How To Buy A House With Cryptocurrency

Cryptocurrency has exploded in popularity during the past few years and has finally made its way into the public eye. With the advent of NFTs and more accessible cryptocurrency investment platforms, it’s no longer unusual to hear someone has invested in Bitcoin or Ethereum.

As the use of cryptocurrency or “crypto” becomes more acceptable, though, it begs a few questions. What can you spend it on, for example? If you have a sizable amount of Bitcoin sitting in the virtual vault, could you use it to buy something like a house?

The answer is somewhat complicated – so let’s take a look at the factors involved in making large purchases with cryptocurrency and examine whether or not it's a feasible option for home buyers.

Cryptocurrency is a type of decentralized, online payment system that operates using a blockchain. Crypto can be exchanged for goods and services in the same way real money can, except that not all vendors will accept it as a valid method of payment – but more on that later. Cryptocurrency as we know it was created in 2008 with the birth of Bitcoin, which was created in the hopes of popularizing a form of peer-to-peer payment that would not have to involve a central bank or any other third party.

There are many different types of cryptocurrency now, with some of the most popularly traded ones including Bitcoin, Ethereum and, most recently, Dogecoin. You can purchase cryptocurrency on many exchange apps or websites, with some of the most popular being Coinbase and Robinhood. Many online brokers also now offer the opportunity to invest in crypto.

How Does It Work? 

So, how does this virtual currency work? Once you’ve exchanged your real cash for its equivalent amount in cryptocurrency online, a record of that investment is made in the blockchain we mentioned earlier. A blockchain is essentially a database that stores data in ‘blocks’ that are chained together in the order the transactions happened – and the data entered is irreversible, meaning transactions are visible to anyone that wants to view them, permanently.

In the case of Bitcoin, this means all your transactions are easily trackable – but they’re also anonymous. All Bitcoin transactions you make will be linked to the same Bitcoin address, but your address is like using a pseudonym or a pen name – it doesn’t actually identify you by name as the spender or receiver of any money. Because of this, using crypto for buying real estate becomes complicated when lenders want to verify where (and who) the money came from.

How Are Cryptocurrencies Taxed?

The value of most cryptocurrency is volatile, and thus crypto attracts investors looking to profit by buying and selling rather than using bitcoin or any other cryptocurrency as an alternative to traditional, "real" money. Like stocks, which you might also buy and sell in hopes of making a profit, cryptocurrency is considered a capital asset by the IRS – which means it’s also subject to the capital gains tax.

If you sell an asset and make a profit from doing so, it’s considered a capital gain. If you buy and sell an asset within the same year, it’s a short-term capital gain. If you’ve held onto an asset for more than a year and sell it, it’s considered a long-term capital gain. The amount you’ll have to pay in capital gains tax will depend on your income tax bracket, how long you owned the asset and what costs were associated with owning the asset, among other things.

So with that said – can you use cryptocurrency to buy real estate? The answer is yes – but both the buyer and seller will have to be on board. You’ll also need to find title insurance and escrow companies that are okay with handling transactions of cryptocurrency rather than 'real world' money. If you can find all the above, it’s very likely that you’ll be paying in Bitcoin or Ethereum – there haven’t been many instances yet of buyers paying with other types of crypto.

Let’s take a look at why you might want to buy a house with crypto – and what might make doing so difficult.

Here are some of the benefits and perks of buying a home with Bitcoin or another cryptocurrency.

Acquirement Of A More Secure Asset

The value of crypto is volatile, meaning it can change frequently. This means the Bitcoin you bought might drop in value until it’s worth less than what you paid for it – or it could go the other way and become more valuable. Just like assets traded on the stock market, the value of cryptocurrency experiences daily fluctuations.

When you buy a house with crypto, you trade a volatile asset for a much more secure one. Real estate value tends to appreciate with time, which means it grows in value much slower than something like crypto – but it’s also less likely that it will lose value, which could potentially happen with crypto any day of the week. 

Potential Discount

If you find a seller that’s on board with a crypto offer, they may offer you a discount. Sellers interested in obtaining bitcoin or another virtual currency are likely crypto investors as well that expect the value of your offer to rise over time. If they’re confident they can continue to profit from the crypto you’ve offered them, they might accept a slightly lower price for the house.

Increased Purchase Speed

Similar to buying a house with cash, paying with crypto can speed up the process of buying a home by cutting out the typical hurdles of the mortgage process. If you’re coming to the table with enough cryptocurrency to purchase the home upfront like you would with cash, it can also make your offer stronger.

Now, here are a few of the downsides that come along with attempting to buy a home with cryptocurrency.

Volatile Nature Of Bitcoin

As mentioned earlier, all cryptocurrency is volatile. Since it can change in value by the day, this also means any offer you make with cryptocurrency will also experience fluctuations in value during the timeline of the purchase of a home. The uncertainty that they may not receive the value they’d hoped for may dissuade sellers from accepting crypto as payment.

Some sellers may not want to deal with uncertainties at all. Real estate usually appreciates in value, meaning it’s likely that sellers will be able to sell their home for more than they bought it for. If they accept an offer of Bitcoin or another cryptocurrency, the odds of that profit staying profitable are not 100%.

Unfamiliarity With Digital Currency

Cryptocurrency is a little over a decade old, but it has only recently become more visible in the public eye. Many people are still unfamiliar with digital currency and may be nervous to make a deal involving a currency they don’t fully understand – especially if it's their first time dealing with cryptocurrency.

That said, it can be difficult to find sellers – not to mention insurance and escrow companies – that are willing to give cryptocurrency a chance. Many that do understand cryptocurrency still may be unwilling to partake in a crypto real estate sale because of digital currency’s inherent anonymity. While all cryptocurrency transactions are recorded in blockchains, they’re only tied to numerical ID’s – not names.

It can be difficult for sellers and other parties involved in the sale of a house to trace the origin of the money that’s being offered when there isn’t a traditional ‘paper trail.’ People may be hesitant to accept money with an unknown and not easily proven origin.

Finding A Seller

If you’re looking to trade your crypto stash for a house, it can be very difficult to find a seller that will accept digital currency on traditional home listing sites. Some sellers will include that they are cryptocurrency friendly in their listings, but otherwise, you have to ask.

Some home listing sites have filters you can use that allow you to see only home sales accepting cryptocurrency, but this is not a widespread feature on many sites yet.

We mentioned earlier that if you’re buying a home with crypto, you should be prepared to pay  with Bitcoin or Ethereum (sorry, Dogecoin investors). Cryptocurrency is still considered a risk or an unknown by much of the real estate industry, so finding a seller or insurance company willing to deal in the most popular cryptocurrencies –Bitcoin or Ethereum – is rare. Other lesser-known cryptocurrencies are even less likely to be accepted by sellers.

The good news is that many sellers, insurance companies and other parties will be willing to work with cryptocurrency offers if you ‘cash them out’ first. While an offer of 22 Bitcoins for a house might make a seller nervous, its worth once sold and converted to cash ($721,800 in U.S. dollars at the time this article was written) may seem much more enticing.

It’s possible to buy a house with cryptocurrency – but not all sellers will be on board with accepting an offer of digital currency, and if they are, they may only accept well known crypto types such as Bitcoin or Ethereum. If you want to purchase a home and have enough cryptocurrency to do so, it might still be a better option to sell first and make a cash offer instead.

For more information and resources on how to manage your money and finances, visit the Rocket HQSM Financial Learning Center.

Rocket Mortgage® does not currently accept cryptocurrency for a mortgage but will accept liquidated cryptocurrency/Bitcoin as assets.