Financing Luxury Real Estate with Cryptocurrency

The question has come up in the luxury Hamptons and New York City real estate industries, “can Bitcoin be used as leverage for a home purchase?” This leads to the bigger question, how can one best leverage their coin and cryptocurrency in this hot New York real estate market?

The short answer is that it is possible to obtain a mortgage leveraging cryptocurrency, but it is probably not the best way to do it. There are some logistics and requirements to understand if this financial product is helpful to your overall portfolio right now or not.

The first thing to know is that the cryptocurrency will need to be held in a centralized exchange (CEX) wallet so the funds can be tied to the borrower. If it is in a decentralized exchange (DEX) wallet, there is nothing that ties those funds to the borrower. CEX’s offer less control for a user over their funds and are more susceptible to hacking, making them less secure, so this may or may not work for a particular investor.

The majority of advice regarding finding a lender who will accept working with your coin is to lean into crypto lending networks or exchange platforms. Celsius lends on cryptocurrency, as does Milo. As of July 6, 2021, El Salvador considers crypto legal tender so an international lender from there can possibly help.

United Wholesale Mortgage, the #2 mortgage lender in the country, started accepting crypto as payment for mortgages in September 2021. Due to the complications and regulations surrounding the payment transaction, it ceased accepting crypto as mortgage payment after a couple of months, which has slowed its welcome into this sector.

Regulations being explored by US lawmakers should help with making these payment processes easier for institutions who want to be able to accept them.

“You also should know that there would have to be some cash involved to pay title fees, taxes and insurance, the attorney-closing costs. Those vendors likely won’t accept crypto,” said real estate agent David Rogers of Compass NYC, who has been answering these very questions for some of his buyers.

Some buyers working with real estate agent Christopher Covert of Compass Hamptons have considered utilizing their Bitcoin for a downpayment to avoid paying capital gains taxes when liquidating.

“Coinbase and BlockFi will do a 50% loan to value ratio, but they will liquidate you above 60 or 65% LTV. So if you have $1,000,000 in Bitcoin, you could tie up $250,000 and get a $50,000 loan with little risk of being margin called. But cryptocurrency is still volatile so this product is not for the risk-averse,” said Covert.

A better route for those who are in crypto for the long haul could be to look into relocating the primary residence to Puerto Rico where there is no capital gains tax – which is what some heavy hitter crypto investors have done to avoid this problem. US lawmakers continue to take steps to regulate cryptocurrency and, if successful, should make the coin easier to use in these types of transactions.

For now, utilizing cryptocurrency to finance a New York home purchase doesn’t look to be a question that will lead to any kind of trend. It seems the best way to leverage your crypto to purchase real estate right now is to cash it out and obtain a loan with US dollars or to make the entire purchase with your cryptocurrency.

“It is easier to purchase a home outright using Bitcoin, but be mindful that the seller will want to ensure that the price agreed for the property is the amount in equivalent coin to be paid on the closing day. The market ups and downs will be the buyer’s burden until the closing day,” Rogers cautioned. So far, sellers are not running en masse to list with an accompaniment of being willing to accept crypto as payment for their home sale.

A better strategy for leveraging cryptocurrency for real estate may be to explore the digital real estate options available.

Adrianna Nava is the founder of Hamptons Market Data and Director of Market Intelligence for Covert at Compass. Read more of her columns on Behind The Hedges.