By Alejandra Rocca
For years, cryptocurrencies like Bitcoin, Litecoin, and Ethereum have been making waves in the global economy. Cryptocurrency can now be used to buy everything from a slice of pizza to a luxury home in Costa Rica. International buyers use cryptocurrency to buy property overseas and circumvent currency regulations. As early investors who have profited from cryptocurrency (so-called “Bitcoin millionaires”) look to diversify their holdings into real estate, modern sellers know that they need to keep their options open.
In the future, more homes will be bought and sold with cryptocurrency, and both buyers and sellers will have to contend with the implications, including advantages and drawbacks.
Advantages and drawbacks for buyers
- Diversification strategy: Every smart investor knows not to put their eggs in one basket, and buying real estate is a great way to diversify their holdings. Costa Rica is a beautiful place to invest, live, and retire.
- Lock in profits: Buyers who have profited from cryptocurrency may wish to lock in those profits through investment in real estate, a relatively safe investment compared to the volatile crypto market. Foreigners can buy a home, apartment, or resort in Costa Rica the same way Costa Ricans can.
- Negotiating power: Like cash buyers, crypto investors who make are prepared to make a full offer will have an edge in competitive markets.
- Limited inventory: It’s still not exactly mainstream to purchase a house in cryptocurrency in Costa Rica, so the number of sellers willing to accept a crypto offer is relatively low.
- Opportunity cost: While it’s rare for a property to depreciate in value, buyers who trade their crypto for real estate could miss out on an unprecedented appreciation of the coin.
- Tax implications: Since cryptocurrency is unregulated, exchanging coins can present a huge headache come tax season, compounded with reporting requirements for foreign assets. In general, trading or selling coins is subject to a capital gains tax. Make sure to consult an experienced CPA who is familiar with cryptocurrency to avoid a visit from the IRS.
Advantages and drawbacks for sellers
- Future appreciation: It’s not a guarantee, but if the past has taught us anything, it’s that cryptocurrency markets can experience unprecedented growth – appreciating much faster than real property. Sellers with a high-risk tolerance may enjoy the profits from future crypto appreciation.
- Marketing to a wider audience: Sellers who include “accepting Bitcoin” or another cryptocurrency in their listing will potentially open their sale to more buyers – marketing to a tech-savvy, young, and international audience. The more buyers interested in a piece of real estate, the better.
- Potential losses – The crypto market is extremely volatile, and selling at the wrong time could limit profits, or even lose you money.
- Learning curve – Cryptocurrencies must be stored in a “wallet” or virtual exchange. If you don’t already have an account, you’ll have to make one, which may present a challenge for less tech-savvy users.
- Tax implications. Again, trading cryptos present a complicated tax situation for both the seller and buyer, compounded by international regulations.
As the real estate industry continues to adopt technological advancements, cryptocurrency transactions will likely become more common in Costa Rica. Cryptocurrencies are already influencing the way people buy and sell property, with more sellers accepting bitcoin and more buyers ready to cash in. Of course, using crypto as payment comes with advantages and drawbacks, so make sure to do your research before investing.