Both real estate and cryptocurrencies have been hot topics in the investing world in recent years, and this has led to questions over which investment is right for future earning potential. Although real estate is a time-tested investment vehicle that has a proven track record of success, products like Bitcoin have taken off and turned ordinary investors into crypto-millionaires virtually overnight.
What’s Your Risk Tolerance?
For many people, the first step in deciding between real estate and crypto for investments is to determine risk tolerance. Your risk tolerance is generally defined as the amount of fluctuation in gains and losses you’re willing to accept.
Things like age and long-term investing goals factor into determining your risk tolerance. Additionally, your total net worth can play a part in risk tolerance since a higher net worth typically lends itself to being less risk-averse.
The Pros and Cons of Real Estate
As stated, real estate is a proven investment that has seen huge gains in recent years. The thing about real estate is that there are many complicated factors that play into prices and returns. Homes for sale in Central Florida, for example, have seen interesting shifts in price and value in recent years, leading homebuyers who got in early to experience large gains.
The stock market, the jobs market, consumer confidence, inflation, interest rates, and geographical location can all have an effect on home prices at any given time. As has been seen during the 2020-2021 eviction moratorium, government, political, and public health factors can also have a huge effect on the ability to use real estate to generate passive income.
Pros of Real Estate as an Investment:
- Tangible asset
- Established laws protect owners
- Returns can be realized long-term
- May provide tax benefits
- Can invest in various types of properties
Cons of Real Estate as an Investment:
- The cost of ownership can be high
- May face varying requirements per state
- Renting can be complicated
- Asset is not fluid
The Pros and Cons of Cryptocurrency
Cryptocurrencies are basically digital monies that are not directly controlled by centralized banks. As a result, crypto does not face the same dangers of inflation or interest rate changes. Additionally, crypto is not hindered by changes in federal monetary policy.
On the other hand, since cryptocurrency is still a relatively new creation, its future is uncertain as it has not been tested. Government regulators have been slowly inching closer toward addressing crypto investments, even if indirectly. Additionally, the biggest challenge most new crypto investors face is converting crypto to fiat currency.
The Pros of investing in Cryptocurrency:
- Less government oversight
- No risk of inflation
- Can be traded quickly and easily
- May have long-term value potential
The Cons of Investing in Cryptocurrency:
- Unproven investment
- Potential for digital security concerns
- May be challenging to convert to fiat currency
- Value fluctuates daily
Work With Investment Professionals
Because crypto and real estate are both complicated investment opportunities, you’re encouraged to work with investment professionals in both sectors to discuss your needs, goals, and concerns. A real estate professional can guide you through the ins and outs of real estate as an investment to help you determine whether investment properties are right for you, and a crypto investment professional can do the same for this emerging digital investment vehicle.