When choosing the right mix of assets for your investment portfolio, it's important to weigh the risk and effort involved against factors such as time horizon and budget.
For many investors, sticking to traditional asset classes like real estate is still the way to go, even as new alternative investment options like cryptocurrencies hit the market.
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This is true even as mortgage rates remain high, averaging 6.84% per year for a 30-year fixed-rate mortgage.
Real estate investing is not guaranteed. After all, nothing is guaranteed. However, many experts still prefer real estate over cryptocurrencies, and more specifically Bitcoin. Here's why:
Historical returns keep pace with inflation
One of the first things investors look at is the long-term value of their investment. When it comes to real estate, new options like Bitcoin have an edge.
“If you're looking for stable cash flow with an earnings history that tends to keep pace with inflation, commercial real estate may be the answer,” says Certified Financial Planner (CFP) and Chartered Financial Consultant (ChFC) ®) says Ed Mahaffey. President and Senior Portfolio Manager of ClientFirst Wealth, Legacy & Estate Planning.
According to Realtor.com data, the average real estate return since 1975 is more than 26%. This is very important, especially for long-term investors.
Before you invest, it's a good idea to ask yourself a few questions.
“Do you have a mortgage? Are you going to manage the property or pay a property manager? How important are certain tax incentives? How important is liquidity?” Mahaffey said. Said.
“Or should I buy a publicly traded real estate investment trust (REIT) or limited partnership?” If liquidity and frictional costs are a concern, a REIT may be your best bet. ”
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Real estate has proven stability
“Real estate and Bitcoin couldn't be more different. For me, real estate always wins because it's a tangible asset with proven stability,” says experienced real estate investor and broker at Dan Reedy. said Dan Reedy.
“In real estate, you are building equity in things that have a physical presence and intrinsic value, such as the provision of housing, commercial space, and even agricultural land.”
According to the National Association of Realtors, the average homeowner has accumulated approximately $147,000 in home equity over the past five years. This is for residential real estate only.
In comparison, cryptocurrencies are much less stable.
“Their value depends entirely on market sentiment, and market sentiment can fluctuate widely,” Reedy said. “I've seen people make a lot of money with Bitcoin, but I've also seen people lose everything.
“When it comes to real estate, you have control. You can improve your property, increase its value, and adjust your strategy based on market conditions. Bitcoin doesn't have that kind of flexibility.”
Real estate is tangible
“Real estate is a better investment than Bitcoin right now for the important reason that it is a tangible asset,” said Paul Gabreil, founder and host of Everything Money. “It exists in our physical world.”
The same applies to assets such as gold, art, and other goods. However, unlike some of these options, you can often sell your real estate property more easily and potentially at a fairer price.
When it comes to Bitcoin, it's not tangible. Cryptocurrency as a whole is not a physical commodity. You can't touch it.
That being said, there are still benefits to including Bitcoin in your portfolio.
“Bitcoin is definitely more liquid than commercial real estate, has no maintenance costs, no barriers to entry, and can be purchased for small amounts,” Mahaffey said. “Performance so far may be just a taste of what's to come over the next five to 10 years.”
For those considering investing in Bitcoin, Mahaffey cautioned against being “swayed by fear of missing out or treating Bitcoin as anything other than a new asset class.”
real estate brings income
When developing an investment strategy, it is important to consider which assets are generating income and which are not. Real estate has a clear advantage over Bitcoin in this regard.
“Another reason I prefer real estate as a better investment than Bitcoin is because real estate generates income,” Gabrail said. “Imagine this: Even if there is no longer a market to sell it to, you can still generate cash flow to pay off your debt, contributing to your ability to live and use that money for other things. .”
Real estate has tax benefits
“There are tax benefits to owning real estate as an investment,” Gabrail says. Bitcoin does not have this advantage.
Investors can deduct things like mortgage interest and depreciation when filing their taxes. This reduces your overall tax liability and allows you to keep more of your assets.
Bitcoin simply has high volatility
For anyone concerned about the risks associated with alternative investments, Bitcoin's volatility is worth highlighting further. The real estate market can be volatile, but it becomes much more predictable over time.
“If you buy a rental property, you know that you will receive monthly income from your tenants. By contrast, Bitcoin can rise 30% in a week, but just as easily fall 50%. It could be,” Reedy said. “For me, investing is about building long-term wealth, and real estate has a multigenerational track record of doing just that.”
“When it comes to volatility, comparing commercial real estate to Bitcoin is like comparing a merry-go-round to a roller coaster,” Mahaffey added. “The future looks bright for Bitcoin, as the regulatory headwinds and media exposure that resembled the dot-com bubble at its height have subsided, and there is an exciting opportunity for government adoption as well as government adoption on the horizon. It's a new asset class.
“What's the problem? This is actually the most important question to keep in mind if you're considering Bitcoin.”
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This article originally appeared on GOBankingRates.com: 6 reasons why 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.
