If you happen to have made boatloads of money in crypto (which sadly isn’t me), one sensible thing you could do is put some of that money into luxury residential real estate. You know, to diversify your portfolio.
According to this recent WSJ article, it is already happening, with some developers and some homeowners now accepting cryptocurrencies in lieu of US dollars and other fiat currencies. This is helpful if you’ve managed to accumulate a bunch of crypto and don’t want to convert it. It can also be easier when it comes to moving the funds around:
Avi Dabir, vice president of business development at FTX US, said he sees real estate as a growing sector for the company because crypto transactions are faster and more efficient than traditional deals, which rely on an often-cumbersome banking system.“If I want to send a wire transfer today using my traditional bank account, it’s got to be banking hours, I need to make sure I hit that wire cutoff time and I can’t do it on the weekends,” he said. “That’s not a problem with cryptocurrency. It’s open 24/7.”
But of course it is still early days for crypto. The article suggests that most developers and owners are arranging for any crypto received to be immediately converted into US dollars at closing. This is presumably because of how volatile cryptocurrencies tend to be — at least right now.
To accept crypto, PMG had to partner with a regulated exchange that could quickly convert crypto to U.S. dollars, then convince an escrow agent to accept down payments from the exchange, rather than directly from the developer. Mr. Shear said most escrow agents looked at him like he was crazy, but “20 lawyers, one year later, and a lot of brain damage, everybody got comfortable.”
There are also tax considerations (that I am really not an expert on). If you bought $100 worth of Ethereum and it is now worth $10 million, you are responsible for paying tax on this gain if/when you sell, trade, or otherwise dispose of the crypto. And it is my understanding that if you were to use this $10 million in Ethereum to buy something like a condo in Miami, it would also be considered a taxable event.
Maybe all of this becomes commonplace or maybe it doesn’t. But it sure is interesting to see crypto already starting to flow into hard assets like real estate.