Why the crypto-rich are buying up real estate

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BUTfDuring the 2008 financial crisis, high school student Hank Wu traveled every weekend with his parents to places like Las Vegas and Florida in search of investment property.

In high school, he found a new, more interesting investment opportunity: cryptocurrency. He invested heavily and made millions from the explosive growth of bitcoins, as well as lesser-known coins like Tether.

Since then, he has sold about 80% of his crypto portfolio, investing his winnings in other investments such as supporting startups and, increasingly, buying real estate.

In 2018, Wu bought seven garden-style rental homes in West Palm Beach, relying on his parents for their experience. Now 24, Wu is about to close another property purchase: a Manhattan condominium.

During the pandemic, he contracted a one-bedroom apartment at Madison House – a project by Fosun and J.D. Carlisle, being built at 15 East 30th Street in Manhattan – for $ 1.8 million. He paid in cash – funds that he would not have had if it were not for his youthful cryptocurrency bets.

“Deep down, I had an implicit understanding that you should always invest in real estate,” Wu said. “I can count on it not to drop to zero.”

Wu is one of many who have made millions from cryptocurrency and now wants to place their cryptocurrency wealth in a more stable and tangible class of real estate. With the huge surge in cryptocurrencies, thousands of millionaires were minted. Almost 80,000 bitcoin addresses contain over $ 1 million each, according to BitInfoCharts. From New York and Hampton to Miami and Los Angeles, crypto wealth is being pumped into luxury real estate, according to brokers, buyers and crypto fund managers.

Many are attracted by the volatility of cryptocurrencies, as well as the possibility of immense wealth.

“People think:“ What can I spend pennies on and earn a million dollars? “Said Piper Moretti, founder of Crypto Realty Group.

Now, some people are using their new dough to achieve long-term goals: make a down payment on their new home, buy a third home in Miami, or purchase a private jet or exotic car. Others are looking for ways to balance their portfolio by protecting their net worth from the notorious volatility of cryptocurrencies and choosing assets with more predictable cash flows, such as multi-family ones.

Whether these people are converting cryptocurrency into cash for investment or using bitcoins directly to buy real estate, sellers, fund managers, brokers, and attorneys must adapt and learn new ways to conclude real estate transactions.

Bitcoin hedge

James Keough, a broker for Douglas Elliman in the Hamptons, recently bought a new four-bedroom home at 73 Cross Highway to Devon in Amagansett for $ 2.1 million. After investing 10 percent in cash, he converted $ 250,000 worth of Ethereum to pay another 15 percent at close.

“If I sold it a week later, it would probably be $ 400,000,” Keogh said of his Ethereum stash, which he began amassing after watching a video of its potential on TikTok. “But I needed money.” Keo’s gains were classified as short-term capital gains and were therefore subject to higher tax rates.

Cryptocurrencies such as Bitcoin, Ethereum and Dogecoin have experienced explosive unprecedented growth over the past year. Bitcoin jumped a staggering 800% from April 2020 to a high of $ 63,000 on April 15. But it was a turbulent path. At the end of May, the price of the coin dropped to $ 34,000.

By comparison, industrial and multi-family property prices – the two strongest asset classes in 2020 – increased by 8.8 and 8.3 percent, respectively.

“Real estate has traditionally been a good place to store money,” Keo said. “With interest rates so low, it becomes an easy task for people who have made 100% of their money with cryptocurrency.”

For those who have built a sizable portfolio of cryptocurrencies, “the right decision is to take some of that money off the table and diversify,” said Matthew Hoogan, chief investment officer at Bitwise, a cryptocurrency management firm. “Selling some of your cryptocurrency to buy a house, or diversifying your portfolio to include more stocks and bonds, is great.”

No money, no problem

As cryptocurrencies bring in more wealth, home brokers have more interested buyers.

“We advertise houses as accepting cryptocurrencies, and only because of that, we had several calls from billionaires in the crypto world that we did not have access to before,” said Aaron Kirman, Los Angeles-based luxury agent at Compass. “People love options.”

Kirman is listing a 9,000-square-foot plot at 777 Sarbonne Road in Bel Air on behalf of renowned plastic surgeon Alex Hadawi for $ 87.8 million – and Bitcoin offers will be accepted.

But there are more than generous spreads available in Los Angeles for buyers hoping to use cryptocurrency. In Manhattan’s financial district, former WeWork development director David Fano is selling his penthouse at 130 Beekman Street. “Purchase for 88 bitcoins or $ 3.29 million!” read a recent list from Rachel Glazer Compass.

