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After the 2008 financial crisis, college student Hank Wu traveled with his parents every weekend to places such as Las Vegas and Florida to research investment property.
In high school, he discovered a new and more exciting investment opportunity: cryptocurrency. He invested heavily and made millions thanks to the meteoric rise of Bitcoin as well as lesser-known coins like Tether.
Since then, he has sold around 80% of his cryptocurrency portfolio, placing his gains in other investments like supporting startups and, increasingly, buying real estate.
In 2018, Wu purchased seven garden-style rental units in West Palm Beach, relying on his parents for their expertise. Now 24, Wu is about to make another real estate purchase: a condo in Manhattan.
During the pandemic, he contracted for a one-bedroom unit at Madison House, a Fosun and JD Carlisle project under construction at 15 East 30th Street in Manhattan for $ 1.8 million. He paid in cash, funds he wouldn’t have had without his teenage crypto bets.
At the back of my mind, I had this implicit understanding that you should always invest in real estate, Wu said. I can count on it not to go to zero.
Wu is one of many who have made millions with cryptocurrency and is now looking to park his crypto wealth in the most stable and tangible real estate asset class. With huge spikes, cryptocurrencies have hit thousands of millionaires. Nearly 80,000 Bitcoin addresses hold more than $ 1 million each, according to data from BitInfoCharts. From New York and the Hamptons to Miami and Los Angeles, crypto wealth is being injected into luxury real estate properties, according to crypto brokers, buyers and fund managers.
For many, the volatility of cryptocurrency is appealing, as is the potential for inordinate wealth.
People wonder: What can I spend a dime on and earn a million dollars on? said Piper Moretti, who founded the Crypto Realty Group.
Now, some people are using their new dough to achieve long-term goals: making a down payment on their new home, buying a third house in Miami, or buying a private jet or an exotic car. Others are finding ways to balance their portfolios, shielding their net worth from the notorious volatility of crypto and opting for assets with more predictable cash flows, such as multi-family.
Whether these people are converting crypto to cash for investing or using Bitcoin directly to buy property, sellers, fund managers, brokers, and lawyers need to adapt and learn new ways of doing real estate transactions.
The Bitcoin hedge
James Keogh, a broker at 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 putting 10 percent in cash, he converted $ 250,000 from Ethereum to pay an additional 15 percent at the close.
If I had sold it a week later, it would probably have cost $ 400,000, Keogh said of his Ethereum stash, which he started amassing after watching videos about its potential on TikTok. But I needed the money. Keogh’s profits were classified as short-term capital gains and therefore subject to higher tax rates.
Over the past year, cryptocurrencies such as Bitcoin, Ethereum, and Dogecoin have experienced explosive and unprecedented growth. Bitcoin jumped 800% from April 2020 to a high of $ 63,000 on April 15. But it was an eventful journey. At the end of May, the price of a coin fell to $ 34,000.
In comparison, prices for industrial and multi-family properties, the two strongest real estate asset classes in 2020, increased by 8.8% and 8.3% respectively.
Real estate has always been a good place to park your money, Keogh said. With interest rates as low as they are, it becomes a no-brainer for people who have made 100% of their money through crypto.
For those who have built up a large crypto portfolio, the right thing to do is withdraw some of that money and diversify, said Matthew Hougan, chief investment officer at crypto asset management firm Bitwise. Selling some of your crypto to buy a house, or diversifying your portfolio to include more stocks and bonds, is a very good thing.
No money, no problem
As cryptocurrencies generate more wealth, residential brokers have a larger pool of interested buyers.
We are announcing that houses are accepting crypto, and for that alone we have received several calls from billionaires in the crypto world that we did not have access to before, said Aaron Kirman, a Los Angeles-based luxury agent at Compass. People love the options.
Kirman announces a 9,000 square foot property at 777 Sarbonne Road in Bel Air on behalf of renowned cosmetic surgeon Alex Khadavi for $ 87.8 million and Bitcoin offers will be entertained.
But it’s not just LA’s lavish spreads that are available to buyers looking to use crypto. In Manhattan’s financial district, former WeWork growth director David Fano is selling his penthouse at 130 Beekman Street. Buy for 88 Bitcoin or $ 3.29 million! read a recent list from Rachel Glazer of Compass.
In some cases, bullish crypto sellers offer better deals to buyers who bid in crypto. A 7,310 square foot home at 358 Crescent Avenue in Wyckoff, New Jersey, is listed for $ 3.9 million. But if an offer to buy the house is made with crypto, the seller who registers the show is financial analyst Timothy Brackett, who will lose $ 50,000.
