Bitcoin Helping Shape L.A.'s Real Estate Industry

Jacob Maslow  |



Los Angeles' real estate market is on the rise, with the median home price jumping 8.4% year-over-year in March. Home prices in Southern California have risen to all-time highs, with condo prices rising $40,000 in the past year to an average price of $519,000.

Meanwhile, over in Las Vegas, Bitcoin spending has been accredited with a 16% rise in the Las Vegas real estate market 2018. A number of cyber criminals, along with legitimate bitcoin millionaires, are believed to have relocated to the Nevada city to enjoy their wealth. The influx of bitcoin money has boosted house prices in the city, with cash buyers of real estate in Las Vegas representing 27.3 of total purchases.

Prices nationwide are rising as the housing industry's inventory levels remain low and fewer owners are selling.

Cryptocurrencies are factoring into the rising cost, with a buyer in Manhattan beach purchasing a mansion for $3.225 million, or 3,300 bitcoins at the time of the purchase. The coins' value has since declined, with the seller possibly losing money if they didn't sell when prices hit their all-time highs in December 2017.

The buyer also benefitted from fluctuating, volatile prices of bitcoin.

Middlemen, low fees and other costs associated with traditional loans and large purchases are eliminated with cryptocurrency. Big-ticket home sales are expected to drive the purchase of real estate with bitcoin further.

Real estate investors, are turning to cryptocurrency to invest in real estate. Cryptocurrency investors hoping to escape the volatility of the market are offloading their crypto investments to invest in the hot real estate market.

Real estate brokers in Los Angeles recognize the shift of wealth to bitcoin, claiming that they're now accepting payments in bitcoin as well as cash.

"We realized there is so much new wealth in the crypto space," said Andrew Canter, chief executive of real estate brokerage and investment firm Canter Cos. "There are a lot of new buyers and a lot of people that have seen their wealth fluctuate over the last year."

Sotheby's International Realty sold one of the first single-family homes in the country paid for by bitcoin in September 2017. The Austin home was sold when bitcoin prices were $3,429. The facilitator converted the bitcoin to cash in 10 minutes and provided the seller with the cash to buy the home. Bitcoin hit $19,343 in December, making the sale of the property nearly five times more profitable if the buyer had held on to the currency.

Experts claim bitcoin is not a means of lowering taxes, as capital gains need to be paid on the investment when bitcoin is sold.

Escrow and title companies are difficult to find to broker a deal using bitcoin. A lot of companies don't understand bitcoin or want to get involved in digital currency. Lenders are also reluctant to consider cash in a bank account that derives from bitcoin. One potential buyer claims that Chase wouldn't consider his bank account as liquidity because the origins of the cash remained "uncertain."

The potential buyer even provided documentation on his cryptocurrency transactions over a two-year period, but the lender wouldn't approve the loan.

Emerging payment options remain a challenge for many real estate investors, despite breaking ground last year with the first single-family real estate transaction using bitcoin being recorded. Lack of understanding and experience in cryptocurrency still makes purchasing real estate difficult.

Fortune ran an article of bitcoin values by city and the average bitcoin amount to buy homes. Florida's median home price of $240,000 would require 26 bitcoins to purchase at today's value of $9,345.

CNBC reports that the most difficult part of making a real estate transaction with bitcoin is finding an exchange that can exchange large volumes of bitcoin. Sotheby used BitPay to turn the bitcoin into cash.

Experts expect the ability to purchase real estate with cryptocurrency will become easier in the future. Title and escrow companies of today expect the parties to convert the currency to cash to treat it as a conventional transaction, which they have experience with already.

Smart contracts, using blockchains, are likely to pick up traction before buying homes with bitcoin will become more popular. Blockchain allows an agreement between two or more parties to be algorithmically executed when conditions of the contract are met, such as receiving a set amount of bitcoin before the deed to a property is transferred.

Blockchain has the potential to eliminate the need for attorneys and title companies, with smart contracts enforcing all provisions of the transaction.

DISCLOSURE: Author does not have any interest in the equities mentioned.


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