When it comes to topics in blockchain and crypto, real estate people often talk about transactions where a buyer used Bitcoin or some other cryptocurrency to buy a house. For instance, here’s an article from BerkshireHathaway HomeServices called “Buying a home with Bitcoin.” Bitpay has a whole article on the same topic, which mentions Pacaso and Condos.com accepting Bitcoin as payment for their real estate products. And you can find agents who have done such transactions all across the country. Miami seems to be a particular hotspot for crypto real estate transactions.
Thing is, these articles and news stories don’t actually go through the details of what happened. We just read or hear that someone bought a home with Ethereum, or how Bitcoin can be used to buy a house. They don’t go into the details of how such a transaction could happen.
Well, we have one such detailed look now from one of the best YouTube channels on Bitcoin and crypto is Digital Asset News, operated by Rob (No Last Name Listed). I’m a subscriber to the channel, watch a lot of his videos regularly, and I have learned a great deal from his channel. Turns out, Rob purchased a home in Puerto Rico recently, using his crypto holdings to do so as per the video below. There are a few things we can learn from his detailed description of the transaction experience.
Rob Buys A Million Dollar House with Bitcoin
Rob recently posted a video outlining his own personal experience with buying a property in Puerto Rico using Bitcoin. The entire video is worth a watch:
As he mentions in the story, the original plan was to borrow 80% from a traditional bank using a traditional mortgage. He would put down 10% in cash, and an additional 10% in cash from crypto loans. Then he found out that the seller wanted only cash offers. So he moved on to a 10% cash, 40% from a crypto loan, and 50% from a private hard money lender at a far higher interest rate. Unfortunately, that fell through.
Ultimately, he ended up putting 30% down in cash, an additional 30% down with cash from crypto loans, and the remaining 40% in cash from selling his crypto assets. So when it’s all said and done, Rob paid cash for a house, with a 30% of the cash coming from a crypto loan.
As Rob goes into detail, there are companies that will loan you fiat currency (US Dollars in this case) against crypto assets on deposit. So he deposited Bitcoin, then borrowed USD against it. Note also that the interest rate depends on LTV: lower the LTV, lower the interest rate.
The rates can be rather expensive. On a 33 LTV crypto loan, Rob shows a loan with 6.95% APR. That’s quite high. Yet, because the seller wanted cash, and wanted USD, Rob had to take the loan (we don’t know what rate he is paying) to get the cash he needed for the transaction
This Was A Cash Purchase
When you think about it, the title of the video is a bit misleading. He didn’t buy a million dollar house with Bitcoin. He bought a million dollar house with cash. He raised the million dollars in cash with a combination of a crypto loan and crypto asset sales.
Substitute the word “gold” for “crypto” above and you have the same mechanic: cash sale, with cash coming from loans against gold and sale of gold. Or you could go with “baseball cards” for “crypto” and you have the same thing.
Even as an expert in crypto investing, Rob did not buy his house with Bitcoin. He bought his house with cash from the sale of Bitcoin and cash from a crypto-collateralized loan. That’s a cash purchase, straight up, no matter the source of the cash.
Why Not Just Pay in Crypto?
One of the questions that would naturally arise is why he didn’t just pay in Bitcoin. The short answer is, because the seller wanted USD, not Bitcoin, and Bitcoin is not legal tender in Puerto Rico so Rob couldn’t force the seller to accept BTC. Perhaps he could have gone through Bitpay or some similar company to get cash from his crypto holdings, but… he didn’t.
The longer answer, I think, is that BTC is not “currency” as we understand the term in normal life. It’s a digital asset that has extraordinary volatility. Few sellers are going to accept an asset whose value could plummet by 20% overnight in payment for his million dollar luxury home. But on the other hand, as Rob goes into in some detail, no buyer wants to get rid of assets whose value could skyrocket 20% overnight either.
Conceptually, this isn’t any different from using Tesla stock to buy a house. If you can find a seller willing to accept Tesla stock for his house, and a buyer willing to part with Tesla stock to pay for a house, the rest is just up to paperwork. The stories in the media about some buyer paying Ethereum for his house show that the seller in those cases wanted to accept crypto for payment, and both the buyer and the seller were comfortable with the price volatility. While those stories are cool and interesting, conceptually, they’re no different from some seller wanting to accept the buyer’s MTG card collection in exchange for a house.
That’s not really “buying” a house; it’s bartering for a house. It works, but like all barter deals, it requires matching a buyer and a seller willing to barter instead of using a medium of exchange, aka, money.
The Opportunity
The whole story, to me, simply screams opportunity. Dozens if not hundreds of companies are trying to figure out how to unlock that opportunity.
Is there a way to do crypto loans better, especially for a mortgage to purchase real estate? Companies like Figure and Bacon Protocol and others are saying that they have that better way, or are trying to put one together. Canadian crypto lender Ledn recently revealed a Bitcoin-backed mortgage for people like Rob (except he’s not Canadian).
This is the promise. This is the future, in some way, shape or form. Someone somewhere will figure out how to do digital asset backed mortgage for purchase of real estate. Maybe someone already has.
Because if a crypto millionaire, who is a trusted expert, and someone who makes a living creating content on how to think about crypto investing, has to jump through a gazillion hoops to buy a house with cash… then there are crypto hundred-thousandaires all over the world who won’t jump through those same hoops. There’s a major opportunity there, and it will grow with time.
Crypto Refi Could Work
One method for a niche market of crypto millionaires like Rob could be a crypto cash sale mated to a tokenized mortgage. Conceptually, this would be a cash purchase followed by immediate refi.
Bacon Protocol, as an example, might be a company that could offer such a product. In late 2021, Bacon Protocol announced a program that gives a homeowner the ability to wrap a lien on his property into a nonfungible token, or NFT:
Bacon Protocol works by giving homeowners the ability to exchange a lien on their property for a nonfungible token, or NFT, that represents a percentage of the property they purchased. The NFT gives buyers collateral to access other crypto markets, including decentralized finance (DeFi). The entire process will initially be facilitated by Virgin-backed LoanSnap, a financial services company that helps American homebuyers save on interest rates and other associated costs.
Currently, based on their white paper, it appears that Bacon Protocol is willing to make a 75 LTV loan on a home, for borrowers with 640+ FICO, and DTI of 45%. The interest rate appears to be below market for mortgages.
So in theory, someone like Rob could potentially have put down 25% cash, gotten the remaining 75% through a crypto loan, bought the house for cash, and then immediately issued a lien for 75% of the home he now owns and gotten a 1.5% mortgage from Bacon Protocol. That cash replaces the more expensive crypto loan, and Rob proceeds to make payments on the Bacon Protocol loan.
It’s a few steps, yes, but it’s a damn sight easier than going to Wells Fargo. Something like this could be a first step towards crypto-based mortgage lending.
The SciFi Future Isn’t That Far Away
Who knows what form a decentralized mortgage or a crypto-backed mortgage might actually look like when it’s all said and done. But the important takeaway here is that in 2022 (probably more like 2021), at least one prominent crypto YouTube analyst bought a home “using crypto.” Others have bought, are buying, and will buy real estate somehow leveraging their digital assets, whether those be Bitcoin, altcoins, or NFT artwork or Metaverse properties.
This is the sort of exponential growth in technology that Jeff Booth talks about in Price of Tomorrow. Things change, and they change faster and faster, because that’s how exponential technology growth happens.
It is a future. It is sci-fi. It isn’t anything solid and real right now, here and now. But that sci-fi future isn’t that far away, and thousands of super intelligent nerds are working at it every single day.
Don’t sleep on it. Don’t dismiss it. Things are happening in this space.
-rsh
