Takenfrom Forbes Central America
Borrowers are obtaining bitcoin-backed loans to buy real estate, combining the relatively new asset with one of the most established ways to build wealth in the United States.
The company Milo claims that its 30-year, low-interest US crypto mortgage will allow potential borrowers to pledge their bitcoin to purchase a property and qualify to finance 100% of the purchase without the need for initial dollar payments.
The loans were granted in an early access stage and the product is expected to be available to most applicants this 2022.
“I think this product is a real game-changer for many, many people. It fulfills many aspects of what this consumer wants, which is to continue holding their bitcoin and be able to diversify and buy real estate, another fantastic wealth-building asset,” Milo CEO Josip Rupena told Insider in an interview.
The crypto lending industry is taking shape, as the cryptocurrency market had a remarkable year in 2021 when it briefly surged past a $3 trillion valuation for the first time. Cryptocurrency-backed loans are secured loans that use Bitcoin and other digital assets as collateral.
Milo said his crypto mortgage already has a “large” waiting list, highlighting the appetite among crypto investors to extend their wealth-building activities into housing, as well as their reluctance to set aside their bitcoin to fund such purchases.
It can be “very difficult for [cryptocurrency holders] to qualify for a mortgage because the existing framework with banks and other lenders doesn’t consider that crypto wealth. What that means is that they have to look for alternative ways to buy property,” Rupena said. “Once they sell their bitcoin or crypto, that creates unintended consequences of having to realize capital gains and tax implications,” she said.
“And at the same time, their biggest concern is the opportunity cost of holding Bitcoin and digital assets. We’ve seen that over time it increases and appreciates, and it has been appreciating,” he said. “It’s different for someone who owns cryptocurrencies than for someone who lives in the conventional dollarized world. They really don’t want to sell their cryptocurrencies.”.
If the purchase price of a property is $500,000, a potential Milo borrower would have to pledge, through an external custodian, at least $500,000. Rupena said he will back the borrower, analyze various data points, and perform due diligence on the property, title, and all other aspects of a pending transaction.
“This bitcoin will allow us to feel comfortable with the consumer in granting them this loan. At the same time, they will continue to own the bitcoin throughout the transaction,” said Rupena. Milo aims to expand the product to allow borrowers to pledge other cryptocurrencies. Mortgage borrowers can make monthly payments using cryptocurrency or fiat currency.
Like other crypto loans, Milo's crypto mortgage has a margin call component.
“If cryptocurrencies drop by a certain amount… they could be subject to that. But they have the opportunity to commit more to mitigating those factors,” said Rupena, who added that the transactions are structured to minimize the impact of price volatility.
A licensed lender
Milo started in 2018 and is familiar with dealing with specialized clients, as it has focused significantly on clients living outside the U.S. Rupena said the idea for a U.S. crypto mortgage began because international clients who owned digital assets were requesting such a product.
He further stated that credit checks are part of the loan process for domestic borrowers in the U.S. "For international clients, [since] they don't have credit, we've found alternative ways to underwrite without credit... and then it's just one more data point for us.".
Milo's other mortgage products for foreign nationals have generated millions of dollars in loans, with applicants from at least 63 countries, he added. The cryptocurrency mortgage market could be worth tens of billions of dollars, Rupena estimated.
“We know there are billions of dollars of outstanding loans backed by cryptocurrencies, given the number of buyers. So we believe it’s a multi-billion dollar opportunity, if not more, and it could be even bigger given the size of real estate as an asset,” he said.
Published by Forbes Argentina
