There are numerous challenges to investing in real estate outside your own country. Many things that we take for granted in the U.S. (e.g., strong property ownership protection, the ability to get a mortgage) are not true in other countries. In addition, there are language barriers, differences in currency and differences in laws, taxes, and property operating norms. However, the benefits of investing internationally can be tremendous. International investing is the ultimate in diversification, and the differences — as long as you take proper account of them — can be advantageous. Plus, investing beyond your boarders comes with perks like visiting exotic destinations, meeting new people, and experiencing different cultures.
Cryptocurrency is inherently international. It exists on the internet, which is essentially global, and crosses boundaries effortlessly. As cryptocurrency is used more and more in real estate, it helps the entire process of buying real estate internationally, whether you are in the U.S. and want to invest elsewhere or if you are elsewhere and want to invest in the U.S. There are numerous potential ways that cryptocurrency will aid in international investing. Title is recorded on a blockchain in several countries, making it easily searchable remotely. When that process becomes worldwide, it will be easy to check title for any property from wherever you are.
Similarly, there are new listing services that are already listing properties from multiple countries and making sales in different parts of the world. A prime example is Propy.com. I was able to put in an offer on a beautiful estate in the Philippines from my computer (oh, and by the way, I made the offer in cryptocurrency). Recently there was an online auction in Australia where the price was in Bitcoin or Binance Coin. It was viewed internationally by a huge audience. Other capabilities for placing offers on real estate, creating, editing, negotiating, and executing contracts, and closing deals are also being developed and, in some cases, have completed their first few projects.
Many of these opportunities are in beginning stages. There are, however, two important ways that cryptocurrency can help with international investing today: using cryptocurrency for cross-border transfer of funds and the creation of security token offerings (STOs) for tokenized international investing in larger commercial properties.
There are many potential issues with transferring funds to the U.S. from foreign countries. The U.S. Treasury Department or even a bank can hold a wire transfer indefinitely while it investigates the situation.
I have seen several cases where delays in fund transfers have lasted months, resulting in lost deals. There are important and necessary ‘know your customer’ (KYC) and ‘anti-money laundering’ (AML) checks that should be done with any investor, and the Treasury Department has a mission and a right to investigate. But for money transfers done by wiring funds, the incentive for the Treasury Department is to take as long as it wants and block the transfer indefinitely. They can even require an Office of Foreign Assets Control (OFAC) license for some transactions. In essence, ‘no’ is the default answer and the money is not transferred until these third parties are assured of the money’s provenance.
Cryptocurrency is not controlled by any government, so its transfer cannot be arbitrarily stopped. This property of cryptocurrency flips the incentives for the Treasury Department. They have incentive to complete their investigation in a timely fashion or risk having the transaction go through without a proper investigation. No one is advocating an end run around regulations. But moving funds in cryptocurrency form stacks the enforcement mechanisms in your favor. ‘Yes’ is the default answer.
Another mechanism for facilitating international investing is the STO. Tokenizing real estate and making the tokens available on a cryptocurrency exchange allows international investors to find, purchase, and own real estate from anywhere in the world. STOs are typically created as smart contracts that can automatically incorporate all the regulatory restrictions from multiple countries. So, the MiFID rules in Europe and the U.S. Regulation D restrictions (such as owning a year before being able to sell) can all be embedded as features of the cryptocurrency and be self-enforcing. As STOs become more popular, it will be possible for smaller investors to gain access to larger commercial projects and for international investors to invest in multiple countries while browsing on an exchange. This approach makes properties in other countries easier to find and assess as well as easier to purchase and own. Transactions can be completed much more quickly as well. STOs are available now as strategies for syndicating real estate, though only a few have been completed.
With STOs and the ability to transfer funds quickly, cryptocurrency has great potential to facilitate international investing even before new capabilities such as title on the blockchain become realities. Cryptocurrencies are rapidly being deployed in many aspects of real estate investing, all of which increase the capacity of investors worldwide to invest outside their own countries.
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