Using Bitcoin as collateral for real estate

Harley997

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Quote from: kerafym on June 13, 2014, 12:46:35 PM

Doubt you will find any lender willing to lend you 30 years using bitcoin as collateral.

There are some lenders that allow you to use your stock portfolio as collateral to purchase a home.

Say for example you have a million dollars in a diversified portfolio and with to buy a $700,000 house. A lender may allow you to borrow against the portfolio and use both the stock portfolio and the house as collateral for the loan. The catch is that if the value of the stocks were to fall enough the lender can sell the stocks to pay for the loan. The same is true if you were to fall behind on payments.

In theory the same kind of arrangement would be possible for bitcoin.

kerafym

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THE GAME OF CHANCE. CHANGED.

Doubt you will find any lender willing to lend you 30 years using bitcoin as collateral.

ShakyhandsBTCer

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It's Money 2.0| It’s gold for nerds | It's Bitcoin

Quote from: Harley997 on June 09, 2014, 10:32:41 PM

Quote from: mercSuey on April 22, 2014, 06:37:31 AM

Has there been any news or stories of Bitcoin being used as collateral for a real estate purchase? I know it has been used to make the actual purchase but what about as collateral?

Given the nature of the block chain (ie. public ledger), it would be easy for a real estate entity to confirm a signee's Bitcoin ownership has not changed while still staying in possession/control of the signee.

I think the new US regulation will open up a new world of 'Bitcoin as collateral' and less so as a 'currency' per se.

If you use bitcoin as collateral then it would need to be possible for the lender to be able to seize your coins in the event you are unable to make your loan payments.

My question is how would the lender seize your coins? Unless you transferred your BTC to an address that the lender controls they would have no way to seize them. Even multisig would not work as collateral would be seized without the "consent" of the debtor (as they would have consented when they signed the loan agreement pledging the coins as collateral).

Harley makes a very good point that it would really not be possible to seize your BTC in the event of a default.

You would probably be better off selling your coins for fiat then buy the house (or even better use BTC to pay for the house directly).

Harley997

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Quote from: mercSuey on April 22, 2014, 06:37:31 AM

Has there been any news or stories of Bitcoin being used as collateral for a real estate purchase? I know it has been used to make the actual purchase but what about as collateral?

Given the nature of the block chain (ie. public ledger), it would be easy for a real estate entity to confirm a signee's Bitcoin ownership has not changed while still staying in possession/control of the signee.

I think the new US regulation will open up a new world of 'Bitcoin as collateral' and less so as a 'currency' per se.

If you use bitcoin as collateral then it would need to be possible for the lender to be able to seize your coins in the event you are unable to make your loan payments.

My question is how would the lender seize your coins? Unless you transferred your BTC to an address that the lender controls they would have no way to seize them. Even multisig would not work as collateral would be seized without the "consent" of the debtor (as they would have consented when they signed the loan agreement pledging the coins as collateral).

herzmeister

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I had this idea also. The German Fidor Bank is open to this concept (they are somewhat a web 2.0 bank and they already collaborate with bitcoin.de). I talked with a representative. They might come up with something this year, with me as a guinea pig. Wink

counter

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Don't get me wrong I'm not saying it is out of the question under the right circumstances.. However I wouldn't bank on it, no pun intended.

keithers

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Ultimately the answer to this question relies on how heavily each country scrutinizes the verification of the assets. Because if there is no verification it can be easily used to launder money through purchasing real estate.

STT

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They use gold in Vietnam for housing prices, its easy to hand over and agree an amount of. If you look up the coin prices for all countries, some national currencies are so bad they make bitcoin look comparatively stable. Its maybe preferable in some countries to contribute btc more then paper notes and gold has its own issue of theft especially in a wild west type country with no proper police or security possible.
Any stability btc can contribute might easily be a positive for the transaction as a whole

keithers

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Quote from: LostDutchman on April 25, 2014, 06:52:47 AM

Quote from: mercSuey on April 22, 2014, 06:37:31 AM

Has there been any news or stories of Bitcoin being used as collateral for a real estate purchase? I know it has been used to make the actual purchase but what about as collateral?