The most common way to buy a house with cryptocurrency is to convert it to US dollars at an agreed exchange rate.
Buyers and sellers can set up the transaction through the BitPay payment processor, according to Shaun Pappas, a partner at law firm Starr Associates who has worked on such transactions. An invoice is generated by the seller and the buyer has 15 minutes to lock in a rate in order to convert the coin to cash. Once executed, the money is placed in an escrow account, similar to a normal real estate transaction.
In other cases, buyers may have the option of transferring their crypto directly to the seller without exchanging it for cash during a wallet-to-wallet transaction. Although this is less common, it could generate more income for sellers.
Los Angeles-based developer Michael Chen wanted to offer this option to potential buyers when listing a specific home at 1108 Wallace Ridge in Beverly Hills for $ 65 million. With a wallet-to-wallet transaction, a $ 65 million home could halve or double its value overnight, depending on the location of the room. But Chen is willing to take the risk.
I don’t see it as mere currency, Chen said. I see it as an investment.
Those who use Bitcoin to purchase property may end up with 21st century buyer’s remorse.
Madison House at 15 East 30th Street
In February, investor Chamath Palihapitiya tweeted a photo of a piece of land in Lake Tahoe he bought in 2014 with Bitcoin. The deal was valued at $ 1.6 million at the time, but Palihapitiya tweeted that if he had kept the cryptocurrency instead, it would have been worth $ 128 million. “#FML,” he wrote.
Anonymous is no longer
When Keogh showed his mortgage broker at Bank of America was not a crypto, he said he cashed in his crypto income to use as part of the down payment, the broker objected.
Keogh tried to explain that it was like a brokerage account, like trading in stocks. Bank of America eventually gave in and Keogh got a mortgage.
I think the concern of the banks is that they don’t necessarily know where the money is coming from, Keogh said.
Anonymity is a central issue when it comes to cryptocurrency: Wallets and addresses don’t need to have identifying details, making it difficult for banks, brokers, and lawyers to verify owners. .
We’re doing due diligence, Chen said, adding that someone who can afford a $ 65 million home likely has a financial history that can be verified. We would just like to know that they are doing this legitimately without breaking the law.
But as cryptocurrency trading becomes more mainstream, anonymity is something crypto users may have to give up if they want to buy property.
Banks need to know where the crypto is coming from and identify the buyer, Pappas said. In some ways, this defeats the purpose of crypto, which has been built around anonymous transactions, he noted.
Just a Lamborghini
As in Hank Wus’ first deal, others who have made money from crypto are also considering cash flow rental properties as investments.
Keith Wasserman, co-founder of multi-family investment firm Gelt, said he is seeing more investors who have made money from cryptocurrency participate in his fund.
It’s like the barbell approach, he said, referring to the investment strategy of betting on the two extremes of high-risk assets and those with predictable cash flows, while avoiding intermediate choices.
I literally shit my way to becoming a millionaire. @MasterClass to come.
Beanie.eth (@beaniemaxi) May 27, 2021
According to Nicole DeCicco, founder of CryptoConsultz, some investors are using their crypto wealth to achieve their long-term goals of owning property, while others want to withdraw their real estate assets and stake everything on crypto. The company helps educate cryptocurrency investors on how to diversify their portfolios.
Others think it’s too early to sell Bitcoin, are skeptical of investments that aren’t decentralized, or like to take the investment advice of Tesla CEO Elon Musk.
The most invested people don’t buy property, said Stephan Burke, a Miami-based Elliman broker who has been doing wallet-to-wallet and crypto-to-cash transactions since 2017. They want to sit down on crypto and see what is happening. .
Angel investor and crypto fund founder Terrence Yang hates owning real estate and hasn’t made any purchases since entering Bitcoin.
It’s illiquid, Yang said. It is easy for the government to raise taxes.
No, just a Lamborghini, independent venture capitalist Peter Saddington said when asked if he had bought any real estate since making money on crypto. He bought the supercar in 2018 for 45 Bitcoins, which he had bought years before for less than $ 115. A single Bitcoin was trading in the $ 30,000 range at the time of this story.
Wu is driven more by the turn of the key of a new property than by the speed of an engine. While he has no further crypto-secured real estate transactions in the works, he is keeping his eyes open for more residential investment.
Because, as Wasserman said, we all need a place to live, until we live on Mars with Elon.
Contact Isabelle Farr
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