After a lot of red tape, a recent college graduate used cryptocurrency assets to buy a home, though everyone from the mortgage company to tax collectors needs to be paid in regular U.S. dollars.
In what is believed to be a first for Seattle-area real estate, a young investor has used bitcoinlike cryptocurrency to buy a house in Tukwila.
The three-bedroom rambler sold Friday for $415,000, and the buyer used a combination of bitcoin cash (a new type of bitcoin) and several other cryptocurrencies for the 10 percent down payment and to help secure a conventional mortgage for the remaining cost of the house.
Before the sale closed, the funds were converted to regular U.S. currency to pay the seller and meet requirements of the lender, and so closing costs like taxes could be calculated and paid.
The 23-year-old buyer, Cary Kuo, a design engineer in the aerospace industry who had been renting an apartment in Renton, beat out four other offers on the house.
Bitcoin and other cryptocurrencies are digital funds that fluctuate in value daily, and are produced in limited numbers using software, without involvement of a bank, government or central authority. They can be used directly to buy things electronically when the seller is willing to accept them as payment. In other cases, like with the Tukwila home sale, it can be cashed out like stock and converted to regular U.S. cash.
Kuo said his entire down payment came from profits he had made since June while trading cryptocurrency, which the recent college graduate puts nearly all of his spare income into. He said he started out with a $4,500 investment.
It took Kuo a while to get final approval from his mortgage lender — providing a paper trail of his cryptocurrency assets proved difficult because the digital funds don’t come with anything akin to a regular bank statement. But the deal wound up going relatively smoothly in the end.
The real-estate brokers on both sides of the sale and the mortgage-loan officer had never dealt with a bitcoin or cryptocurrency transaction before and were initially skeptical and confused.
“(Kuo) said ‘cryptocurrency’ and it was just, whoosh, right over my head,” said Nelya Calev of John L. Scott, who represented Kuo. “A lot of it was so foreign, I’d pop up awake at 2 in the morning and go, ‘Uh! What if this goes wrong?’ ”
“There was a lot of panic,” she said. “But really, it was not necessary.”
The main concern from the husband and wife selling the home, who didn’t know much about cryptocurrency either, was whether the money was actually real, said the seller’s broker, Allan Ponio of Marketplace Sotheby’s International Realty. Calev said Ponio initially “wasn’t crazy about the whole idea.”
“I would look at it and say, ‘Is this real money? Is that actually in his account?’ ” Ponio said.
But Ponio kept an open mind. He did extra due diligence with the buyer’s loan officer at Guild Mortgage, one of the few — if only — loan companies around willing to deal with cryptocurrency.
Guild Mortgage had called Fannie Mae to confirm it would accept bitcoin as an asset for purposes of securing a mortgage. It would, the federal agency told the company, as long as there was a full paper trail documenting the buyer had paid for the cryptocurrency and then sold it back into U.S. dollars, and used that for the down payment.
Oleg Tkach, a Guild Mortgage branch manager who handled the loan on the purchase, said once he had all the buyer’s extended paperwork proving the money was his — and real — he treated the cryptocurrency like any other investment.
“It was just like any typical transaction — people cash in their 401(k)s, or stocks” or other investments, Tkach said. “To me, it makes sense, as long as you can document the purchase of it.”
Ponio said the offer wound up looking like any other bid, with traditional U.S. cash going to all parties involved, just with a lot of extra paperwork.
“From my side, it was actually really seamless,” Ponio said. “It went just as it would with a conventional transaction.”
Bitcoin and real estate
There have been scattered reports of homes around the country selling for bitcoin in recent years, including in California, Florida and Texas — but those transactions were typically for the full cost of the house and didn’t involve a loan.
A few home sellers around the country have marketed their properties as being bitcoin-friendly, while a Miami homeowner just listed a condo with the stipulation that it can only be bought with bitcoin (listing price: 33 bitcoins, or about $544,000 at the time of the listing last month).
But there haven’t been any reported home sales with cryptocurrency in the Seattle area. Both Windermere and John L Scott, the top two brokerages locally, said they hadn’t heard of a bitcoin sale here before. The Northwest Multiple Listing Service, which catalogs sales locally, said the same.
In 2014, a professional poker player on Orcas Island made the local news when he asked for bitcoin for his house. But the home never sold (not because of the bitcoin request — it was too expensive in regular dollar terms, the former listing agent said Tuesday).
It’s not possible to buy a house here entirely with bitcoin. Even if the seller were willing to accept cryptocurrency as payment, and there were no real-estate brokerages or mortgage companies involved, government agencies that get taxes on home sales still need traditional cash.
In the Tukwila sale, state and local governments collected $7,392 in taxes, the same as if the house had sold through traditional means.
Paying off the mortgage
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The bitcoin market has been highly volatile — with bitcoin’s value zooming from less than $7,000 at the start of November to as high as nearly $20,000 in mid-December, and back down to about $15,000 this week. But Kuo had already cashed out the cryptocurrency used for the down payment by the time he bid on the home, so the gyrations of the market didn’t affect his offer. (Kuo said he barely invests in bitcoin, instead mostly using other cryptocurrencies like Dash, Litecoin and Augur.)
From the sellers’ perspective, they were getting a fixed amount of regular cash — ditto for the brokerages collecting their commissions. That, combined with Kuo’s real-estate agents going into overdrive to be helpful and communicative, helped him win the bidding war for the house, even though one other bid was actually slightly higher, Ponio said. He said it helped Kuo’s cause that the other bidders weren’t seen as being as serious — it was tough to get ahold of their loan officers and brokers.
Of course, if Kuo continues to invest in cryptocurrency and the market tanks, it could affect his ability to pay off the mortgage if his income can’t make up the difference. But he has added security against that: He’s renting out two of the three bedrooms in the 1,650-square-foot house — he says his monthly payment, after subtracting his rental income, will be a little less than what he’s paying for his room in an apartment now.
Tkach, at Guild Mortgage, said Kuo’s future cryptocurrency-investment choices didn’t factor into his decision to grant a mortgage, since Kuo met the regular income and debt-to-income requirements. How homeowners invest is up to them, he said.
The monthly mortgage and property taxes still need to be paid with regular money.
Kuo has a bold plan for the long term. The Texas transplant plans to keep investing in cryptocurrency and cash out once a year, hoping to buy a new house each year with the profits.
“I put in a lot of money but I’m well aware of the risks, and I’d be fine with losing the majority of it, due to my age and I’m still single,” Kuo said. “If I were to lose a year’s worth of profits, I’d be OK. It’s just one of the natures of the game.”
Although cryptocurrency is only being used by a tiny share of the population, the agents involved said they expect the trend to creep into real estate more.
“Unless something changes with cryptocurrency, I believe it’s going to become more common,” Tkach said.