A fintech firm – Milo – has just laid claim to being the world’s 1st crypto mortgage company. Announcing its launch today, it lets both US- and non-US-based customers use the Bitcoin cryptocurrency as collateral to invest (for now) in US real estate.
Milo’s clients will be able to pledge their Bitcoin through a third-party custodian and purchase property on a 30-year crypto mortgage. According to the firm, the idea is to allow clients to continue to own their Bitcoins while diversifying into real estate.
Milo will underwrite the borrower, examine various data points and conduct due diligence on the property, title, and other aspects of the transaction.
“There are countless stories of people buying a property with bitcoin proceeds only to see it increase in value and be worth millions more,” said Josip Rupena, Milo founder and CEO.
“With our new crypto mortgage, we can expand our offerings to consumers that were previously denied by other banking firms just for having crypto. We have an opportunity to make sure that doesn’t happen anymore and their bitcoin wealth can now help them buy a property.”
A visit to the site seems to indicate a “large” waitlist, highlighting the appetite among crypto investors to diversify their crypto portfolios into real estate.
While clients can finance 100 per cent of their property purchase with no dollar down payment, the price volatility of Bitcoin would mean that they also have to ensure some level of over-collateralisation to avoid margin calls.
In other words, if the value of pledged Bitcoin falls below a certain percentage, clients will have the opportunity to pledge more to mitigate against these factors. Milo did not explain what happens to the property or collateral if their value falls beyond the pledged threshold.
One thing to note why such a concept may prove popular among crypto investors in the US is that any profit a customer makes from selling cryptocurrency is subject to taxation. The Inland Revenue Service (IRS) generally defines cryptocurrency as property for tax purposes, and cryptocurrency profits are subject to tax rates from 10 per cent to 37 per cent (as of 2021).
With Milo’s offering, customers no longer need to take profits on their multi-million-dollar Bitcoin portfolios. If they want to buy properties without liquidating their crypto portfolios and subjecting themselves to taxation – they now seem to be able to by pledging them as collateral.
Milo isn’t the only crypto/real estate player in this two-to-three-trillion-US-dollar fledgling crypto mortgage industry though.
In September 2021, United Wholesale Mortgage accepted its first-ever cryptocurrency mortgage payment as part of a pilot phase, with five more payments being evaluated and accepted in October 2021.
However, due to regulatory uncertainty, UWM has stressed that these payments are only part of a pilot phase and have no plans to do an official launch.
In Singapore, there have been several firms that offer real estate investing through the use of blockchain technologies. For example, Fraxtor is a blockchain-enabled co-investment platform where investors – family offices, private equity fund managers, real estate investors – can co-invest in the property (hence the term ‘fractionalised property investment’).
Before Fraxtor, there’re FundPlaces and Reidao – both real estate-backed cryptocurrency platforms aimed to tokenise real estate ownership for investors.
It should be noted that cryptocurrency investments are risky and investors can potentially lose all of their funds without recourse. IRAS has guidelines on taxation policies for digital tokens, while MAS has shared advisories on the risk of interacting and being exposed to this volatile asset class over the years.
Caveat emptor means ‘buyers beware’, which is in reference to MAS speech at the Retail Finance Asia-Pacific Conference and Expo on March 13, 2002.
This article was first published in 99.co.