Table of Contents
- What Is Cryptocurrency?
- How Does Cryptocurrency Work?
- Pros and Cons of Crypto Payments for Your Investment Property
- Things to Consider Before Accepting Crypto Payments
- How to Accept Crypto Payments
- Conclusion
Cryptocurrency is a growing trend that will soon play a prominent role in many transactions, including real estate transactions. While some real estate investors are hesitant to accept crypto payments, others are jumping on the trend.
Crypto is a digital currency payment system that can now be used to purchase property anywhere in the world. The only question is, should you accept crypto payments when selling or renting out your property? In this article, you will discover what cryptocurrency is, how it works, and the pros and cons of accepting crypto payments for your investment property.
What Is Cryptocurrency?
Cryptocurrency is a virtual currency and means of payment that does not rely on any third-party system to verify and complete transactions. It’s a peer-to-peer payment system that allows anyone, anywhere to be able to send and receive money. Crypto is built on blockchain technology, which means that the government cannot interfere with these transactions.
Crypto payments exist solely as online entries to a digital archive describing specific transactions, rather than as paper bills carried around and transacted in the real world. A general ledger records transactions involving cryptocurrency funds. You can store cryptocurrencies in digital wallets.
The inventor of Bitcoin gave the term “cryptocurrency” because it uses advanced encryption to verify transactions. Sophisticated coding stores and transmits crypto data between wallets and general ledgers. The goal of this type of encryption is security and safety for the user.
Related: Real Estate vs Bitcoin—Which Is the Better Investment?
Cryptocurrency is the general term for virtual currencies that are decentralized and built on top of a blockchain.
How Does Cryptocurrency Work?
Cryptocurrencies are created, tracked, and managed using a distributed ledger called a blockchain. The movement of the currency in this ledger is processed by computer systems to ensure the accuracy of the financial documentation and ownership of the crypto assets. It is a massive, never-ending proof of purchase of all the system’s transactions that are constantly approved by everyone.
Blockchain cryptocurrency is an exciting technology because not only can it be used for crypto payments, but it can also be used for medical research, boosting online privacy, and simplifying supply chains. With this incredible technology, it is almost impossible to hack, steal, or tamper with any information that has been recorded.
There are two major ways to own a crypto asset: the first one is mining. This is a technique that uses computers to solve complex mathematical problems to earn coins and produce crypto units. The other method is to transact using cryptocurrencies with other crypto users.
Pros and Cons of Accepting Crypto Payments for Your Investment Property
Now that you know what cryptocurrency is, you might still be wondering if you should accept crypto payments when selling or renting out your investment property. This section provides you with the pros and cons of accepting crypto payments for your investment property:
Pros of Accepting Crypto Payments for Your Investment Property
Below are just some of the advantages of accepting crypto payments when selling or renting out your investment property.
1. Secure Transactions
The COVID-19 pandemic caused an increase in credit card theft. In April 2020, credit card theft increased by 35.0%. SMEs are frequently the victims of this form of scam.
Many believe that crypto payments are safer than card payments. When a customer uses crypto to pay, their information is not held in a centralized hub, where data breaches are rampant. Instead, their information is kept in their cryptocurrency wallet.
Also, because the blockchain general ledger is used to validate transactions, identity theft can be extremely difficult.
2. Lower Fees
Many payment processors like PayPal require their merchants to pay transaction fees. For instance, Paypal charges around 1.9% to 3.9% for domestic online transactions and around 5.0% for international transactions. But cryptocurrencies have lower fees and sometimes no transaction fees.
If you want to sell your investment property to an international buyer, crypto can help you avoid international fees. This is because cryptocurrencies are not tied to a specific country or central bank. As a result, you won’t have to wait for payments to clear through a foreign bank or pay the fees that come with such international transactions.
3. Faster Transactions
Using crypto as a means of accepting payments for your investment property will save you a lot of time because they are processed quickly. Since crypto is decentralized, it doesn’t go through third-party systems like banks or other government authorities to complete transactions. This allows you to receive payments wherever you are in the world in minutes.
Also, buyers and renters can easily use their crypto app to buy or rent your investment property without the extra paperwork.
4. Zero Chargebacks
Accepting credit cards increases the risk for real estate investors. If a customer uses a credit card to buy your property, they may claim dissatisfaction with the property and request a refund, mostly due to buyer’s remorse.
You won’t face this type of problem when you deal with crypto payments.
Also, buyers and renters who do not have funds in their cryptocurrency accounts will be unable to make a purchase.
5. Great Customer Experience
Due to the rise and adoption of crypto payments, adding crypto as a means of collecting payments for your real estate investment property will help you connect better with buyers and renters.
Providing an additional payment option for real estate transactions gives your buyers and renters greater payment flexibility, guaranteeing that you don’t lose any potential sale due to a limited selection of payment methods.
Related: 11 Tips on How to Sell Your House Fast
Cons of Accepting Crypto Payments for Your Investment Property
Here are some of the disadvantages of accepting crypto payments when selling or renting out your investment property.
1. Crypto Is Volatile
The restricted amounts of coins and speculative fever have all conspired to make crypto volatile. That’s alright if you are trading them. But when it comes to buying and selling investment properties, they can be risky. Currency is valuable if real estate investors can bank on it to maintain its purchasing power.
Imagine a situation where you rent out your property for the equivalent of $5,000 one month and next month the crypto you are using is equivalent to $3,500. It can cause you to lose money on your investment. The same thing applies to selling your property: the $500,000 worth of crypto you accepted as payment could be worth $200,000 tomorrow.
