Why a real estate investor chose to take out crypto loans

  • Adam Masato took out $33,000 in crypto loans to complete his investment property.
  • Some crypto loans have no monthly payments and require no credit checks.
  • Masato says it’s “stressful” to borrow against such a volatile asset.

Real estate investor Adam Masato earns $8,400 a month in passive income from an Airbnb rental, but securing the $342,000 start-up fee to fund the project presented a unique challenge.

Along with liquidating the Roth IRA investments, taking out a HELOC against his condo, and securing a traditional personal loan, Masato decided to take out $33,000 in loans backed by his cryptocurrency holdings.

Getting a traditional mortgage wasn’t really an option. Masato explains: “Several lenders told us that it would be a difficult loan to obtain, in particular because [the rental property] is a single-width manufactured home located on private land, not a mobile home park; also because it is not a primary residence.”

Masato had to provide at least one bitcoin and some USD stablecoins as collateral to secure a total of $33,000 in cash loans from Celsius, a company that offers crypto personal and business loans, to fund part of his building. placement.

If you want to take out crypto loans, here are some things to consider.

Some crypto loans have no monthly payments

Unlike a traditional mortgage or other loan, some crypto loans do not require a fixed monthly payment. Of his loans, Masato says, “The loans are 0% interest with no monthly payments, as long as they hold my bitcoin as collateral. The caveat is that I can only borrow 25% of the dollar value of my bitcoin collateral.”

Mitesh Shah, founder of cryptocurrency analytics provider Omnia Markets, Inc., explains that crypto-backed loans are the same as securities-backed loans – i.e. loans backed by securities. stocks or funds – except that the underlying assets exist on a blockchain.

Shah adds that most crypto-backed loans have low interest rates and faster transaction times, and generally don’t require traditional credit checks because the loan can be repaid with crypto holdings. . “Credit checks are not required for crypto loans because the cryptocurrency itself becomes collateral for the loan,” he says. ”


Credit score

history, income or debt is not required.”

If the value of your coin goes down, you will need to pledge more of it as collateral

Masato says that unlike a traditional mortgage, he could be called upon to provide more crypto as collateral if the value of his coins drops. “If the value of bitcoin drops below a certain amount, I will receive a margin call and have to post more bitcoin as collateral.”

A margin call occurs when the equity in your investment account falls below a certain amount, leaving you money for your lender and brokerage. This also happens in traditional brokerages that handle stock market investments. Crypto lenders use the same technique to ensure they are protected if the price of bitcoin drops dramatically.

Desh Weragoda, mortgage banker and chief technology officer at MBANC, a company that provides both crypto and traditional loans and mortgages, says that most crypto lending companies “put your crypto in a custodial account, which is basically an intermediary that holds your crypto, and they make a margin call on it.”

If the bitcoin price falls below the margin call, Weragoda says crypto lending companies will liquidate the amount of crypto held in the custodian’s account if you are unable to provide more crypto as collateral . If that happens, “you’ve basically lost your crypto,” he says.

Borrowing Money Against Crypto Works Best For Investors Considering Hodling

Even if you have enough crypto to use as collateral for a loan, you will need to think about your own investment strategy before using your holdings to take out a loan. According to Shah, “Crypto-backed loans may be the preferred method for some people who only invest under a long-term methodology and have no interest in trading these coins.”

Simply put, if you plan to hold your crypto – a strategy commonly referred to as “hodl” in the crypto community – a crypto-secured loan may meet your lending needs.

Masato plans to repay crypto loans as soon as possible

Asked about the mental and emotional cost of borrowing on such a volatile asset, Masato says, “It can be stressful, especially when the price is approaching the margin call limit.”

He adds: “It has always been my intention to close the loans as soon as I have the


liquidity

do it, no matter the cost. I don’t think it’s smart to carry a crypto loan longer than necessary. Because the crypto-lending space is so young, there is no FDIC insurance, and certainly no bailout if one of the lenders fails.”

James V. Hayes