The Bitcoin world has a logistical problem: Many of its true believers are theoretically rich, but buying a house with their crypto is a drag, coming with a pesky tax bill and a fear of missing out on future riches. One venture-backed fintech startup believes it has solved both issues.
The Miami-based company, Milo, is offering what it describes as the “the world’s first crypto mortgage,” which it claims will allow customers to leverage their wealth to buy an American home with no money down or need to convert their Bitcoin to dollars—and with the possibility of getting all their Bitcoin back once the loan is paid off, no FOMO needed.
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The licensed direct lender does not plan to require a down payment, Social Security number, FICO score, or even customers’ tax returns. “Your crypto is what qualifies you,” the company states on its website. Specifically, potential customers must hold at least $150,000 worth of Bitcoin and enough to cover the entire loan at the outset. “For example, if your loan value is $250,000, then you will need to have the same equivalent value in Bitcoin,” the company states. If the customers pledge even more Bitcoin, they receive a lower interest rate, since it lowers Milo’s risk.
Though it will only be available to those with enough Bitcoin to start, Milo hopes to expand out into accepting many other cryptocurrencies in the future. “We definitely want to offer this to as many people that have digital wealth [as possible],” Josip Rupena, Milo’s chief executive and founder, told Motherboard. (Though, he added, “A lot of that is predicated on the legal clarity around some of those other cryptocurrencies.”)
Essentially, Milo is opening up a system to crypto enthusiasts that has long been available to the traditional rich.
If a customer is approved after completing a 10-minute application that involves inputting their crypto wealth and identification documents, like a passport or driver’s license, they pay an origination fee and transfer the necessary Bitcoin to a “trusted third-party custodian,” where it is “locked for the life of the loan.” Milo buys the home for the customer, who then begins to pay off a 30-year mortgage with interest, using cryptocurrency or fiat currencies. When the mortgage is completely paid off, the Bitcoin is sent back to the customer’s wallet.
Essentially, Milo is opening up a system to crypto enthusiasts that has long been available to the more traditional rich. For years, and with increasing frequency lately, wealthy Americans have borrowed against their stock portfolios to purchase large assets, bypassing a tax bill and holding onto their shares—a solid two-for-one deal. “You could buy a boat, you could go to Disney World, you could buy a company,” one financial adviser recently told the Wall Street Journal. “The tax benefits are stunning.”
Now, Milo will allow crypto traders to do the same. Rupena came up with the idea in 2017, back when he was working at Morgan Stanley, he said. He had become interested in the way crypto could allow people to “move money all around the world.” At the time, crypto was a $400 billion asset class, but Rupena believed (correctly, it turns out) that it could grow to $3 trillion by 2022. Traditional lenders don’t like to accept crypto, so the crypto-rich often need to convert their crypto into U.S. dollars to buy a home, which triggers a tax bill if they made a profit.
Rupena realized new institutions would need to “connect the rails” between digital wealth and real-world assets like cars—and homes.
While he believes Milo’s tax benefits to be important, Rupena said the largest value of his product lies in its ability to give customers their Bitcoin back once they paid off the loan, meaning they don’t miss out on future gains. Rupena told Motherboard that selling Bitcoin can be an extremely emotional decision. In a release, the company linked to an Insider article about a venture capitalist Chamath Palihapitiya’s regretful decision to sell Bitcoin to buy property in the mid-2010s.
“You don’t really want to sell it,” Rupena told Motherboard.
“There’s a strong incentive for someone to continue to make payments,” Milo’s CEO said. “They don’t want to lose their Bitcoin. They don’t want to lose their real estate.”
Bitcoin enthusiasts often claim the currency is meant to be used to buy and sell goods, but Milo appears to have admitted that it is mostly an investment that people do not want to use to transact, at least at the scale necessary for homeownership.
“Keeping your crypto is just as important as buying it,” the company states on its website as well. “Our strategy matches yours – keep HODLing.”
Real estate and cryptocurrency have become increasingly intertwined in recent years, as both asset classes have risen in value and prominence. Other companies offer crypto-backed down payments and have minted NFT mortgages in various ways. One startup is even going the other way and offering mortgages to buy metaverse real estate.
Notably, Milo’s interest rates are currently in the 5-7 percent range, higher than those for many rates for traditional mortgages right now. But Rupena believes Milo is competing not with traditional players, but the current companies offering crypto-backed loans, which can come with even higher interest rates and collateral requirements than Milo requires.
More broadly, Rupena doesn’t see Milo as competing for people with “a perfect profile,” including “perfect credit,” “a very stable job,” and tax returns. He wants to expand access to those with crypto wealth who are currently “unbanked” in regards to mortgage loans.
One of Milo’s investors, Hans Thomas, the co-founder of New York-based venture firm 10X Capital, noted to Motherboard that recent surveys have found that almost half of crypto traders are non-white, as this recent poll did. Thomas is optimistic Milo’s new product will help “democratize access to the financial system” and open up to those with “unconventional assets” who have been historically locked out of homeownership.
(Others feel differently: Citing similar diversity numbers, Nobel Prize-winning economist Paul Krugman recently referred to crypto as “the new subprime” in the New York Times.)
Mortgage lenders are typically not as willing to lend to unconventional home seekers as they worry they will not be able to pay back the loan, but Milo doesn’t have to worry about that, since the customer has essentially offered up all the money at the outset, Rupena said. Should customers miss a payment, Milo simply takes the necessary amount of Bitcoin out of the pot.
Milo said that should a customer’s Bitcoin-to-loan ratio fall below 65 percent, the company will require a “margin call for risk purposes,” meaning customers will have to pony up more money.
“Because I have a lien on the property, and then now I have Bitcoin, there’s a strong incentive for someone to continue to make payments,” Rupena said. “They don’t want to lose their Bitcoin. They don’t want to lose their real estate.”
Customers can also theoretically lower their rate over time. As the loan is paid off—or if Bitcoin’s price rises—customers can either leave their extra funds with the custodian and receive a reduced rate or they can take it out over time on the anniversary of the loan (“as long as the crypto to loan ratio remains at 1:1”). They can also hand more Bitcoin over in order to lower their rate.
Rupena doesn’t shy away from the volatility inherent in Bitcoin’s price, which he sees as holding both tremendous upside and downside. (In mid-November, the price of a single Bitcoin rose to $67,000, only to tumble all the way to $35,000 by mid-January.) Such swings are one reason Rupena believes crypto enthusiasts would do well to diversify their wealth with real estate.
But the company has also baked the potential for price changes into its business model. When Motherboard asked about theoretical future volatility, Rupena said that should a customer’s Bitcoin-to-loan ratio fall below 65 percent, Milo will require a “margin call for risk purposes,” meaning customers will have to pony up more money. If they don’t have the money, Milo starts to pull from the third-party account.
“We’ll really need to liquidate the Bitcoin to stay within risk parameters and tolerance, because this customer—from the inception of the loan—they have not pledged any dollars or anything into the actual transaction,” Rupena told Motherboard. “That’s how we mitigate some of that risk.”
Were Bitcoin’s value to fall all the way to 30 percent of the loan amount, Milo would go even further, liquidating the Bitcoin and converting it to U.S. dollars.
Milo, which says it has stress-tested its model and feels the risk is “acceptable,” hopes the product will be up and running in the next few months.
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