Investing: Weighing Traditional Real Estate Against Cryptocurrency
When curating an investment portfolio, one must carefully balance risks and efforts with personal timeframes and financial capacity. Despite the emergence of new investment avenues, many investors still opt for traditional asset classes like real estate.
Why Many Prefer Real Estate Over Crypto
The real estate market remains appealing, even with the current mortgage interest rates averaging around 6.84% APR for 30-year fixed mortgages. While real estate investing is not without risks—after all, no investment is guaranteed—experts generally favor real estate over cryptocurrencies, especially Bitcoin.
Long-Term Value: Real Estate Holds the Edge
Experts advise considering long-term investment values when comparing real estate to emerging options like Bitcoin. “If you’re looking for consistent cash flow and annual returns that typically match or exceed inflation, commercial real estate might be the answer,” states Ed Mahaffy, a certified financial planner.
Since 1975, data from Realtor.com indicates that real estate has seen an average return exceeding 26%, making it a formidable choice for long-term investors.
Critical Considerations Before Investing
Before diving into real estate investments, it’s vital to ask: Will you need a mortgage? Will you manage the property yourself or hire a property manager? Are certain tax benefits important to you? How crucial is liquidity? Mahaffy highlights these queries to guide potential investors.
Investors might also consider whether to invest in publicly traded real estate investment trusts (REITs) or limited partnerships. A REIT can be beneficial for those concerned with liquidity.
Tangible vs. Intangible Assets
Real estate offers a tangible asset with a proven track record of stability compared to Bitcoin. Dan Reedy, a seasoned real estate investor, emphasizes, “With real estate, you are building equity in something physical, whether it’s residential, commercial, or agricultural.”
According to the National Association of Realtors, homeowners have accrued about $147,000 in housing wealth over the past five years—an impressive figure that emphasizes the benefits of real estate investment.
Bitcoin’s Risks and Benefits
On the other hand, Reedy notes cryptocurrency’s inherent volatility, stating that its value hinges entirely on market sentiment, which can shift drastically. While Bitcoin can yield significant profits, losses can also be substantial.
The Income Generation Advantage
Real estate typically outperforms Bitcoin in generating income. Gabrail remarks, “In fluctuating markets, real estate can still provide a steady cash flow, which is crucial for maintaining financial stability.”
Investors can also benefit from tax deductions on mortgage interest and depreciation—a luxury not afforded by Bitcoin investors.
The Stability of Real Estate vs. the Volatility of Bitcoin
Real estate offers a more predictable income stream compared to Bitcoin’s erratic price fluctuations. “If you buy a rental property, you’ll receive regular payment from tenants, whereas Bitcoin can vary widely week to week,” says Reedy.
In terms of investment strategy, Mahaffy aptly compares commercial real estate to a merry-go-round and Bitcoin to a roller coaster, underscoring the volatility Bitcoin presents.
A Thoughtful Approach to Investments
As the conversation around cryptocurrencies continues to grow, it remains crucial for investors to approach investments thoughtfully. Consider potential setbacks and weigh the known stability of real estate against the enticing yet unpredictable nature of Bitcoin.
Conclusion
While Bitcoin has potential within an investment portfolio, its volatility highlights the need for a diversified approach, recognizing that real estate offers stability, income generation, and tangible benefits that cryptocurrency cannot replicate. In navigating through investment choices, distinctive factors such as these will help in crafting a resilient financial strategy.
