different requirements within that coin,” Leslie said. “It’s got a lot more [of a] future ahead than bitcoin would have.”
Another cryptocurrency headache that can increase risks for property sellers is that it can take several days to transfer coins into the appropriate currency, such as the U.S. dollar or British pound, Joon Properties founder and President Avi Spielman said.
“If you take one of the most popular wallets right now, bitcoin or ether, the transaction processing time and even the processing fee can change. For example, when there is high volume demand for a currency, it can take six to eight days (or more) for those transaction to process,” he said. “The timeline and fees vary based on exchange or currency.”
The Value Of Digital Currency For CRE
There remain several hindrances to the industry embracing digital currency as a common and trusted form of payment, including a lack of understanding about how it works, concerns regarding a lack of regulatory governance of the currencies and the lingering stench of past stigmas.
"I think there is a stigma because the market is still in its infancy and people are scared to go full-throttle into something they don’t know enough about,” AlWahedi said. “Yet, we are beginning to see how a combination of blockchain and cryptocurrencies could transform multiple industries when mainstream adoption arrives. Saving time, cutting costs and reducing risk is a language that every real estate CEO understands — so the positives outweigh the stigma.”
For real estate investors looking to acquire properties using bitcoin, the value of the coin lies in what they can buy with the digital currency, Spielman said. The slimmer the options, the less value the currency holds. As the currency is more widely adopted in the industry, it will hold more value for investors.
For owners looking to sell, Spielman said the value of bitcoin lies in the ability to broaden the number of potential buyers they can target, further diversifying their reach.
“If the business model is to move inventory, then it would make sense to expand your market to individuals with excess capital to spend, especially if they have limited outlets for that currency. If you’re going to convert the currency immediately into [local currency], what do you care if they pay with bitcoin or not?” Spielman said.