Crypto vs Real Estate: Which Investment Is Better?
By Douglas Mukwaya
Real Estate Entrepreneur
Cryptocurrencies are among the hottest speculative investments available in the 2020s. The price of a single Bitcoin went from just $5,165.25 in March of 2020 to an insane $64,400 in November of 2021. And then it plummeted to $19,224 by July of 2022.
Crypto has created an estimated 100,000 Bitcoin millionaires over the past 5 years. But almost 70% of those bitcoin millionaires lost their millionaire status when the price tanked in 2022.
So how viable is crypto as an investment? And how does it compare to real estate?
In this article, we’re exploring crypto vs. real estate. What are the pros and cons of each? And which is the better investment?
Should I invest in crypto or real estate? This article is going to help you make that investment decision.
The Pros and Cons of Investing in Crypto
Pros of Investing in Crypto
If you had invested in Bitcoin prior to May 2020, you’d look like a genius. $10,000 invested on July 6, 2020, would be worth $22,047.27 by July 6, 2022 (according to the Bitcoin Return Calculator). That’s an annualized return of 120.47%. This rate of return simply can’t be matched by any other investment over the same period.
It is worth noting, however, that if you had invested $10,000 on July 6, 2021, it would be worth only $6,001.72 by July 6, 2022. That’s a return of negative 39.98%.
2. Low Minimum Investment
While a single Bitcoin is currently trading at over $20,000, you don’t need to buy a whole Bitcoin. It’s possible to buy portions of Bitcoins. So, if you don’t have much available to invest (or don’t want to invest much in crypto) you can invest in Bitcoin for under $100.
3. Liquidity
Cryptocurrencies are meant to be just that: currencies. You can spend them as cash anywhere they are accepted. You can also buy and sell them on the open market at any time. This means that your money is never out of reach. And this is different from many investments, like real estate, in which your capital is generally tied up for a certain amount of time.
The only issue with crypto liquidity is that you never know what the value of your crypto will be. You want to acquire crypto when the value is low and dispose of crypto when the value is high. But if you need to access your cash when the value is low, you could take a loss.
4. Scarcity
Smart cryptocurrencies have built-in scarcity. Bitcoin, for example, has a cap of 21 million coins. There cannot be more than 21 million coins minted. And scarcity breeds demand, which drives up values.
5. Low Maintenance
Once you buy tokens of a cryptocurrency, you don’t have to do anything. You can kick back and watch the value of your investment fluctuate. Or you can ignore it completely until it makes headlines. And then you can decide to continue holding or to sell. There is no sweat equity in crypto, and no day-to-day management is required.
Cons of Investing in Crypto
High volatility is the single biggest reason not to invest in crypto. Investors are normally interested in growing their cash over time through carefully calculated risks and rewards. But crypto fortunes rely more on luck than strategy, making crypto more like gambling than investing.
And crypto’s volatility isn’t limited to wild ups and downs. It’s entirely possible for a cryptocurrency value to fall to $0. Terra Luna was the fourth largest cryptocurrency in the world. But in May of 2022, the currency crashed from $86.17 to $0.0001. And it shows no sign of coming back. Compare this to real estate, in which it is virtually impossible for the value of a parcel to fall to $0, even if the structure is destroyed.
2. The Threat of Additional Regulation or Bans
As of April 2022, Bitcoin was banned in 15 countries, including China. While there is no indication that Bitcoin, or any other cryptocurrency, will be banned in other nations, it is possible for other governments to impose restrictions on the use of crypto. And with each country that bans crypto use, the utility of the currency declines for current holders worldwide.
3. Lack of Protection
Crypto enthusiasts will highlight the security of storing transaction records on a decentralized blockchain. The idea is that the records are simultaneously kept on tens of thousands of servers, making a hacker attack on the network virtually impossible. But there are other ways investors can lose their crypto.
First, it is possible for sophisticated hackers to access your digital wallet and take your currency. This is why you should keep your digital wallet stored on a removable hard drive that you can keep offline until you need it.
Secondly, it’s possible to lose access to your digital currency. Today, most digital wallets create a 24-word “seed code” that allows you to access your wallet. If you lose access to your digital wallet, you can use this seed code to recover your crypto. But if you lose your seed code, your crypto may be lost forever.
And finally, it’s possible to simply send your crypto to the wrong person. If you send money to someone by mistake, there is no recourse; no way to get that money back. There is, technically, crypto-insurance, but coverage is extremely limited.
4. Investors Don’t Know Enough About How It Works
One final downside to crypto is that many investors simply don’t understand it well enough to invest in it. Investing in crypto can be daunting. Where do you get it? How do you set up a digital wallet? How do you make sure your crypto stays safe and accessible? There is a steep learning curve for investing in crypto.
The Pros and Cons of Real Estate Investing
Pros of Investing in Real Estate
Real estate might not make you rich overnight, but there is a proven path to
. And, while real estate markets are always fluctuating, the cycles are much more gradual and predictable than crypto markets. This allows investors to follow a set strategy rather than hope for a lucky break.
