After the 2008 financial crisis, middle schooler Hank Wu traveled with his parents every weekend to places such as Las Vegas and Florida to scout for investment properties.
In high school, he found a new, more exciting investment opportunity: cryptocurrency. He invested heavily and made millions riding the meteoric rise of Bitcoin as well as that of lesser-known coins, like Tether.
Since then, he’s sold around 80 percent of his crypto portfolio, putting his winnings into other investments like backing startups and, increasingly, buying real estate.
In 2018, Wu bought seven garden-style rental units in West Palm Beach, leaning on his parents for their expertise. Now 24, Wu is about to close on another real estate buy: a condo in Manhattan.
During the pandemic, he went into contract 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 that he wouldn’t have had if not for his adolescent crypto bets.
“In the back of my mind, I had this implicit understanding that you should always invest in real estate,” Wu said. “I can rely on it not to go to zero.”
Wu is one of many who have made millions on cryptocurrency and are now looking to park their crypto riches in the more stable and tangible asset class of real estate. With huge spikes, cryptocurrencies have minted thousands of millionaires. Almost 80,000 Bitcoin addresses hold over $1 million each, according to data from BitInfoCharts. From New York and the Hamptons to Miami and Los Angeles, crypto wealth is being pumped into luxury real estate properties, according to brokers, buyers and crypto fund managers.
For many, the volatility of cryptocurrency is attractive, as is the potential for outsized riches.
“People are thinking, ‘What can I spend a penny on and make one million dollars?’” said Piper Moretti, who founded the Crypto Realty Group.
Now, some individuals are using their new dough to achieve long-term goals: making a down payment on their new house, buying a third home in Miami or purchasing a private jet or exotic car. Others are figuring out ways to balance their portfolio, protecting their net worth from crypto’s notorious volatility and opting for assets with more predictable cash flows, such as multifamily.
Whether these people are converting crypto into cash to invest or using Bitcoin directly to buy property, sellers, fund managers, brokers and attorneys are having to adapt and learn new ways to close property deals.
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 down in cash, he converted $250,000 worth of Ethereum to pay another 15 percent down at closing.
“If I had sold it a week later, it would have probably been $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 earnings were classified as short-term capital gains and therefore subject to higher tax rates.
Over the last year, cryptocurrencies such as Bitcoin, Ethereum and Dogecoin have seen explosive, unprecedented growth. Bitcoin jumped a staggering 800 percent from April 2020 to a high of $63,000 on April 15. But it’s been a turbulent journey. In late May, the price of a coin dropped to $34,000.
In comparison, prices for industrial and multifamily properties — the two strongest real estate asset classes in 2020 — rose by 8.8 and 8.3 percent, respectively.
“Real estate has traditionally been a good place to park your money,” Keogh said. “With interest rates as low as they are, it’s becoming a no-brainer for people that have made 100 percent on their money through crypto.”
For those who have built up a significant crypto portfolio, “the right thing to do is to take some of that money off the table 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 great thing.”
No cash, no problem
As cryptocurrencies generate more wealth, residential brokers have a larger pool of interested buyers.
“We advertise homes as taking crypto, and from that alone, we’ve had multiple 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 like options.”
Kirman is listing a 9,000-square-foot property at 777 Sarbonne Road in Bel Air on behalf of celebrity cosmetic surgeon Alex Khadavi for $87.8 million — and Bitcoin offers will be entertained.
But it’s not just lavish L.A. spreads that are available to buyers hoping to use crypto. In Manhattan’s Financial District, former WeWork chief growth officer David Fano is selling his penthouse at 130 Beekman Street. “Purchase for 88 Bitcoin or $3.29 million!” read a recent listing from Compass’ Rachel Glazer.
In some cases, sellers bullish on crypto are giving sweeter deals for buyers who make an offer in crypto. A 7,310-square-foot home at 358 Crescent Avenue in Wyckoff, New Jersey, is being listed for $3.9 million. But if an offer to buy the house is made with crypto, the seller — who records show is financial analyst Timothy Brackett — will knock off $50,000.
