Over the last few years, Bitcoin has established itself as a major global financial player with as much influence as any fiat currency. As a result, several industries including the retail and restaurant sectors have felt both gains and upheavals in regard to developments in digital currencies.
Many speculators posited that the U.S. real estate industry would gradually incorporate virtual currencies. As expected, players in the sector have their eyes on Bitcoin and blockchain technology, given its potential to reform convention business models.
Bitcoin is gradually making headway as a mode of transaction in real estate closings on properties across the U.S., from California to New York to Texas. According to Magnum Real Estate Group President Ben Shaoul, the trend is largely driven by changes in buyer demographics.
A large portion of current real estate buyers includes younger populations that are open to different forms of payments. Shaoul states that this population often inquires whether the firm supports cryptocurrencies or the possibility of real estate payments with the same.
He adds that his firm always seeks to cater to the payment needs of such clients, which is crucial in the busy U.S. housing market.
Shaoul is overseeing a redevelopment project on the Lower East Side of Manhattan. The project involves transforming a building into top range condominiums. The abundance of inventory in the real estate market means that it is crucial for players in the industry to have a competitive edge.
For Shaoul, Bitcoin can serve as that edge. Although younger millennials make up a large group of the cryptocurrency-friendly demographic, new parties are coming into the loop.
According to Shaoul, there is a diverse influx of real estate buyers into the U.S. markets. They include parties from other corners of the world who are open to and seek trade via a variation of currencies, Bitcoin included. It seems that there is a good part of the larger world population that does not prefer transactions in fiat currencies.
Shaoul’s strategy in this regard is to hold the cryptocurrency as opposed to converting it to dollars. He hopes to leverage the increasing Bitcoin prices in a bid to expand his investment potential where applicable.
The incorporation of Bitcoin into the U.S. real estate market still faces many obstacles. Many people are still wary of the digital currency given its relatively new status on the financial scene.
One major problem is that not all parties are necessarily interested in having Bitcoin as a method of transaction during real estate deals.
A good example of this can be seen in a recent home sale in Texas that involved the cryptocurrency; it was the first of its kind in the state.The buyer purchased the Austin single family home in Bitcoin. However, the custom homebuilder needed the amount to be converted to dollars for the transaction to be possible.
The deal was overseen by Sotheby’s International Realty. One of the firm’s representatives stated that he is surprised by the lack of parties seeking to adopt this transaction method given the technological advancement levels of the region.
Interestingly, the firm at the time did not have set structures and methods for conducting direct Bitcoin transactions. This is a major problem that is preventing widespread Bitcoin adoption in many sectors. They opted to employ the services of BitPay, an Atlanta-based Bitcoin payment service, to convert the cryptocurrency into fiat currency as required by the seller.
The constant value movement of Bitcoin prices meant that the buyer assumed all the risk. As evident in this case, stability of Bitcoin can work in favor of its adoption in the U.S. real estate sectors. This can be translated as good news since the cryptocurrency is overall more stable today compared to its early years.
But one concern affecting widespread acceptance in real estate is the technicalities regarding cryptocurrency taxation. This complexity comes from the fact that cryptocurrencies are not regarded as actual currency in regard to income tax. The Internal Revenue Service confirmed its position on cryptocurrency taxation in March 2014.
The IRS regards gains from virtual currency sales as capital assets that are subject to capital gains tax rates (short and long term). Since most transactions involve the sale of Bitcoins, the amount of gains (income) is taxable.
Bitcoin and other virtual currencies are here to stay and are finding their place in the U.S. real estate market, albeit slowly. This may be due to the complex nature of the industry, and the sector’s overall lag in innovation and adopting new technology.
Nonetheless, as more powerful players are investing heavily into cryptocurrencies, Bitcoin real estate transactions will probably be a common occurrence in future.