2. Low-Risk
By all investing standards, 5. But compared to the high risk of crypto investing, the real estate market seems like an especially safe haven for growing your wealth.
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3. Cash Flow
With crypto, your only gains come from price fluctuations. You need to sell your asset to realize any income. But through rental properties, you can generate cash flow from your assets while enjoying long-term appreciation.
4. Tax Benefits
There are no tax breaks awarded to crypto owners. Property owners, on the other hand, get to take advantage of the many tax benefits of real estate investing.
5. Flexibility
There is a real estate investment option for everyone. No matter your budget, time frame, or investment goals.
You might be surprised to learn that real estate was found to be one of the best short-term investments. We tend to think of real estate as a long-term investment. And while there are certainly advantages to holding real estate for the long-term, short-term investments through peer-to-peer lending and crowdfunding can be lucrative as well.
And, unlike traditional real estate investing, which required substantial upfront investments, today’s crowdfunding options allow investors to buy into a real estate deal with minimum upfront investments.
6. Debt Leverage
No reasonable person or institution is going to give you a loan to invest in crypto. But lenders finance real estate purchases every day. Taking advantage of debt financing allows real estate investors to access deals beyond their available cash. And this leads to faster growth!
7. Tangibility
Unlike crypto, real estate is a tangible asset. While cryptocurrencies are digital assets, made entirely of computer code, real estate investments give you physical assets in the real world.
8. Scarcity
Mark Twain famously said, “Buy land, they're not making it anymore.” There is a finite amount of usable acreage on earth. And as the population grows, and land becomes more scarce, it will continue to grow in value.
9. Protections
It’s always possible for things to go wrong when you own real estate. But there are protections in place for when that happens. Take insurance, for example. If someone is injured on your property or your property is damaged, insurance will likely help with your losses. Even if you have a problem renter who refuses to pay rent, you have legal recourse through the eviction process.
With crypto, you are on your own. But with real estate, there are ways to protect your assets.
10. Hedge Against Inflation
Crypto prices can swing wildly, regardless of whether we’re in a state of inflation or deflation. But real estate grows in value with inflation. When inflation is high, your property value will likely increase. As will the rent prices you can charge. And rising inflation deflates the value of any debt you owe on the property, making real estate the ideal hedge against inflation.
11. Can Be Low Maintenance
Real estate is not traditionally considered low maintenance. Fixing and flipping requires a heavy investment of time and labor. Even if you’re not doing all the work yourself, you have to oversee the renovation work. And when you have rental properties, you either need to manage the residents and maintenance yourself or pay a property manager to handle the day-to-day operations.
But today, we have real estate investment options that don’t require any time or effort on your part. With real estate syndication, for example, the entire project is professionally managed by an experienced sponsor. Once your investment is made, you simply monitor your properties as often as you like through a convenient online dashboard!
Cons of Investing in Real Estate
Traditional real estate investing requires enough cash to cover the down payment, closing costs, and any urgently-needed repairs upfront. With crowdfunding and syndication, it’s possible to buy into a real estate project for around $10,000.
It’s worth noting, however, that you can still invest in real estate through real estate investment trusts (REIT s). Investing in REIT s typically requires significantly less capital compared to direct real estate investment. While purchasing a physical property often demands a substantial upfront investment for down payments, closing costs, and property maintenance, investing in REIT s allows individuals to participate in the real estate market with much smaller amounts of capital.
2. Consumer Protection:
The unregulated real estate sector in Uganda poses several risks for investors looking to engage in real estate transactions. The lack of Consumer Protection: Without adequate regulation, consumers and investors may be vulnerable to fraud, misrepresentation, and unfair business practices in the real estate market. This includes issues such as deceptive advertising, misleading sales tactics, and unscrupulous developers or agents taking advantage of unsuspecting buyers. The absence of consumer protection laws and regulatory oversight can undermine investor confidence and deter foreign investment in Uganda's real estate sector.
3. Lower Liquidity than Crypto
Some real estate investment options are more liquid than others. But, as a general rule, since crypto is essentially currency, it remains more liquid than any real estate investment.
4. High interest rates
High interest rates, as indicated by Uganda's Central Bank Rate ending 2022 at 10.00%, present a significant challenge for real estate investors in Uganda. With borrowing costs on the rise, financing property acquisitions and developments becomes more expensive, reducing affordability and investment returns.
In professional real estate investment, profitability hinges on financing structures and return on investment calculations. The current high interest rate environment diminishes the feasibility of projects, leading to decreased demand from both investors and home buyers. This results in longer holding periods for properties and reduced rental yields.
Buying Crypto vs. Real Estate
The bottom line is that crypto is a high-risk speculative investment. It could make you a millionaire. Or it could implode, causing you to lose everything. Real estate, on the other hand, is the tried-and-true means of building wealth and comes with many benefits that crypto simply can’t match.
Now, there is room in a diversified investment portfolio for both asset classes. You can confidently invest most of your capital in the real estate market and also give yourself a little money to play with in the crypto markets. Just don’t invest anything in crypto that you can’t afford to lose.
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