Disclaimer: PropStream doesn’t offer investing advice. We recommend consulting a professional and doing your due diligence before buying or selling real estate with crypto profits.
Developing an efficient and profitable real estate investing strategy can be challenging, especially in today’s housing market, where supply and demand are limited. However, there are still ways to make significant returns. One is to buy real estate with cryptocurrency profits.
In this article, we’ll explain what cryptocurrency is, the benefits of buying real estate with cryptocurrency returns, how to get started, and more.
Table of Contents
- What Is Cryptocurrency?
- Potential Risks and Benefits of Investing in Crypto
- The Benefits of Buying Real Estate with Crypto Profits
- How to Buy Real Estate with Crypto Profits
- Tips for Personalizing Your Strategy to Buy Real Estate with Crypto Profits
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Key Takeaways:
- Cryptocurrency is a digital currency that uses encryption to verify transactions. You can invest in various types, each with its own risks and benefits.
- Many investors use crypto profits to invest in real estate to diversify their portfolios. Since crypto and real estate have different risk factors, volatility levels, and earning potential, mixing up investing methods can help investors secure more predictable returns.
- When using cryptocurrency to invest in real estate, you must do your due diligence, weigh the risks and benefits, and make a personalized plan.
What Is Cryptocurrency?
Cryptocurrency (aka crypto) is a digital currency that uses encryption to verify transactions.
Unlike fiat money, crypto isn’t issued or backed by a centralized government. Instead, it typically operates on a decentralized network that uses a distributed ledger technology called blockchain. In other words, there aren’t any intermediaries, theoretically allowing for faster and more secure transactions.
The first and most popular cryptocurrency is Bitcoin (BTC). Since its creation, the number of other cryptocurrencies (often called “altcoins”) has rapidly increased.
Potential Risks and Benefits of Investing in Crypto
As an investor, you can trade fiat money for crypto to benefit from any increase in its value over time. However, it’s vital to understand the associated risks.
For one, crypto is highly volatile, making severe losses possible. Crypto is also relatively new and unregulated, making it more susceptible to fraud. For example, some crypto developers may promote a new cryptocurrency to attract investment, but it suddenly disappears with investors’ money (aka a “rug pull”).
At the same time, crypto investing also has the potential for high rewards. For example, early investors in popular cryptocurrencies such as Bitcoin or Ether have seen substantial returns.
In 2023, crypto investors achieved total estimated gains of $37.6 billion. Additionally, crypto is relatively accessible and can help you diversify your portfolio against other asset types like stocks and bonds.
The Benefits of Buying Real Estate with Crypto Profits
The beauty of investing crypto profits in real estate is that you can get the best of both worlds. On the one hand, you can take advantage of high potential crypto returns, and on the other, you can secure those returns in relatively stable real estate assets.
Consider the following advantages of buying real estate with crypto profits:
Diversification. Real estate and crypto have different risk profiles. Investing in both increases the odds of generating more consistent returns and minimizing potential losses if either drops in value.
Tangible asset. Unlike crypto, real estate is a tangible asset that will always have some utility (e.g., as shelter or workspace). By turning crypto profits into real estate, you can protect yourself against the possibility of your crypto’s value dropping to zero.
Inflation hedge. Real estate can be a great hedge against inflation as property values and rents tend to keep pace with inflation.
Tax benefits. Real estate investors can take advantage of various tax breaks, from writing off property expenses, home insurance, mortgage interest, and depreciation to 1031 exchanges.
Leverage. You can finance part of a property’s purchase price with a mortgage (aka leverage) to magnify your potential returns (and increase your risk).
Long-term stability. The housing market tends to be less volatile than crypto. Consequently, investing crypto profits into real estate can help you protect and preserve your wealth in the long run.
How to Buy Real Estate with Crypto Profits
Now that you know the benefits of buying real estate with crypto profits, here are some steps to consider to get started:
Disclaimer: These steps are just a base idea if you’re looking to buy real estate using crypto. They may not work for everybody, and you should use your unique situation to determine their suitability.
Convert Profits
Once you’ve earned some crypto returns, you must choose whether to convert them into U.S. dollars or seek home sellers willing to accept crypto.
Develop Your Personalized Crypto x Real Estate Strategy
The goal is to liquidate your crypto when you think the coin is at or near its peak value. That way, you can preserve crypto profits by exchanging them for real estate, which is typically less volatile. But remember that timing the bull market can be challenging, and you’re unlikely to do it perfectly.
Many investors lean more on income generated from real estate investments during a bear market to build up crypto funds until the next bull market. You can then repeat the process by liquidating your crypto and buying another investment property.
Investors may gauge selling and buying by their taxation implications. Awareness will ensure you have the funds to complete the necessary transactions.
Over time, you can accumulate more and more properties, providing more leverage to get financing and acquire long-term assets that generate passive income. Plus, by funneling crypto profits into real estate, you can protect yourself against rug pulls and the risk of your favorite altcoins going to zero.
Tips for Personalizing Your Strategy to Buy Real Estate with Crypto Profits
As part of developing your strategy for using your crypto to buy real estate, consider these six aspects:
Monitor market dynamics. Changes in the crypto and real estate markets can impact your investment performance. Keep a close eye on the value of both assets to know when to convert capital from one to the other.
Use real estate data. To find the best rental properties to invest in, lean on real estate data. By studying data, you can uncover a property’s estimated gross yield, rental income, appreciation rate, and more.
Perform due diligence. Before buying a property, perform your due diligence. This involves evaluating the property’s condition, title history, zoning regulations, and potential rental income. Consider hiring a professional home inspector and appraiser to help.
Consult professionals. Consider working with real estate agents, financial advisors, attorneys, and tax professionals. They can help you buy real estate with crypto profits while navigating legal or tax implications.
Account for taxes and fees. Crypto and real estate are subject to capital gains taxes. So, ensure you know the federal and local tax implications when transacting and learn how they could impact your potential returns.
Stay informed. Regulations and trends around crypto and real estate change over time. Keep up with the latest news so you can adapt your investment strategy accordingly.
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Frequently Asked Questions (FAQs)
Can I buy real estate with crypto?
Possibly. It depends on local regulations governing property transactions and whether the seller is willing to accept crypto as payment. However, most U.S. real estate transactions still use the dollar.
How do I convert my crypto profits into fiat currency to buy real estate?
You can typically trade your crypto profits for cash on a cryptocurrency exchange, such as Coinbase or Binance. Just know that selling your crypto may create a tax liability.
What’s the biggest mistake investors make when buying real estate with crypto profits?
One of the biggest mistakes is neglecting tax implications. For example, crypto sales are typically subject to capital gains tax. Failure to report crypto gains could result in serious legal consequences and fines. Consult a tax professional to learn more.
How can I protect myself against volatility in the crypto market?
It’s impossible to fully eliminate the volatility risks of crypto investing. However, you can minimize them by selling your crypto after it's increased in value, thereby securing your gains.
What’s the best real estate and crypto balance for my investment portfolio?
The best portfolio balance between crypto and real estate varies from person to person. It depends on your risk tolerance, investment goals, time horizon, liquidity needs, market conditions, etc. We recommend consulting a financial professional to determine a personalized plan.
What are the biggest risks of buying real estate with crypto profits?
The most significant risks include suffering losses due to crypto’s volatility, unfavorable exchange rates, taxes and regulations, and market fluctuations. To minimize these risks, conduct due diligence, seek professional advice, and stay informed on the latest market trends and regulations.