The most common way to buy a home with cryptocurrency is to convert it into U.S. dollars at an agreed exchange rate.
Buyers and sellers can set up the transaction through payment processor BitPay, according to Shaun Pappas, a partner at law firm Starr Associates who has worked on such deals. An invoice is generated by the seller, and the buyer has 15 minutes to lock in a rate to convert the coin to cash. Once executed, the cash is placed into an escrow account, akin to a normal property transaction.
In other cases, buyers may have the option to transfer their crypto directly to the seller without exchanging it for cash — a wallet-to-wallet transaction. Though this is less common, it could generate greater proceeds for sellers.
Los Angeles-based developer Michael Chen wanted to give potential buyers this option when listing a spec 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 in value overnight, depending on where the coin stands. But Chen is willing to take the risk.
“I don’t see it as just a currency,” Chen said. “I see it as an investment.”
Those who use Bitcoin to purchase property may end up with a very 21st-century kind of buyer’s remorse.
Madison House at 15 East 30th Street
In February, investor Chamath Palihapitiya tweeted a photo of a Lake Tahoe plot he had bought in 2014 with Bitcoin. The deal was valued at $1.6 million at the time, but Palihapitiya tweeted that had he held on to the cryptocurrency instead, it would have been worth $128 million. “#FML,” he wrote.
Anonymous no longer
When Keogh showed his mortgage broker at Bank of America — “not a crypto person,” he said — that he had cashed out his crypto earnings to use as part of the down payment, the broker demurred.
Keogh tried to explain it was just like a brokerage account, “like trading stocks.” Bank of America eventually relented, and Keogh secured a mortgage.
“I think the concern on the bank’s end 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 do not have to have identifying details, making it difficult for banks, brokers and attorneys to verify owners.
“We do our due diligence,” Chen said, adding that someone who can afford a $65 million house likely has a financial background that can be vetted. “We would just want to know they’re doing this legitimately without breaking the law.”
But as trading cryptocurrency becomes more mainstream, anonymity is something crypto users may have to give up if they want to buy property.
Banks have to know where the crypto came from and identify the buyer, Pappas said. In some ways, this “defeats the purpose” of crypto, which was built around anonymous transactions, he noted.
Just a Lamborghini
As in Hank Wu’s debut deal, others who have made money in crypto are also looking at cash-flowing rental properties as investments.
Keith Wasserman, co-founder of multifamily investment firm Gelt, said he’s seeing more and more investors who have realized gains 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 middle-of-the-road choices.
I literally shitposted my way to becoming a millionaire. @MasterClass coming soon.
— Beanie.eth (@beaniemaxi) May 27, 2021
Some investors use their crypto wealth to realize long-term goals of owning property, while others want to cash out of their real estate assets and bet it all on crypto, according to Nicole DeCicco, founder of CryptoConsultz. The firm helps educate cryptocurrency investors on how to diversify their portfolios.
Others think it’s too soon to be selling Bitcoin, are skeptical of investments that aren’t decentralized, or like to follow investment advice from Tesla CEO Elon Musk.
“The people with the most invested, they’re not buying property,” said Stephan Burke, a Miami-based Elliman broker who has closed wallet-to-wallet and crypto-to-cash deals since 2017. “They want to sit on crypto and see what happens.”
Angel investor and crypto fund founder Terrence Yang hates owning real estate, and hasn’t made any buys since he got into Bitcoin.
“It’s illiquid,” Yang said. “It’s easy for the government to raise taxes on.”
“No, just a Lamborghini,” said independent venture capitalist Peter Saddington when asked if he had bought real estate since making money on crypto. He bought the supercar in 2018 for 45 Bitcoins, which he had purchased years before for less than $115. A single Bitcoin was trading in the high $30,000s at the time this story went to press.
Wu is driven more by the turn of the key in a new property than by the rev of an engine. Though he doesn’t have any other crypto-backed real estate deals in the pipeline, he’s keeping his eyes open for more residential investments.
Because, as Wasserman said, we all need a place to live,“until we’re living on Mars with Elon.”