When James Canning-Cooke sold his Volkswagen van to a Russian buyer in is home of Tallinn, Estonia, the deal came with an unexpected condition: The man wanted to pay for the vehicle with bitcoin.
Although the 42-year-old expatriate Englishman's digital-currency holdings have since doubled in value, he now is faced with the challenge of what to do with the 22 bitcoin—currently worth about $18,600, according to Coindesk's index of three bitcoin exchanges.
Mr. Canning-Cooke may have found the answer in RealtyShares, a San Francisco startup that this week will become one of the first real-estate investment platforms to accept bitcoin. The firm, which operates a crowdfunding marketplace connecting property owners with prospective investors, will allow bitcoin investments worth as little as $1,000—or just over one bitcoin—in various property ventures listed on its site.
Launched publicly in June 2013, RealtyShares is still just a small player, even in the fledgling area of crowdfunded property investment. So far it has raised less than $3 million for investors who have pooled that money with other funds to make $60 million in property investments, according to Nav Athwal, the company's chief executive officer.
After listing two new investments Monday, the owners expect this week to see five or six on offer, with an equal mix of commercial properties, apartment complexes and single-family homes, Mr. Athwal said.
Mr. Canning-Cooke said he is attracted by the fact that certain property investments on the site carry redemption periods as short as six months and very low investment minimums, as well as by the simple and low-cost nature of bitcoin transactions.
"When you move $10,000 across the sea you can end up spending $200 or $300 just on transaction fees. It's a nightmare. It takes ages and it's very irritating," he said. Transferring bitcoin, by contrast, is almost instantaneous, and by cutting out banks and payment processors, the transaction generates close to zero fees and requires minimal documentation. Mr. Cooke runs his own investment funds in Europe, tapping U.K. investors to purchase properties in Estonia and elsewhere. But for now he expects to invest only his own funds in RealtyShares projects.
Mr. Athwal sees his firm helping to "create legitimacy in the bitcoin economy." Whereas an increasing number of merchants allow purchases of goods or services in bitcoin and various exchanges let people take bets on the digital currency itself, there are few bitcoin-denominated investment opportunities attached to assets in the traditional economy.
Mr. Athwal said bitcoin investments would more readily open the U.S. residential and commercial-property markets to foreign investors, allowing them unfettered access to a vast market once limited to more rigidly structured instruments such as real-estate investment trusts.
"By accepting Bitcoin and offering an innovative online investment platform that allows people to crowdfund private real estate investments, RealtyShares opens up the $500 Billion investment real-estate market to a much broader set of investors," the firm said in a statement released Tuesday.
The company and its clients won't take on exposure to the bitcoin exchange rate, which has swung wildly between a low of $206 and a high of $1,165 over the past three months. It will use bitcoin payment processor Coinbase to immediately convert the incoming bitcoin into dollars.
Still, both bitcoin investments and crowdfunding are largely untested. And they currently occupy something of a gray legal area.
Regulations are yet to be written for many bitcoin-based transactions, with government agencies undecided on what licenses to require, how to tax them and even whether to treat bitcoin as a capital asset, commodity or currency. The New York State Department of Financial Services held two days of hearings last week as part what Department Superintendent Benjamin Lawsky said was a plan to produce "a proposed regulatory framework for virtual-currency firms operating in New York."
Online crowdfunding—popularized by sites such as Kickstarter and Indiegogo, where people can invest small amounts into a wide range of ventures—is poised for a pickup in the real-estate sector once new Securities and Exchange Commission rules come into effect later this year.
Following guidelines laid out in the Jumpstart Our Business Startups, or JOBS, Act of 2012, the SEC in draft rules issued last September said that it would allow crowdfunded real-estate ventures to raise up to $1 million in equity from U.S. investors not listed among the 8.5 million "accredited" investor households deemed wealthy enough not to warrant special protections.
For now, RealtyShares is dealing only with accredited investors—those with annual incomes of more than $200,000, or $1 million in net worth—and unaccredited foreign investors. Unlike other crowdfunded property marketplaces such as Prodigy Network and Fundrise, which focus on longer-term development projects, RealtyShares' investments typically aim to generate cash flow over short time frames, and offer investments either in equity stakes or in interest-earning mortgage debt attached to the property. Among its finished deals are a $101,000 single-family home in Florida, which accepted investments for as little as $1,000.
Michael J. Casey