Cryptocurrency payments are becoming more common by the day, and although it’s used to conduct a wide range of transactions, it’s not exactly a replacement for money. If you’re a property investor and you’re considering allowing tenants to pay rent with crypto, like Bitcoin, there are several important considerations to make.
Accepting crypto will cost you unnecessary taxes
First and foremost, cryptocurrency is considered a taxable asset by most world governments. When you hold crypto in any form, and the value increases, you owe capital gains taxes. This is great if your primary interest is in crypto investing, but it’s not ideal when you’re accepting it as payment and you don’t otherwise buy, sell, or trade on the crypto market.
Accepting crypto for rent payments from tenants when you don’t already invest in it forces you to pay more taxes for no reason. If you want to start investing in crypto, that’s one thing, but if not, it’s an unnecessary expense.
Most landlords won’t accept crypto – this speaks volumes
Consider that if crypto were somehow an ideal form of rent payment, then more landlords would be using it, especially property management companies. If you look, you won’t see many instances of this happening, although there are some exceptions. For example billionaire Rick Caruso started accepting Bitcoin as rent in 2021, though it should be noted that Caruso is heavily invested in Bitcoin. This matters because he’s rolling his rent payments directly into an asset he already deals with regularly. For those who don’t invest in Bitcoin, it’s a bit trickier.
Property managers exist to handle landlord duties and upkeep for their clients, and part of that involves reducing their expenses as much as possible. For instance, Green Residential is a popular Houston property management company that makes the rent collection process easy, but crypto isn’t part of that. Using crypto would only complicate their financial situation and make rent collection more expensive.
What happens when you accept rent in crypto?
If you’re still not convinced and are wondering what might happen if you start collecting rent from tenants in the form of crypto, here’s why it’s a bad idea:
· Crypto makes it impossible to liquidate rent payments instantly. If you need to use the rent you collect to pay your mortgage or other bills, you’ll have to wait at least ten days.
· Even if you can wait ten days to cash out your crypto and convert it into cash, you’ll have to keep track of profits, no matter how small. For instance, if you gained just $10, you’ll have to track that for tax purposes. Tracking minutia can be time consuming and if it’s not making you profitable, it’s a time waster.
· There are fees for crypto transactions and exchanges at every turn. Expect to pay out significantly.
· If your crypto actually gains significant value, you’ll need to calculate all of your gains when you file your tax return. If you hire a CPA, you don’t need to fill out the paperwork, but you will need to provide the raw data.
· There are short-term and long-term gain taxes on crypto. If you hold it for less than a year, you’ll have to pay short-term capital gains tax. If you hold it for more than a year, you’ll owe long-term capital gains tax. If you collect enough crypto for this to be truly profitable, that’s not a bad thing. However, if you’re not an experienced investor, you’re probably going to lose money by paying more in tax than what you gain.
· If you’re just going to convert your crypto to cash right away, there’s no real benefit to accepting crypto in the first place.
· If you have tenants who insist on paying rent in crypto and object to traditional methods, that might be a red flag you should watch out for. If they can’t get a bank account, that’s a problem. You want tenants who haven’t been banned from financial institutions.
Last, but not least, cryptocurrency isn’t a stable investment and is highly unpredictable. If you hold onto it too long, it can drop in value. Those $1,000 rent payments you accepted from your tenants in Bitcoin might only be worth $700 when you go to cash out.
Does it make sense to accept crypto for rent? Not really
Crypto was created to facilitate completely anonymous transactions – and as a bonus, it can be a profitable investment. There’s no benefit to accepting anonymous rent payments, and unless you’re already a crypto investor, you’ll pay more in fees and taxes if you let tenants pay rent in Bitcoin and other cryptocurrencies.