Bitcoin vs. Real Estate: Which is the Smarter Investment

August 21, 2021

If you want to see your money grow, especially without having to struggle for every single penny, the straight way is to invest it in a proper area. With a bit of hard work, research, networking, and luck, many investors manage to have a lucrative, diversified investment portfolio. 

Those who are new to investing or are looking to branch out a bit from their usual methods might be confused about which field to go for. While there are the usual traditional options such as stocks and real estate, investors in modern times also have other options like Bitcoin and other crypto-currencies. 

With the uncertainty arising from major technological changes and especially the coronavirus pandemic, investors are now placing a lot of importance on mitigating risks. However, risk is the name of the game in investing; the higher the stakes, the more you stand to gain. Many investors are also of the opinion that we have to keep moving forward in order to stay ahead. So, the risk of Bitcoin might be worth considering but you should explore a lot more before stepping in. 

Of course, investors might choose to diversify their assets between Bitcoin, real estate, and several other areas. They still have to choose what to focus on. Plus, some investors may want to begin with or branch out in one area to start with. 

Which One to Choose: Bitcoin vs. Real Estate

When we look at the history of investment in the United States, it’s evident that real estate has provided one of the top ways of safeguarding and making money. In fact, this is mostly true for the rest of the world as well. 

There was a major downward trend in the value of real estate following the housing market crash in America in 2008. After that, however, we’ve mostly seen the market growing consistently every single year. 

On the other hand, we have Bitcoin as a hyped up asset class that’s seen many ups and downs. Bitcoin might be quite volatile but it certainly gained the attention of both institutional and individual investors from all over the globe. 

Before we discuss which kind of investment is the better one, it might be a good idea to get into the details of Bitcoin. Since it’s the newer asset, you should be clear about what it entails: 

What Is Bitcoin? 

Bitcoin was created back in 2009 by someone named ‘Satoshi Nakamoto’. This might be a person or even a group, though the exact identity still remains a mystery. Some people have laid claim to the identity of Satoshi Nakamoto, but they’ve been unable to provide hard evidence to support their statements. 

In any case, Bitcoin is one of the most known forms of digital cryptocurrency. It’s currently used for purchasing goods and services online, provided that both parties are willing and able to do so. Smaller units, around 0.00000001 of one Bitcoin, are called satoshis. 

Bitcoins are not like conventional currency; they don’t have a backing of gold at any bank. They’re actually created by users through ‘mining’, which means that a person solves some complex math-based puzzles. The earned Bitcoins are then stored inside a digital wallet on a smartphone, computer, or the cloud. 

Where Can You Buy Bitcoin? 

While the investment options for real estate are pretty well-known–you can buy rentals, flip a property, go for REITs, etc.–not every investor might be aware of how to get Bitcoin today. While ‘mining’ was the way to get the original Bitcoins, you can now buy and sell them using centralized Bitcoin exchanges like Coinbase, Bitstamp, Binance, Kraken, etc. You can also purchase the cryptocurrency from a special ATM or go for peer-to-peer exchanges on certain websites. Most investors create accounts on an exchange and start with Bitcoin transactions on such platforms. 

Characteristics of Bitcoin

Below are some of the defining characteristics of the cryptocurrency:

  • It’s a decentralized currency, which means that it’s not controlled or regulated by any central bank or other institution. This also means that it’s not under the jurisdiction of any one country or group of countries (like the euro is for the European Union)
  • It provides anonymity: Bitcoin apparently allows people to conduct transactions without the need for revealing any personal information. Other financial institutions require that their customers reveal their names, credit history, phone numbers, spending habits, and much more. 
  • Transparent process: All transactions in Bitcoin are stored forever in what is called the Blockchain. These are visible for everyone. 

