When it comes to choosing the right mix of assets for an investment portfolio, it’s important to weigh the risks and effort involved against factors like time horizon and budget.
For many investors, sticking with traditional asset classes like real estate is still the way to go even amidst newer, alternative investment options on the market like cryptocurrency.
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This is true even amidst still high mortgage interest rates, which are sitting at an average 6.84% APR on 30-year, fixed-rate mortgages.
It’s not that real estate investing is a guarantee — after all, nothing is. But many experts still prefer real estate over crypto, or more specifically Bitcoin. Here’s why.
Historical Returns Keep Pace with Inflation
One of the first things any investor will look at is the long-term value of their investment. When it comes to real estate, it has the edge on newer options like Bitcoin.
“If you are looking for steady cash flow with a history of returns that tend to keep pace with inflation, commercial real estate may be the answer,” said Ed Mahaffy, certified financial planner (CFP), charter financial consultant (ChFC®), president and senior portfolio manager at ClientFirst Wealth, Legacy & Estate Planning.
According to Realtor.com data, the average return on real estate since 1975 has been over 26%. That’s pretty significant, especially for the long-term investor.
Before investing, you’ll want to ask yourself a few questions:
“Will you have a mortgage? Do you intend to manage the property or pay a property manager? How important are certain tax benefits? How important is liquidity?” said Mahaffy.
“Alternatively, should you purchase a publicly traded real estate investment trust (REIT) or a limited partnership? A REIT may work best if liquidity and friction costs are a concern.”
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Real Estate Has Proven Stability
“Real estate and Bitcoin couldn’t be more different, and for me, real estate wins every time because it’s a tangible asset with proven stability,” said Dan Reedy, a seasoned real estate investor and broker at Dan Reedy, Inc.
“With real estate, you’re building equity in something that has a physical presence and an intrinsic value — whether that’s providing housing, commercial space or even farmland.”
According to the National Association of Realtors, the average homeowner has accumulated roughly $147,000 in housing wealth in the past five years. This only accounts for residential properties.
Cryptocurrency is a lot less stable by comparison.
“Its value is entirely dependent on market sentiment, which can swing wildly,” said Reedy. “I’ve seen people make a lot of money on Bitcoin, but I’ve also seen people lose everything.
“With real estate, you have control — you can improve the property, increase its value and adjust your strategy based on market conditions. Bitcoin doesn’t give you that kind of flexibility.”
Real Estate Is Tangible
“Real estate is a much better investment than Bitcoin currently for a key reason — real estate is an asset that can be touched,” said Paul Gabrail, founder and host at Everything Money. “It exists in our material world.”
The same goes for assets like gold, art or other commodities. Unlike some of these options, however, you can often sell real estate property more easily — and possible get a fairer price.
As for Bitcoin, it’s not tangible. Cryptocurrency as a whole isn’t a physical commodity. You can’t touch it.
That said, there’s still merit in having Bitcoin in your portfolio.
“Bitcoin is no doubt more liquid than commercial real estate, costs nothing to maintain, presents no barrier to entry, and can be purchased in small amounts,” said Mahaffy. “Its performance thus far may be only a taste of what will come over the next five to ten years.”
For those thinking about investing in Bitcoin, Mahaffy cautioned against getting “swept away by the fear of missing out or attempting to treat bitcoin as anything other than a new asset class.”
Real Estate Brings in Income
When it comes to building an investment strategy, it’s important to consider which assets are — and are not — producing income. In this, real estate has the clear edge over Bitcoin.
“Another reason I like real estate as a better investment than Bitcoin is because real estate generates income,” said Gabrail. “Picture this: If the market to be able to sell it went away, you could still generate cash flow and pay down debt, contributing to your ability to use that money to live and do other things.”
Real Estate Has Tax Benefits
“There are tax benefits to owning real estate as an investment,” said Gabrail. Bitcoin doesn’t have this advantage.
Investors can deduct things like mortgage interest and depreciation when filing taxes. This can reduce their overall tax liability so they get to keep more of their wealth.
Bitcoin Is Simply More Volatile
Bitcoin’s volatility merits further emphasis if you’re someone concerned about the risks involved with alternative investing. While the real estate market can fluctuate, it’s much more predictable over time.
“If you buy a rental property, you know you’re getting monthly income from tenants. In contrast, Bitcoin could gain 30% in a week, but it could just as easily lose 50%,” said Reedy. “For me, investing is about building long-term wealth, and real estate has a track record of doing just that for generations.”
“Where volatility is concerned, comparing commercial real estate to Bitcoin is like comparing a merry-go-round to a roller coaster,” added Mahaffy. “Bitcoin’s future appears bright. It is an exciting new asset class on the threshold of institutional adoption as well as sovereign adoption, fading regulatory headwinds and media exposure akin to the dot com bubble at its peak.
“What could go wrong? If you are considering bitcoin, this is, in fact, the most important question to keep in mind.”
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This article originally appeared on GOBankingRates.com: 6 Reasons Real Estate Is a Better Investment Than Bitcoin
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
