What are the differences between investing in crypto and real estate? If you want to build wealth and at the same time want to save money for your retirement plans, one of the best ways to do so is by investing your money.
However, since your money is hard-earned, you should make the right choice so that you make a productive investment and have a complete peace of mind.
Today, you will find several different opportunities to invest your money.
This will help you to diversify your portfolio and also mitigate the risks involved in investing at the same time.
The two most popular investment opportunities of today are cryptocurrency and real estate.
Investing your money in real estate will allow you to enjoy several benefits of it which you will hardly find in other asset classes.
No doubt, it is one of the most popular ways of investing. Some of the trendy ways to invest your money in real estate include:
- House Flipping
- Investing with real estate developers
- REITS or Real Estate Investment Trusts and
- BRRRR or Buy, Rehab, Rent, Refinance, Repeat method of investing.
However, cryptocurrency is not to be left behind with the growing adoption and interest among people today.
There are innumerable crypto coins out there in the market that you may invest in, though the most popular and favored type is Bitcoin.
In order to make the right choice between crypto and real estate while investing, you should know the differences, especially the pros and cons of both, in the first place.
This will ensure that you make the right choice and get a high return on your investment. This is what this article is all about.
Investing in Crypto vs Real Estate – The Differences
Real estate and crypto investing are two popular investment avenues that are making waves in the market today.
However, deciding which one among these two is a wiser investment opportunity can be really difficult if you do not know the differences between them.
You can know about the differences, benefits and risks from this article but make sure that before you make your final decision you consult your financial advisor and also perform your due diligence.
The most significant point of difference between crypto investment and real estate investment is the inflation factor.
Typically, cryptocurrency is considered to be inflation proof which is one big reason why people are so interested in it.
Typically, for any crypto type, the supply is limited and the government cannot print more of it.
Also, crypto transfers are done easily and quickly via a network of computers that are connected privately to share a ledger. Every transaction is shared publicly through the blockchain.
However, on the other hand, the prices of real estate may vary dramatically when the economy experiences inflation.
Depending on the specific condition of the market at that point in time it can be easy or difficult to buy or sell a property.
Moreover, if you are taking rents on your property, it will also increase due to inflation. This will make your real estate investment a worthy and effective hedge against inflation.
Another big advantage of crypto investing is that the barrier to entry is fairly low. Irrespective of the price of the coin, especially Bitcoin which is quite high, a person can buy smaller units of it, called Satoshis.
You can get these tiny fractions of a coin according to the dollar value if you do not want to invest a large sum of money altogether.
There are also several other Altcoins that you can purchase as a whole for much lower cost such as Ethereum.
On the other hand, if you want to invest in real estate you will certainly need to have a fair amount of money in your hand.
If you do not, you may even have to take out a loan. This is because you cannot buy a property in parts unless it is a piece of land divided into small plots and that too you cannot buy in smaller fractions.
Cryptocurrency, being a digital currency, is not a tangible asset. It does not exist physically and, therefore, cannot be touched by your hand.
On the other hand, investing in real estate is investing in a tangible or physical asset. You will be able to see and touch it.
It will have an intrinsic value rather than an attribute of the people. Real estate is also a necessity because you will need a place to live or work in.
Since everything in crypto is digital, this also has a good effect since you can buy or sell your crypto assets globally and from anywhere.
This gives it higher liquidity than real estate because you can sell the crypto coins off easily when you need some money quickly.
It will take just a couple of minutes to do so without having to undergo any hassles.
In comparison, selling off a real estate property needs some time since there are lots of processes to be followed, obligations to be met, documents to be prepared, and most importantly, a suitable buyer is required to find.
All these may take several weeks, months, or even years which make real estate investments far less liquid than crypto investments.
Add to that, you will also need to pay some additional fees for it such as inspection fees, appraisal fees, HOA fees, closing costs, and property taxes.
Passive Cash Flow
When you invest in crypto, especially for the long term, you will be typically deprived of making any additional income from it.
This is because it has no passive cash flow since there are no dividends paid against it or rents earned against crypto.
In fact, capital appreciation or the rise in the value of the asset is the only way in which you can make money from a crypto investment and that too when you manage to sell those coins off at an increased price to make a profit.
In comparison, it is not the case with real estate investment. In this field, you can force an appreciation in the value of the asset by making strategic improvements which may include anything from a coat of fresh paint to exterior elevations to improve security or a full rehab of its interior.
This is because the value of a real estate is typically based on the net income produced by the asset and the increase in value of the property over time.
This can result in higher monthly rents as passive income. You can use the monthly rent to pay for your mortgage and all other expenses, and still have a lot to gain.