The above characteristics of Bitcoin have their advantages and disadvantages. However, we’re here to debate and possibly answer the question of whether Bitcoin is a good investment compared to real estate or not. Let’s now take a look at the ups and down of Bitcoin with regards to investors: 

The Advantages of Investing in Bitcoin

More and more investors are going for Bitcoin as the years go by. Below are a few reasons why this is so: 

  • Easy entry: Investing in Bitcoin is a relatively easy matter, especially when compared to real estate. When you want to buy real estate, it’s essential to have a decent amount of money on hand or take out a loan. With Bitcoin, you can start investing even if you have around $100 to your name. Since Bitcoin is divisible into satoshis, we can buy up a fraction at a time and wait for the value to go up. 
  • Consistently increasing prices: Since so many investors are now interested in Bitcoin, everyone seems to be rushing to gain at least a share in the gains. This means that the value of Bitcoin keeps going up, with Forbes predicting a value of over $66,000 at the end of 2021
  • A stable and secure asset: Since this was the first cryptocurrency known to the world, Bitcoin has shown evidence of being a somewhat secure and reliable investment. Forbes even predicts that it might overtake the dollar in terms of financial global dominance by 2050, but time will tell how that works out. 
  • High liquidity: In case an investor requires money quickly, they can immediately sell off their Bitcoin and use the cash. Selling will usually just take some minutes. 
  • Fixed supply: There is only the possibility of around 21 million Bitcoins, so there's no such thing as inflation with this asset. There’s a fixed supply and not likely to be any more. However, Bitcoin investors can always branch off into other forms of cryptocurrency to diversify their digital assets. 

The pros of investing in Bitcoin certainly seem to be overwhelming, but don’t rush to put all your eggs in this basket just yet. We still have to discuss why Bitcoin may not be the best way to go for investors in 2021 and beyond. 

The Downsides of Investing In Bitcoin

Consider these downsides before deciding whether Bitcoin is the better investment or not: 

  • The asset could be a bubble: This is when the asset has a price that is way above its own intrinsic value. With the sharp rise in the cost of Bitcoin, it’s evident that the demand is based mostly on speculation instead of actual fundamental value. 
  • Security risks: We have no choice but to store our Bitcoins digitally, which puts it at a lot of risks. Malware, operational glitches, and hackers are just a few issues that come to mind. If any hacker gains knowledge of an investor’s encryption keys, it’s simple to transfer all the Bitcoins to their own accounts. Since there’s no way to identify the hacker, there's little chance of the Bitcoins being recovered. This is not just speculation; there have been several incidents of hacking Bitcoin accounts, with hackers targeting exchanges using thousands of accounts. The biggest Bitcoin aching incident was in 2014, with a total of $460 million value stolen from the Bitcoin intermediary.
  • Very high volatility: Bitcoin is known to be extremely volatile in its value. As any investor should know, a volatile market is not a good one for investing in. This makes Bitcoin quite a risky investment path. In 2017, the value of Bitcoin shot up from $1000 to a peak of $19,783 at the end of the year. Less than six months later, the value went under $7,000.
  • Strict government regulations: Since Bitcoin is a rival to all currencies, it’s also seen as a rival to government power in many countries. Plus, the digital currency is also utilized for several illegal activities such as money laundering, transactions on the black market, tax evasion, and many more. All this is why most governments will want to regulate, restrict, or outright ban any use of the Bitcoin currency. If you plan on investing in Bitcoin, you’d have to stay alert for the regulations from the IRS, the SEC (Securities and Exchange Commission), the CFTC (Commodities and Futures Trading Commission), the FinCEn (Financial and Crimes Enforcement Network), and the OCC (Office of the Comptroller of the Currency).
  • Possibility of a ban: India, Iran, North Macedonia, and Bangladesh are just a few examples of countries that have banned the use of Bitcoin. Investors don’t know when and if a similar ban might be imposed in their countries. 
  • No controlling party: There isn’t any central authority that controls Bitcoin or its transactions. While this might seem like a positive aspect for an online market, the fact remains that this also means we give up the security as well. There’s simply no one to complain to if we are the victim of a fraud, a hacker, or any scam during our Bitcoin transactions. 

With all these disadvantages in mind, many investors might be discouraged from putting their money in Bitcoin. This might be the best way to go after all, but we still have a few more reasons why investing in real estate is a better choice. 