2. Increasing Regulations
Unlike in its early days, cryptocurrencies are now subject to government laws. This can harm the prospects of digital currencies, depending on the breadth of restrictions.
If government regulation includes official bans, the viability of crypto may be severely harmed. Depending on the rules, a prohibition could render a cryptocurrency essentially useless in a given nation and also expose persons to criminal punishment.
For instance: for a while, the government of Nigeria banned all financial institutions from making any transactions with cryptocurrencies. They also closed all individual accounts that were involved in crypto trading.
3. Tax Implications
For tax purposes, Bitcoin is considered “property” by the IRS. This means that if you accept crypto payments for your real estate investment property, you must record it as gross revenue, based on its market value at the time it was received. This means that you are subject to capital gains when you accept payments in crypto.
According to the IRS requirements for accepting crypto payments, you must keep account of the value of each crypto asset from the day you got it and the day you sold it. This can easily get cumbersome, especially if you handle a lot of crypto transactions.
4. Setting Up Takes Time
Setting up crypto payments may take more time and effort than regular transaction channels. One thing you will do is to create your crypto wallet and set it up so that you can start receiving payments. Also, some platforms like Binance might require you to go through a rigorous verification process before you can use the platform.
Another alternative is to use a third-party exchange service, which will operate as a middleman between you and the buyer or renter, but this means you will pay additional transaction fees. While these disadvantages are insignificant in the long term, the initial setup period may deter some people from using crypto payments as a means of transacting real estate.
5. Lacks General Appeal
Crypto payments are currently regarded as a niche payment option among real estate investors because the mode of payment is still in its infancy.
Even investors who have a cryptocurrency wallet and crypto coins may prefer more traditional payment methods due to their larger appeal. Make sure you are aware that the crypto exchange may only constitute a small percentage of your incoming payments so that you don’t get disappointed.
Things to Consider Before Accepting Crypto Payments
Now that you have been enlightened about the pros and cons of accepting crypto payments for your investment property, here are some things you must first think about:
Your Reason for Accepting Crypto Payments
The most important question that comes to mind before accepting payments in crypto for your investment property is why you’re doing it. Other payment methods are available, many of which provide more stability and lower risk than crypto.
Are you interested solely because crypto is popular and you want to look cool? Or is there a stronger case for investing in specific tokens? Of course, different real estate investors have different financial goals, and for some, investing in crypto may make more sense than for others.
Which Cryptocurrency to Use
Today, there are around 2,000 cryptocurrencies with widely varying valuations and stability. You should not necessarily focus on using the most well-known cryptocurrencies to receive payments. Instead, before you begin collecting crypto payments, conduct research to determine which crypto asset is ideal for you and your customer.
What to Do With Your Crypto After Getting Paid
It’s not just about receiving crypto payments for your investment property. You must also know what to do with these currencies once you get them. Your options are to either hold them and subject yourself to market fluctuations, or to sell them instantly for real cash.
Timing the Market
Timing is important in crypto. Because of the volatility of the crypto market, you can decide to sell or rent out your investment property when there is a dip in the market. But of course, the value of the specific crypto asset might rise the next day. This is a risk you must be willing to make.
If you are conversant with crypto trading, and you understand the candles and know when the value is about to be a rise, you can take advantage of this knowledge and sell according to the charts.
How to Accept Crypto Payments
If you really want to accept crypto for your investment property, here is a step-by-step guide to accepting crypto payments:
1. Know More About Cryptocurrency
If you are new to the crypto space, before jumping in and accepting crypto payments, you should know more about the crypto industry. Join an online community of cryptocurrency investors and aficionados. There are many such groups on Reddit.
Also, join online forums and read the white paper, which contains detailed information about the crypto industry. Also, these white papers will have vital and ample information about a specific crypto coin. If a coin does not have an easily available white paper, it’s a red flag.
You should be conversant with the crypto industry before deciding to accept payments for your property. Not doing this is risky and you can be vulnerable to making huge losses.
2. Set Up a Crypto Wallet
The next step you must take is to set up your crypto wallet. There are three types of crypto wallets; the soft wallet, the hard wallet, and the paper wallet.
- A soft wallet is a software that stores cryptocurrency and private keys. These wallets can be available in desktop, mobile, and online versions, including apps.
- A hard wallet is a physical device that you buy and connect to your computer to trade crypto. Hardware wallets are very secure, but they involve the presence of a physical device that you must keep track of and secure.
- A paper crypto wallet is a piece of paper that contains keys and QR codes that you can use to facilitate cryptocurrency transactions. Paper wallets were once thought to be a safe means of storing crypto since they were not connected to the internet.
3. Share Your Public Wallet Address
Your crypto wallet has a public address and a private key. The public address is what you share with the person paying you in crypto, while the private key is what you need to authorize a payment you wish to send. But since the public address can be too long to copy, you could convert it into a QR code, which the homebuyer or tenant will then scan to proceed with the transaction.
Related: What Happens at a Real Estate Closing?
Conclusion
Analysts have continued to warn crypto investors about the volatility of the crypto industry. But if you have decided to accept crypto payments as a real estate investor, do your homework. Consider why you’re interested in this mode of payment, and educate yourself on crypto to better determine whether this payment method is right for you.
Accepting crypto payments as a real estate investor is fine, but you must first have a good property that buyers and renters would love to live in. To find investment properties, Mashvisor is the best in the market.
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