As you may know, when you invest in crypto you do not get any actual ownership of the crypto assets since it is all digital.
You also do not get any ownership of the company issuing the coins as you may get when you invest in stocks or shares of a company.
On the other hand, one of the most significant benefits of investing in real estate is that you will have ownership of the said property.
This means that you will receive several tax deductions and breaks due to your ownership of the asset. This makes it a more profitable investment as compared to crypto investments.
Cost of Maintenance
When you invest in real estate, it is not a one-time expense. You will need to spend money regularly on its maintenance till the time you sell it off.
Apart from the thousands of dollars needed to buy it, you will need to spend hundreds of dollars yearly to maintain its overall habitable condition, replace and/or include expensive items, and others.
On the other hand, crypto investment has no such maintenance requirements, at least not to such a huge amount. In most of the cases it is more like an invest-and-forget process.
Some of the crypto exchanges may charge some fees but that is mostly when you make a trade. In this specific aspect, a crypto investment happens to be more cost-efficient.
Cryptocurrencies seem to have a huge potential for an exponential gain over the long term which is a significant upside of investing in crypto.
For example, in the last 5 years, the value of Bitcoin increased by 6000% and reached its peak in April 2021 with an increase of 9000%.
As for the other coins, all of them have provided equal to or more than 1000% returns in the last couple of years.
And, with the growing participation of the major institutional investors such as JPMorgan and Tesla, the value of crypto will grow even further in the future and may even replace the US dollar, Euro, and other fiat money eventually.
On the other hand, real estate is known for its slow increase in value and therefore you do not have to worry about insane rise and fall in prices.
It is gradual and quite predictable depending on the current market conditions. Though it will not make you a millionaire in quick time and automatically, investing in real estate is surely a wiser decision to make when you aim at the future.
Some Other Differences
Here are some other differences between real estate investing and crypto investing that are also good to know for a beginner.
In terms of control and regulation, there is none or little in the case of cryptocurrencies since it is different from any other traditional currency and is decentralized.
It is not regulated or controlled by any single entity, not even by the government.
As far as vulnerability is concerned, cryptocurrency investing and trading especially is more vulnerable to cyberattacks and hacking as compared to real estate investing because everything crypto is on the computer and resides on the internet. It also may cause some errors in exchange.
If you consider the transparency aspect, it is not very easy to determine the true value of a crypto coin because it lacks transparency in comparison to real estate investing.
You can compare, contrast, and calculate the profits for yourself in both types of investing, though the scale is different.
Ideally, it is 10x to 50x in a period of 10 years for real estate and 10x to 1000x in the case of crypto for the same time period.
You can check the performance of your asset by using an investment property calculator and other online tools which is not possible in crypto investment until you decide to sell your holdings off.
Investing in cryptocurrency is also a relatively new concept compared to real estate investing and therefore you will not have enough data to calculate the true value.
This means that you may buy a particular crypto coin at a price that is higher than what it is really worth.
This specific aspect raises the concern for crypto being a bubble. If that happens, the crypto investors will be left with nothing to fall back on.
Cryptocurrencies, as you may know, are extremely volatile. This volatility of crypto is its serious downside because everything happens at the price of the coin prevailing in the market at that particular time.
This makes things very hard for a crypto investor even if he or she is the most risk-tolerant.
This is because the entire value of the investment made can be lost at any point in time unlike real estate investing.
Which is Better – Investing in Crypto or Real Estate?
It is quite difficult to say which among crypto investment and real estate investment is better because it is all about what you want from your investment and how much you can afford to invest, and lose.
Therefore, it is more about your choice and suitability and not which one of them is better.
Adding to the difficulty is the ongoing pandemic situation that has made the whole affair quite uncertain and therefore more difficult to choose.
If you make one or a couple of wrong moves, you will head for a disaster and lose everything that you wanted to save, often being unable to recover, as the case may be.
Over the years, people have been investing in gold and real estate. And now, it is Bitcoin or cryptocurrencies.
Real estate investment is comparatively less risky than crypto and has quite a long track record.
You can expect to have higher returns with higher appreciation.
Even if you invest in land development, you can expect to have huge returns due to the scarcity of land.
This makes real estate investment an ideal one in any form for an investor planning for the long term.
On the other hand, investing in cryptocurrencies such as Bitcoin, Ethereum, Doge, Monero and others has created a buzz in the past decade among investors.
Though it is based on speculation mostly, you can expect to have a high return, thanks to the newfound interest of the institutional investors as well as the big individual players from all over the world.
In crypto investment, you can expect to have a consistent increase in the price of the asset invested.
