The crypto craze has arrived in real estate.
Look no further than Manhattan. According to the New York Post, celebrity realtors like Ryan Serhant are courting crypto whales, typically nouveau riche investors in their 20s, to buy the city’s most expensive properties.
In Miami, at the high-end address of Arte Surfside, home of Ivanka Trump and Jared Kushner, the 5,000-square-foot penthouse Unit B recently sold for $22.5 million in crypto.
There are also single family homes. Buyers scrambling to stay ahead of soaring home prices have poured their even bigger crypto profits into homes and rentals.
In the housing sector, where rents have skyrocketed, some apps are already allowing residents to pay with crypto. Tenants of LA developer Rick Caruso’s properties can now pay their rent in bitcoin. Caruso told the Los Angeles Times his crypto program is particularly appealing to younger renters.
These examples of the rise of the crypto real estate market are still the exception rather than the rule when it comes to how deals are done. But they also underscore the increasing legitimacy of digital currencies in today’s market. For housing professionals, the increasing mainstream adoption of crypto presents both new opportunities and risks.
Crypto’s illegal shadow
While governments and legitimate crypto exchanges have made strides in curbing the criminal use of cybercurrency, the nature of digital transactions means it will likely never be eliminated.
Investigators have consistently focused on bitcoin payments to rioters prior to the Jan. 6, 2021 attack on the Capitol. New evidence also suggests that Russian oligarchs used crypto to protect their assets from international sanctions imposed after invading Ukraine.
The technology is also prone to hacks. According to recent findings from cybersecurity firm Atlas VPN, blockchain hackers stole $1.3 billion in 78 hack events in the first quarter of 2022, an all-time high. Axie Infinity’s recent video game hack, stealing as much as $625 million, made it one of the largest single crypto thefts to date.
Know-Your-Customer (KYC) rules, which require crypto exchanges to perform identity checks on new customers, have made anonymity difficult on legitimate exchanges. But KYC is only effective if the identity used to open an account is real. Research by crypto news site CoinDesk found that with a sophisticated fake ID available for purchase online, you can relatively easily trade bitcoin under an assumed identity on reputable sites like Coinbase and Binance for as little as $200.
What the rise of crypto means for real estate
For real estate landlords, this landscape requires a new approach. Operators must adapt to a new way of transacting to respond to customers’ preferences for digital currencies while protecting themselves from fraudulent activities that use crypto as a shield.
For example, fake documents in the form of payslips and bank statements – crucial for income verification – have long been a scourge of the rental application process. They are often offered for sale online under the guise of “novelty” not intended for actual use, a tactic that shifts the responsibility for illegal activity onto the buyer.
The new problem with crypto is that these fake document vendors are now offering their wares against bitcoin and don’t care if the digital currency they collect comes from a legitimate account.
One such provider, which claims to be based in New York, currently accepts bitcoin as its only form of payment. According to its FAQ page, it avoids the legally messy and traceable path of credit or debit card payments – which would inevitably have to go through the established US banking system – “for reasons of data protection and customer privacy”.
The site’s offerings include fake payslips and bank statements. And his sample documents use Bank of America, Chase, TD Bank, and Wells Fargo logos. Utility bills, often used to verify a previous address, are available with the Verizon logo. Even ready-made fake US tax returns are for sale.
Police forgery and fraud
In this environment, leasing agents now face the same hurdles as law enforcement officials attempting to monitor these activities.
While these fiat currency scams are rife, crypto offers another layer of secrecy for leasing app scammers to hide behind.
What are operators to do? The key, of course, is not to let them through in the first place.
Using technology can help. AI tools are available to scan the computer code in PDF documents to see if they have been modified.
But just as important is the low-tech approach to good property management fundamentals.
- For a leasing application, request at least two months’ worth of payslips or bank statements. Legitimate applicants won’t blink, but scammers will be forced to produce more fakes and potentially easier-to-spot errors.
- Look for variable dates when a payslip was issued and when the deposit was received in the applicant’s account. Weekends and holidays can delay deposits by a day or two, but longer delays are rare. This is an area where scammers get lax.
- Pick up the phone. Call employers at a number listed on their website – as opposed to the number provided by applicants – to confirm employment. Some companies won’t answer, but many will, especially if you ask applicants to let HR know you’ll be calling.
- Incentive your team to critically review applications by tying rewards to a property’s on-time rent payments, not just new leases.
The increasing legitimacy of crypto in real estate doesn’t have to be a bad thing, and operators can benefit from it. But increasing deception in the lease application process means they also need to exercise extra caution.
Daniel Berlind is CEO of Snappt and President of Berlind Properties.
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