Real Estate Investing “with” vs “in” Crypto

[REalSmartCrypto]

Hi everyone! I’m a real estate developer and new to the crypto space but definitely have aptitude for it. I’ve been researching the potential of raising Bitcoin or other crypto currencies to develop culturally minded real estate development projects.

I’m really only seeing articles  about investing “in” Bitcoin or other coins meaning just buying them for price speculation over time. I see a huge opportunity to INVEST THE COINS AS CURRENCY especially in vehicles that assist in diversifying, creating more stability and generating income streams (like real estate). The biggest advantage to this would be for those that have realized huge gains from appreciation to potentially avoid a capital gains tax.

From my read of things, you get taxed if you 1) exchange crypto into a fiat like USD, 2) trade one crypto for another, or 3) buy goods or services with it. You get taxed on your “cost basis” depending on your bracket. But this doesn’t seem to cover “investing” the crypto you have into investmwnr vehicles in the same crypto.

I’ve raised USD in a special purpose entity (SPE like an LLC)  multiple times in exchange for membership interest to develop real estate projects. I think this could be done in the same way just raise a fund or for a specific project. I think once I raise the crypto then I can convert that into cash without a tax trigger given that the LLC cost basis would be set at what’s raised. Does that seem right?

I would ideally like to purchase the development opportunity in Bitcoin or Ethereum but it’s an uphill battle probably to convince the seller to do that given that he would be accepting “personal property” in exchange which doesn’t have the same tax benefits like real estate for examples doing a 1031 exchange. There’s only been a couple residential real estate purchases done in Bitcoin and nothing in commercial that I’ve read about.

The other challenge is that I would have to develop the real estate project without the use of a lender (thank god!) but it would not lever the same sort of returns. Unless we have already come up with crypto lenders, have we?

My real estate project in mind is a boutique hostel / hotel in a historic brick building in Philadelphia that would use crypto currency at the heart of the ecosystem to start getting more use cases out there for people actually using it daily.

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[eschades]

I see a huge opportunity to INVEST THE COINS AS CURRENCY especially in vehicles
that assist in diversifying, creating more stability and generating income
streams (like real estate).

Not really sure what "invest the coins as currency" means.  People don't need to "invest EUR as currency", per se, right?  Do you mean build up reserves of BTC, etc., in order to be able to provide liquidity in a given (crypto-)currency (to a group of shareholders) without the fees associated with exchanging crypto for fiat?

The biggest advantage to this would be for those that have realized huge gains from appreciation to potentially avoid a capital gains tax.

From my read of things, you get taxed if you 1) exchange crypto into a fiat
like USD, 2) trade one crypto for another, or 3) buy goods or services with
it. You get taxed on your “cost basis” depending on your bracket. But this
doesn’t seem to cover “investing” the crypto you have into investmwnr vehicles
in the same crypto.

Yes, it does cover that.  That "investing" is the exchange of (crypto-)currency/asset for another asset, like membership interest / equity...

I’ve raised USD in a special purpose entity (SPE like an LLC)  multiple times
in exchange for membership interest to develop real estate projects.

...just like this.

I think this could be done in the same way just raise a fund or for a specific project. I think once I raise the crypto then I can convert that into cash without a tax trigger given that the LLC cost basis would be set at what’s raised. Does that seem right?

No, that's wrong.  If I swap a house for someone else's LLC membership interest, it's a taxable event (IANAL non-accountant but I've paid enough to lawyers and accountants to know the answer).

I would ideally like to purchase the development opportunity in Bitcoin or
Ethereum

This is a different business proposal, if you'd still be willing to do that despite it being a taxable event.  I'm sure you could find people to do this; PM me.

[but sellers] would be accepting “personal property” in exchange which doesn’t
have the same tax benefits like real estate for examples doing a 1031 exchange

There are other ways besides 1031 exchanges.  Opportunity Zone funds & businesses (QOFs/QOZBs); anyone interested can PM me.

The other challenge is that I would have to develop the real estate project without the use of a lender (thank god!) but it would not lever the same sort of returns. Unless we have already come up with crypto lenders, have we?