Advantages of Investing in Real Estate

While Bitcoin might be a promising and somewhat glamorous asset, it’s probably not the best one to rely on. If you can afford to invest some money in that area, well and good; who knows the value might rise multifold and make you a millionaire overnight! However, waiting for a lucky upsurge is probably not the wisest investment decision. 

Instead, we have real estate as a more definite, lucrative option. Let’s now look at a few of the most common advantages of investing in real estate in current times:

  • A backing of tangible asset value: When you invest in real estate, you can actually look at and touch your investment. Your money is right in front of you in the form of land or a physical structure like an apartment building. It’s not liable to get hacked, transferred into someone else’s account, or just disappear into thin air due to some glitches in a computer system. There might be some frauds in this area as well, but there’s always the possibility of reporting them to an authority and getting your investment back. 
  • Gaining a means of income: Your real estate investment can get you a decent cash flow source with monthly rents. You can even calculate and analyze this monthly income with online tools like investment property calculators. This way, we can check the expected performance of any property before we put our money in it. With Bitcoin, on the other hand, there is no cash flow unless we decide to sell off our assets after they’re increased in value. 
  • Provides a buffer against inflation: The rental rates are usually increasing along with housing values in the United States. While inflation and the cost of living are also going up, investors in real estate can usually maintain their lifestyle and savings with their assets and the related income. 
  • Gaining many tax benefits: Investors in real estate are usually eligible for a lot of tax deductions. These pertain to insurance, commissions, utilities, taxes, depreciations, and repairs. With all this put together, such investors might find themselves paying a very reduced overall tax. 
  • Cheaper mortgages: One of the effects of COVID-19 on the US housing market was lower mortgage rates. In fact, the 2020 rates have gone to historic lows, meaning that many investors could probably get into the housing market without the need to pay an exorbitant amount for income properties in 2021. 
  • Multiple options: There are several ways to invest in real estate and reap its benefits. If an investor can’t afford to buy a large piece of land or a building with rental units, they can search “what is a manufactured home?” and look into some relatively inexpensive options. 

The Downsides of Investing in Real Estate

As with any other investment option, real estate definitely has its downsides. An investor needs to consider these aspects as well; it’s only logical to check out all the factors before investing anything. Here are some of the main downsides now: 

  • High costs of transactions: Buying property is expensive enough; in addition to this, investors in real estate are expected to pay up for appraisal fees, inspection fees, property taxes, insurance, closing costs, and HOA fees.
  • Low level of liquidity: When a real estate investor wants to cash in on their investment, the process could take several months to sell, even years. In fact, the probability of a high selling price goes down the longer a property stays on the market. This means that real estate isn’t a very liquid form of investment; we can’t just sell it the moment we need actual money. 
  • High maintenance costs: Whether you’re renting or flipping a property, maintaining is a major cost and responsibility. Even if a property is empty of tenants, it will still require some maintenance and repairs without any flow of income to set off the costs. 
  • Slow increase in value: While investing in some real estate is a wise decision for the future, it doesn't automatically make anyone a millionaire. Investors might have to wait several years before they see a significant return from their investment and efforts. 

The Takeaway

While Bitcoin might give us hopes of outstanding rewards and incredible wealth, the risks are just as real. If an investor does decide to venture into this field, they should take a lot of caution. At any rate, it’s evident that Bitcoin is not meant to be the only kind of investment anyone should make. It probably shouldn’t even be the asset that figures most prominently in your investment portfolio.  

At the end of the day and this discussion, it does seem like real estate is by far the safer investment. It might be a bit volatile and risky itself, but the returns have been quite good for most investors in this area. 

If you want to combine the two kinds of investments, you can always consider saving up Bitcoin and planning to buy real estate with it. This way, you combine the advantage of an easy entry into the Bitcoin market with the undeniable perks of investing in real estate. When your Bitcoin gets valuable enough, you can consider wholesaling, flipping homes, house hacking, investing in REITs, and many other options. 

The key step here is not to wait around too long. Start thinking about your investment options today so that you can reap the benefits as soon as possible!