Given the nature of the block chain (ie. public ledger), it would be easy for a real estate entity to confirm a signee's Bitcoin ownership has not changed while still staying in possession/control of the signee.

I think the new US regulation will open up a new world of 'Bitcoin as collateral' and less so as a 'currency' per se.

Not a chance.

Too much volatility in Bitcon and crypto in general.

My $.02.

Wink

In the United States, the only way that you could feasibly use BTC for real estate, would be to sell your BTC, let the cash sit in your account, and then qualify for the loan. Or pay for the home in cash (from the BTC)

LostDutchman

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Quote from: mercSuey on April 22, 2014, 06:37:31 AM

Has there been any news or stories of Bitcoin being used as collateral for a real estate purchase? I know it has been used to make the actual purchase but what about as collateral?

Given the nature of the block chain (ie. public ledger), it would be easy for a real estate entity to confirm a signee's Bitcoin ownership has not changed while still staying in possession/control of the signee.

I think the new US regulation will open up a new world of 'Bitcoin as collateral' and less so as a 'currency' per se.

Not a chance.

Too much volatility in Bitcon and crypto in general.

My $.02.

Wink

Huangww

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I have never heard this. The crowd who trust bitcoin only occupied a very small part.

keithers

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Quote from: johnyj on April 24, 2014, 04:02:46 PM

Actually, if you want real estate, you don't need any collateral from bitcoin, you just hold bitcoin and take a mortgage loan, and sell some of the coins at a later time to pay back part of the loan

If you have 1 million worth of coin (2000 btc), and take a 100K loan, then you might be able to sell 100 bitcoin after one year to pay back all the loan when bitcoin exchange rate back to $1000

You still need to be able to qualify for the loan with your debt to income ratios. Depending on the type of financing that you want, you may need 6-12 months of liquid reserves (of principle and interest, with property taxes, and homeowner's insurance). As liquid as BTC is at this point, at this juncture they would not be considered as reserves.

johnyj

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Actually, if you want real estate, you don't need any collateral from bitcoin, you just hold bitcoin and take a mortgage loan, and sell some of the coins at a later time to pay back part of the loan

If you have 1 million worth of coin (2000 btc), and take a 100K loan, then you might be able to sell 100 bitcoin after one year to pay back all the loan when bitcoin exchange rate back to $1000

keithers

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This is the land of wolves now & you're not a wolf

In conventional terms, BTC cannot be used as collateral for Real Estate (in the US at least), because there is no official way (recognized by Fannie Mae or Freddie Mac), to verify or document deposits, or method to verify that you actually own the BTC.

In real estate and lending these days, there are so many anti-money laundering guidelines and policies, that we are many years from even being close to using BTC as assets for Real Estate.

The one way that you can use the cash from BTC towards a home, would be to sell the BTC (somewhere like coinbase), and let the money sit in your account for about 2 months. Once the money has seasoned in your bank account for 2 months (or you cannot see the deposit in the transaction history), you would be able to use the money towards a home.

johnyj

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Beyond Imagination

The volatility can be reduced with deleveraging

Risk-adjusted return for bitcoin is magnitudes higher than any existing investment portfolio including government bonds and gold, so it will be very safe to finance the purchase using a loan from a perspective of historical performance. The question is always the risk in future. But now when even government bonds have a questionable future (default), the risk for bitcoin might still be the least among all investment vehicles (after risk adjusted)

It seems the bitcoin's value is really depend on the investment: The more people invest in bitcoin, the more valuable it will become. So this kind of feedback loop without any end user utility is different from traditional investment, but you can also say that the demand for a high quality medium of saving is the major market for bitcoin

twiifm

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Quote from: dirtysox on April 24, 2014, 01:10:36 PM

It might be able to be done FSBO real estate deal. I doubt any escrow agency would accept a highly volatile payment like bit coin. Wouldn't that be similar to exchanging real estate for stocks? It would be risky for both parties involved...