This is because so many people are now interested in crypto and rushing to invest in it to make a profit which pushes its prices further up.
This makes crypto investment a much more stable and secure investment which will have significant dominance in the financial market and may even replace the US dollar by 2050, as predicted by Forbes.
However, there are some downsides of crypto investing that you should keep in mind before you make your final decision.
The price of the asset can be more than the intrinsic value because crypto investments and trading is made based on speculation mostly rather than on its fundamental value.
As said earlier, there are lots of security risks involved in crypto investing especially if you store your assets in an online wallet.
Technical and operational glitches, malware, and hackers are just to name a few of its other issues.
Also, few governments of specific countries impose strict regulations on cryptocurrencies since they view them as a rival to fiat currencies as well as to the power of the government on the whole.
Add to that, being digital, this particular currency can be used for several illegal activities and transactions such as tax evasion, money laundering, and black marketing.
Therefore, before investing you should be well aware of the government regulations as well as the requirements of other regulating bodies such as:
- The IRS or Internal Revenue Service
- The SEC or Securities and Exchange Commission
- The CFTC or Commodities and Futures Trading Commission
- The FinCEN or Financial and Crimes Enforcement Network and
- The OCC or Office of the Comptroller of the Currency.
Also, you should be wary of the possibility of a ban on cryptocurrency as countries like China, India, Bangladesh, North Macedonia, Iran and others have already done.
You may not know if and when such a ban may be imposed in your country as well.
This will result in a serious effect on your long term crypto investments.
Most importantly, since there is no central authority controlling cryptocurrency you will have no one to fall back on or to complain if you are a victim of a hacker, fraud, or any scam.
On the other hand, in real estate investing, the primary objective of the investors is to buy a property either to sell it off at a high price and make a profit, just as in crypto, but the difference is that investors can also rent it out.
Therefore, investing in the real asset is multifaceted because you can do several things with it such as:
- Flip homes
- Rent it out as a business space
- Become a residential landlord
- Open an Airbnb or
- Rent it out as a vacation property.
This type of investment really helps you to diversify your investment portfolio and since it is a tangible investment as well, you can put value to it back or pull money from it as you wish.
And, for that, you also receive tax breaks! These may come in different forms such as:
- Repairs and
When all these are taken together, the overall tax amount can be significantly reduced.
Moreover, due to the effects of COVID 19, the housing market has seen historic lows in mortgage rates.
Therefore, you can enter this market without needing to pay an exorbitant sum of money for income properties.
However, you will need to put in a lot of effort and money on its continual maintenance to keep its value up with regular upgrades and repairs.
You will also need to be worried about the utilities in order to collect rent.
Still, investing in real estate is much more lucrative and definite.
As in crypto, you will have to wait in anticipation of an upsurge in the value of the asset and you may not be lucky all the time.
Therefore, in spite of being glamorous, a crypto investment is certainly not the wisest.
Real estate, on the other hand, being physical, cannot disappear into thin air, or be hacked, or transferred into an account of someone else.
There is no chance of any computer glitches. However, in the case of any fraud, you can report to a central authority and get your asset or money back, which is not possible in crypto since there is no central governing body.
However, if you follow some analytical reports of some experts, you will find them saying crypto investment is bad because it does not follow the basic principle of an investment operation which is the safety of the principal amount and to provide an adequate return.
They say, cryptocurrency fails in both and also add that it is not only unregulated and unsafe but is also a serious threat to the environment due to excessive mining of new coins.
It uses a lot of power and energy thereby eating up the natural power resources of the planet fast.
On the other hand, given the unstable financial sector and the stock market as of now, investing in real estate seems to be one of the safest ways to secure long-term investments.
It can provide higher returns in comparison to crypto, stocks and other assets because real estate is not correlated directly with other asset classes.
Therefore, if you want to make a speculative investment, go for crypto.
Otherwise, if you want a definite and consistent return along with some passive income, go for real estate investments and diversify your portfolio.
However, a more sincere answer to your question would be – both are good and you can consider investing in both crypto and real estate, provided you do it in the right proportion.
You can save up your crypto assets to buy real estate with it later.
There is another significant benefit of investing in both. You get an easy entry into the crypto world and at the same time, you can enjoy the undeniable benefits offered by the real estate industry.
And, the key to success is not to wait for too long. Start investing as early as possible so that you can reap the benefits at the earliest by doing some research and analysis all the way.
If you do not know the differences between crypto and real estate investing, you will not be able to make the right choice, if you have to. This article will enlighten you about it and help you make the most of these two asset classes.
I have special interest in crypto and intend to help common people to gain knowledge about the digital asset as well as its potential. Follow Me at Linkedin.