Crypto vs. Real Estate

(Which Should You Buy?)

Investing your money is one of the best ways to build wealth and save money for retirement.

There are several different investing opportunities out there that allow an investor to diversify their portfolio and mitigate risk. Each opportunity comes with their own set of advantages and disadvantages.

Let’s take a look at two opportunities: Cryptocurrency and Real Estate.

The Pros and Cons of Investing in Crypto

First, let’s give a a brief over view of crypto. Cryptocurrencies are digital currencies that are intended to be used to purchase goods and services. Some individuals, however, also invest in them in order to trade for a profit.

While there are countless coins out there, the most well-known crypto is Bitcoin, which was created in 2009 by Satoshi Nakamoto, a pseudonym for the person or group behind the coin. Bitcoins are produced by “mining”, which involves computer software solving complex mathematical problems. Once the problem is solved the miner is rewarded with Bitcoin. 

The Benefits of Investing in Crypto

First, crypto is different from traditional currency as it is decentralized and no one entity regulates or has control over it. Bitcoin transfers are easily done through a series of privately connected computers that share a ledger. Each time Bitcoin is transferred, it is publicly shared via the blockchain. There are also a limited number of bitcoins in circulation, so a government cannot simply print more. This protocol makes crypto inflation proof and is one of the big reasons why people are so interested in Bitcoin.

A second advantage to crypto is that there is a fairly low barrier to entry. While the price of a full Bitcoin is fluctuating around $30,000 to $40,000 USD at the writing of this article, an individual can purchase much smaller units. These units are called Satoshis, and they represent a tiny fraction of a Bitcoin. Currently, you can get around 2,700 Satoshi for 1 dollar. There are also countless altcoins that will allow you to purchase a full coin for much lower prices, one of the most popular being Ethereum, which is currently going for around $2,300 USD.

Crypto also has long-term upside with the potential for seemingly exponential gains. In the past 5 years alone, Bitcoin’s value has increased by almost 6,000%. That figure was closer to 9,000% during its peak in April 2021. Other coins have posted over 1,000% returns in the past few years. Additionally, many institutional investors are warming up to Bitcoin - JPMorgan recently announced that they will be the first big bank to allow retail crypto fund access. Some project Bitcoin’s price will even grow to over $100,000 in the near future and may eventually replace fiat money like the US dollar or the Euro. 

The Drawbacks of Investing in Crypto

While crypto has several aspects that interest investors, there are also substantial drawbacks. First, it is not a tangible asset. You cannot hold a Bitcoin in your hand because it only exists on the internet. This opens the door to cyberattacks along with other types of cybercrimes that could alleviate you from your investments. This lack of transparency also makes it hard to determine the true value of a coin, which can lead to it being trader for a value higher than it is truly worth. These factors contribute to the fear of crypto being a bubble and investors being left with nothing. Additionally, there are no dividends or rents paid by owning crypto, so no passive cash flow opportunities. Really, the only way to make money with crypto is via capital appreciation (an asset increasing in value) that you’ll realize at the sale of the coin. 

Another downside to crypto is the high volatility. As you’ve noticed, we’ve had to note multiple times that the current values of the coins are what they are currently trading for at the time this article was written.

In the past year alone, Bitcoin went from around $10,000 in October 2020 to over $60,000 in April 2021. It then went below $30,000 in mid Jul 2021, and is now up 31% in the past week, up to $39,000. This isn’t the first time Bitcoin has gone through this kind of extreme volatility. In 2017, Bitcoin went from $1,000 to a little under $20,000. After about 4 months, the value had gone back down to only $7,000. This volatility makes it hard for even the most risk-tolerant investor as you know at any time you could lose the entire value of your investment.

Lastly, governments worldwide do not currently regulate the use and trading of cryptocurrency, which seems unlikely going forward if cryptocurrency becomes more mainstream. However, it is doubtful that government agencies like the IRS will find a way to regulate the sale and transfer of cryptocurrency. When it inevitably happens, though, the value of the coins will likely decrease - look at what happened in China a few years back when they banned crypto trading.

Now, let’s take a look at the pros and cons of real estate.

The Pros and Cons of Investing in Real Estate

Investing in real estate is hands down one of the best ways to save for retirement and build wealth - it’s certainly stood the time as an investable asset. And there are many different ways that you could invest your money in Real Estate including: investing with developers, wholesaling, house flipping, BRRRR investing, and Real Estate Investment Trusts (REITS). Investing in real estate is very popular, and for good reason as there are advantages that other assets simply don’t realize. 

The Benefits of Investing in Real Estate

One of those advantages is that you will get a tangible asset - one that you can see, touch, and feel. It has intrinsic value because of what it is, not because people attribute a value to it. Real estate is also a necessity, as people will always need a place to live, a place to work, a place to exercise, etc.

As an investor, you will also have the opportunity to force the appreciation of the asset. You can make strategic improvements, which can result in higher monthly rents and, since real estate investments’ values are based on the net income they produce, increase the value of the property. These improvements can range anywhere from doing new paint and elevations on the exterior of the property to security improvements or even a full rehab on the interior. 

Real estate also brings in a steady source of income - passive cash flow! These monthly rents can be used to cover the mortgage payment on a property, all expenses, and leave plenty of room for profit. Rents will also typically increase with inflation, making real estate a suitable hedge against inflation. One of the most outstanding benefits to being a real estate investor are the tax breaks and deductions that you’ll receive when owning real estate, which can make it more profitable than other forms of investment.  

The Drawbacks of Investing in Real Estate

While real estate has some significant benefits, it also has its drawbacks.

One con of real estate investing is that the asset is not as liquid as other investment vehicles. Unlike a stock, which can be bought and sold at anytime, real estate often cannot be traded quickly. It can take several months or even years to find a suitable buyer for a property, which makes real estate more of a long-term play than some other asset classes.

Real estate is also costly to own and maintain. You could easily spend hundreds of thousands, if not millions, of dollars to purchase a building, which creates a sizable barrier to entry. Additionally, as the property owner, you are responsible for the building’s overall condition. Owners may have to replace costly items, like an HVAC unit or an entire roof system. There are some real estate investing options that cost very little to get started, like wholesaling, but they also come with their own set of challenges.

So, Should You Buy Crypto or Real Estate?

If you are deciding to invest your money in either crypto or real estate, the decision is simple.

Investing in real estate provides you with a tangible asset that will generate a reliable source of income each month in addition to appreciation. There are also numerous tax benefits and incentives associated with real estate and you have the opportunity to utilize leverage to increase your returns. Real estate is also independent of the stock market, so it is a great way to diversify your portfolio and mitigate your overall risk.

Crypto, on the other hand, is more of a speculative guess than an investment based on fundamentals. The price is highly volatile, and there is a chance any investor could lose all or some of their money. It doesn’t pays any dividends and the only way to make money off of it is via capital appreciation.

Real estate has significantly less risk, will give you more consistent returns, and will provide you with a tangible asset. In almost every case, real estate is the better investment, but it couldn’t hurt to diversify with both in your portfolio.