They'll just tell you to sell the BTCs and give them cash

dirtysox

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It might be able to be done FSBO real estate deal. I doubt any escrow agency would accept a highly volatile payment like bit coin. Wouldn't that be similar to exchanging real estate for stocks? It would be risky for both parties involved...

TrailingComet

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Good couple years away from that kind of px stability

mercSuey

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Quote from: twiifm on April 23, 2014, 08:09:32 PM

If you are talking about mortgages, the house is the collateral

But for loan applicants with borderline credit, a strong crypto currency holdings from years of mining might strengthen their chances to get approved.

I'm just thinking of tangible uses of not just Bitcoin but of small yet devoted miners over time.

mercSuey

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Quote from: johnyj on April 23, 2014, 07:02:10 PM

The price is not a big concern, as a collateral you can use 1/10 of its value if that is the largest retracement of exchange rate during the latest 4 years, actually given a standard deviation based model, you might be able to use 1/4 of its value as collateral

And if it can work as a collateral, it could also be bought with a loan, that will ignite a rally which could be magnitudes higher than those rallies we have seen so far

This is what I'm talking about right here...

counter

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Your question made me ask more questions myself. Many of them have been posted already. But yes I'd suspect the volatility of The BTC price would be an issue.

twiifm

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If you are talking about mortgages, the house is the collateral

LatinF

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Lol collateral at low value makes little sense. Also coins would have to be given to lender and then lender maybe give them back and maybe not. Escrow can take some risk but again its tricky

johnyj

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Beyond Imagination

The price is not a big concern, as a collateral you can use 1/10 of its value if that is the largest retracement of exchange rate during the latest 4 years, actually given a standard deviation based model, you might be able to use 1/4 of its value as collateral

And if it can work as a collateral, it could also be bought with a loan, that will ignite a rally which could be magnitudes higher than those rallies we have seen so far

AT101ET

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It's going to be hard to implement.
Say it's used as a collateral in the current position BTC is in now, which bank would allow it to be used? Due to its volatility I doubt any financial institution would be willing to accept it's use. Besides, even if they would, they'd undervalue it tremendously and ask for a ridiculous amount of BTC in the event that they'd need to liquidate it. BTC is currently defined as an 'asset' and it's 'irregular' in the sense that it fluctuates more than other types of 'assets' such as property, art etc. The bank/financial institution wouldn't accept it as the value of the collateral could become worthless at any stage throughout the duration of the loan.
If the collateral is being backed on a personal loan/sale then I'd assume that'd depend entirely on whether or not the seller/person granting the loan would allow it.
From a legal point of view, I don't see any issues with it though.

gagalady

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Who knows maybe It will happen but as said price must get more stable first. Im' sure BTC is used as collateral not officially.

mercSuey

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Quote from: BitchicksHusband on April 22, 2014, 07:06:42 AM

I'm sure it will happen, but the price will have to be stable first. And that will happen when bitcoin has billions of users, not 2 million with wild volatility.

Otherwise the bank would accept the collateral, the person would fall through, and the bank will find out that the bitcoins are only worth half of what they thought.

Yes, of course, any asset valuation is discounted because of market volatility or liquidity concerns. But as you hinted, I expect the 'Bitcoin as collateral' story to be a good one in the near future for many banks and real estate firms.

BitchicksHusband

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I'm sure it will happen, but the price will have to be stable first. And that will happen when bitcoin has billions of users, not ~~2 million~~ 1 million with wild volatility.

Otherwise the bank would accept the collateral, the person would fall through, and the bank will find out that the bitcoins are only worth half of what they thought.

mercSuey

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Has there been any news or stories of Bitcoin being used as collateral for a real estate purchase? I know it has been used to make the actual purchase but what about as collateral?

Given the nature of the block chain (ie. public ledger), it would be easy for a real estate entity to confirm a signee's Bitcoin ownership has not changed while still staying in possession/control of the signee.

I think the new US regulation will open up a new world of 'Bitcoin as collateral' and less so as a 'currency' per se.

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