Not sure about that.

My real estate project in mind is a boutique hostel / hotel in a historic brick building in Philadelphia that would use crypto currency at the heart of the ecosystem to start getting more use cases out there for people actually using it daily.

If it would make money regardless of the crypto aspect, I bet you could find plenty of investors.

[REalSmartCrypto]

Thanks for your response using quotes to follow easily. I’m not that sophisticated yet on here to do that.

The most important issue is your premise that “exchanging” is the same thing as “investing” - I don’t think that’s true. I’m not saying that BTC would get exchanged into membership interest. It would be invested as BTC into the LLC. I know you would be getting membership in “exchange” but your asset denomination is still BTC. That’s what I mean about investing in that currency. Exchanging would be going from BTC to ETH for example (different currency). If it stays BTC and gets invested as such into the LLC, I really don’t think that’s a taxable event. Although, it might be. That’s the key though. If it’s not than you should be able to invest gains tax free given it would be like kind. I’m asking CryptoTaxGirl right now - https://cryptotaxgirl.com/

Any follow ups to that specifically? It’s a really important distinction and comes down to interpreting the tax code.

[Dunamisx]

Hi everyone! I’m a real estate developer and new to the crypto space but definitely have aptitude for it. I’ve been researching the potential of raising Bitcoin or other crypto currencies to develop culturally minded real estate development projects.

Firstly let me welcome you onboard,
I see a great future in the blending you chose to take in combining bitcoin along with real estate development, why is because the two were among the top best three investments that one could use in this current digital economy dispensation and i think you've got it right by being on a smooth path.

I’m really only seeing articles  about investing “in” Bitcoin or other coins meaning just buying them for price speculation over time.

You're right, some buy for day to day trading while some for investment or for a store of value (asset). but people just don't buy but they speculate the price to determine when to buy or sell, remember bitcoin is unlike gold or real estate, it is volatile.

[eschades]

Thanks for your response using quotes to follow easily. I’m not that sophisticated yet on here to do that.

The most important issue is your premise that “exchanging” is the same thing as “investing” - I don’t think that’s true. I’m not saying that BTC would get exchanged into membership interest. It would be invested as BTC into the LLC. I know you would be getting membership in “exchange” but your asset denomination is still BTC.

I'm not sure why the same "asset denomination" affects anything.  If I "invest" USD into an LLC, and get a membership interest, by your logic I would still have an "asset denomination" (of the LLC membership) of USD; and this is obviously a taxable event despite that perspective.  I don't think tracking whether the "asset denomination" is usually relevant to this type of discussion.

That’s what I mean about investing in that currency. Exchanging would be going from BTC to ETH for example (different currency). If it stays BTC and gets invested as such into the LLC, I really don’t think that’s a taxable event. Although, it might be. That’s the key though. If it’s not than you should be able to invest gains tax free given it would be like kind. I’m asking CryptoTaxGirl right now - https://cryptotaxgirl.com/

No, unfortunately I don't think your chain of reasoning makes sense.  By your logic if I "invested" USD into a LLC and then "invested" USD into a different LLC this would not be taxable.

I’m asking CryptoTaxGirl right now - https://cryptotaxgirl.com/

That's the right path.  Interested in whether she say's it's not taxable on its face (I mean, if it's a tax-advantaged entity doing the "invest"ing, then something is different, but even then it's still not at all obvious there would not be potential gains / transfers).

[Poker Player]

-snip

This is too complicated. If we want to get cash without trigger a capital gains tax we have a much simpler option which is to borrow against our Bitcoin. There are several entities that offer this type of loans and it is a system that has been popularized by Saylor and others, explaining how the rich never sell their prime assets and what they do is borrow against them, and as the price of the asset rises, refinance.

[usekevin]

You should get the repetition from forum member by doing many transaction.Or else you will be blindly eliminated,because you are just a newbie with few posts.First build your profile with the local boards.Their people will buy you in direct meet.Only deal done,ask them give you a feedback on forum.Once you get good trust,you will get huge business.