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New York’s first bitcoin real estate transaction raises new questions

Could $97 invested in 2011 get you a $1 million property today?

389 East 89th Street

389 East 89th Street, where two luxury apartments were bought using bitcoin.

Manhattan has now joined the ranks of marquee places where bitcoins are used to buy real estate. Property developer Ben Shaoul, owner of Magnum Real Estate Group, is in contract to sell two Upper East Side apartments. But is there really a huge upside to paying for homes in crypto?

Everyone’s getting on the crypto train,” Shaoul told Modern Consensus. “I just chose to board it faster.”

The two units are both ridiculously small by non-urban standards but for this neighborhood, it’s fairly common. The first unit is a 624-square-foot studio that was asking $875,000. That’s about the size of a car garage in the suburbs. The other is a slightly bigger, 989-square-foot one-bedroom with a den asking $1.48 million or about $1,496 per square foot.

Some quick math puts the smaller apartment at BTC 97 and the larger at BTC 164. If Manhattan real estate isn’t enough to make you cry, keep in mind that you could have owned these homes yourself if only you’d bought $97 or $164 in bitcoin in 2011.

Ben Shaoul

Shaoul was able to accept the currency on the Bitpay app. “Not only is it about convenience,” Shaoul told Modern Consensus, “but it also concerns trust and transparency between the seller and buyer when handling a transaction of this size. You need to be able to legitimize a sale, whether it be in cash, credit, crypto, etc. In this case, Bitpay was the best option because of its security features.”

Every crypto trader forum is full of talking of two things: “moon” and “lambo.” As in: which currency is headed “to the moon” so you can buy a Lamborghini. It went from meme to reality when luxury car dealerships started accepting bitcoin. Even as far back as 2013 a man bought a $109,000 Tesla and paid via Bitpay with 91 bitcoins.

That Teslas are now cheaper, but 91 bitcoins would be almost enough to buy the smaller of the two apartments at current rates.

“I think there’s a distinction between the Lamborghini and an apartment/condos,” Shaoul added. “Lambos like any designer fad or good mostly has no appreciation value—that differs entirely when talking about real estate and the ROI opportunities afforded with the property itself. If someone is sitting on a crypto-Iron Throne if you will, then real estate is the best way to invest in something that will only appreciate overtime.”

“I’m not a banker but all of this is at the moment is just marketing,” real estate appraiser Jonathan Miller, president of Miller Samuel in New York told Modern Consensus. “This type of transaction is not groundbreaking, but it certainly is a start. It’s really a cash sale. The more that this occurs the more comfort is developed, there’s more liquidity. This is why we’re extremely early in this space. It’s a gimmick but it’s an important gimmick.”

After all, if you’re a crypto investor and you’re in a position to buy a million dollar property, which realtor would you rather talk to?

This gets to the heart of the residential real estate boom of the post-recession era. For the past several years, Manhattan real estate has been where Chinese and Russian millionaires and billionaires have been stashing their money. Now it’s bitcoin millionaires. The incentives are the same: Safe assets and a way to hide money in plain sight.

Celebrity appraiser Jonathan Miller

“Fifteen years ago when I started appraising these huge empty condos, I described it as building the world’s most expensive safety deposit boxes.” Miller said. “You put your values in there and you rarely visit them. It’s capital preservation. You are preserving what you have, move it out of bitcoin and into real estate.” He added that bitcoin is like earning your money under and unstable government or political environment: you want to get it out of there and into a stable world like real estate.

Real estate is in some ways the original blockchain. Instead of hiding your money in a bank, you secure it in public and transfer it from buyer to buyer as it gains value.

Is cryptocurrency property or money? Real estate companies are looking at cryptocurrency as if it were any other foreign currency headed to their bank accounts. “Bitcoin or cryptocurrency in general is an international currency that has no boundaries. In real estate, buyers are seeking easier transaction methods, and global platforms such as Bitpay allows this process to actually happen.” Shaoul told Modern Consensus.

However, the IRS views cryptocurrency as property. It’s the same as having a painting that increases in value while it hangs on your wall. It only costs you tax money if you try to sell it. And, while you can’t move a Manhattan apartment to Switzerland, you can move a painting there, but to do so would incur a 7.7 percent import tax. Keeping your money in cryptocurrency, therefore, is the financial equivalent of storing a painting in a free port and deferring any taxes.

Marcus Simon, attorney and member of the Virginia House of Delegates.

Marcus Simon, an attorney and state legislator in Virginia, told Modern Consensus that the condo buyers wouldn’t see any advantages in paying in bitcoin. U.S. personal and business tax code make it possible to sell your investment property and invest in another one in a 1031 exchange (also called a like-kind exchange or a Starker).

“But it wouldn’t be like-kind property. Typically a swap is a client says, ‘I have a Manhattan condo and I want to get a place in Florida instead. I sell one, park the money in an account. As far as the IRS is concerned it’s just a transfer,” said Simon. “Bitcoin, even though it is property, isn’t a like-kind. You could sell a condo and buy a timeshare, but you can’t get a like-kind exchange if you sell an airplane to buy a boat.”

“I’m not a tax attorney but if it is realizing a gain you’re going to have to pay some tax on the gain in value,” he added. “This is more like if you worked as a janitor at Microsoft and you got stock way back when. You own the stock, but you can’t just trade it for a house. The taxman is going to get there on these transactions.”

Even if both parties to the sale are okay with transacting in bitcoin, more problems could emerge. “The recording office won’t accept the deed in bitcoin. It’s going to have to go through some exchange.”

It turns out there is really only an upside if you’re sitting on a growing pile of crypto and your real estate broker is ready to accept and then sell right away for fiat. On the upside, maybe a swing in the market ended up saving you 10 percent or so on your apartment. Real estate transactions can take weeks from a signed contract to a closing.  But keep in mind that just with the swings in the bitcoin market of the last two months, you could have bought the one-bedroom for the price of the studio apartment.

Still, if you are sitting on a crypto fortune: this is good news for you. If you’re not, it probably wouldn’t make sense to buy some crypto today to buy that condo tomorrow. Those wanting the bragging rights of buying a condo in bitcoin may be in for a rude surprise. The transaction fees in the first place to onboard the crypto which were many exchanges can be somewhere between 3 to 15 percent.

To buy the studio on Coinbase, for example, would incur $12,846 in fees. The one bedroom would run you $21,728.37.

Also, if any real estate people want to message me directly a consultancy, please do. Our best estimates say that these sales lost $28,120 in network fees by going with bitcoin instead of Bitcoin Cash on the BitPay app.

Brendan Sullivan is a writer, producer, and author of the memoir Rivington Was Ours: Lady Gaga, the Lower East Side, and the Prime of Our Lives. Disclosure: he owns cryptocurrencies. Follow him on Twitter.