In some cases, sellers who are optimistic about cryptocurrency offer more attractive offers to buyers who make an offer in cryptocurrency. The 7,310-square-foot home at 358 Crescent Avenue in Wyckoff, New Jersey is up for auction for $ 3.9 million. But if an offer to buy a home is made with cryptocurrency, the seller, who is said to be financial analyst Timothy Brackett, will dump $ 50,000.

The most common way to buy a home with cryptocurrency is to convert it to USD at an agreed exchange rate.

According to Sean Pappas, a partner at law firm Starr Associates who has worked on such transactions, buyers and sellers can arrange a transaction through the BitPay payment processor. The invoice is issued by the seller and the buyer has 15 minutes to fix the rate for converting the coin to cash. Once completed, the funds are deposited into an escrow account, similar to a regular real estate transaction.

In other cases, buyers may be able to transfer their cryptocurrency directly to the seller without exchanging it for cash – a wallet-to-wallet transaction. While this is less common, it can generate more profit for sellers.

Los Angeles developer Michael Chen wanted potential buyers to do just that when he put up a $ 65 million home at 1108 Wallace Ridge in Beverly Hills for sale. In a wallet-to-wallet transaction, the value of a $ 65 million home can drop in half or double overnight, depending on where the coin is. But Chen is willing to take the risk.

“I don’t think of it as just currency,” Chen said. “I see it as an investment.”

Those who use bitcoin to buy property may end up with the remorse of a 21st century buyer.

Madison House at 15 East 30th Street

In February, investor Chamat Palihapitiya tweeted a photo of the Lake Tahoe site he bought with Bitcoin in 2014. The deal was valued at 1.6 million dollars at the time, but Palihapitiya tweeted that if he had held on to the cryptocurrency, it would have been worth $ 128 million. “#FML”, he wrote

Anonymous is no longer

When Keogh revealed to his mortgage broker at Bank of America – “not a crypto man,” he said, “he cashed out his cryptocurrency earnings to use as part of the down payment, the broker objected.

Keough tried to explain that it looked like a brokerage account, “like trading stocks.” Bank of America eventually relented and Keo got the mortgage.

“I think the bank is concerned that they don’t necessarily know where the money is coming from,” Keo said.

Anonymity is a central issue when it comes to cryptocurrency: wallets and addresses do not have to contain identification data, which makes it difficult to verify bank owners, brokers and lawyers.

“We’re doing a due diligence,” Chen said, adding that whoever can afford a $ 65 million home probably has a financial background that can be verified. “We just wanted to know that they are doing it legally, without breaking the law.”

But as cryptocurrency trading becomes more popular, cryptocurrency users may have to forgo anonymity if they want to buy real estate.

According to Pappas, banks need to know where the cryptocurrency came from and identify the buyer. In a sense, this “defeats the purpose” of cryptocurrency, which was built on anonymous transactions, he noted.

Just Lamborghini

As with Hank Wu’s debut deal, others who have made money in cryptocurrency are also looking at profitable real estate as an investment.

Keith Wasserman, co-founder of multi-family investment firm Gelt, said he sees more and more cryptocurrency-profiting investors participating in his fund.

“It’s like a barbell approach,” he said, referring to an investment strategy of betting on two extremes: high-risk assets and predictable cash-flow assets, while avoiding middle choices.

According to Nicole DeCicco, founder of CryptoConsultz, some investors use their cryptocurrency wealth to pursue long-term property ownership goals, while others want to cash out their real estate assets and stake everything on cryptocurrency. The firm helps educate cryptocurrency investors on how to diversify their portfolios.

Others think it’s too early to sell bitcoin, are skeptical about non-decentralized investments, or want to follow the investment advice of Tesla CEO Elon Musk.

“The people with the most deposits don’t buy real estate,” said Stefan Burke, a Miami-based Elliman broker who has been doing wallet-to-wallet and cryptocurrency-cash deals since 2017. “They want to sit and sit. cryptocurrencies and see what happens. “

Angel investor and crypto fund founder Terrence Young hates owning real estate and hasn’t made any purchases since getting into bitcoin.

“It’s illiquid,” Yang said. “It’s easy for the government to raise taxes.”

“No, just Lamborghini,” independent venture capitalist Peter Saddington replied when asked if he has bought real estate since making money off cryptocurrency. He bought a supercar in 2018 for 45 bitcoins, which he bought a few years ago for less than $ 115. At the time of this posting, one bitcoin is trading at $ 30,000.

Wu moves more with the turn of the key in the new property than with the speed of the engine. While he doesn’t have any other crypto-backed real estate transactions, he doesn’t turn a blind eye to additional residential real estate investments.

Because, as Wasserman said, we all need a place to live, “until we live on Mars with Elon.”



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