Investing in Bitcoin vs. Real Estate Investing
Surely you’ve heard or read about the Bitcoin phenomena. Bitcoin is what is referred to as a “cryptocurrency” or a digital currency used to buy things online and first introduced in 2009. For investors it can be a struggle to thoroughly get a feel for investing in Bitcoin. After all, if an investor buys gold or silver there is a hard, physical asset. The investor can touch and feel the gold coin or silver bar. But with Bitcoin, that’s not going to happen. There is no physical Bitcoin but it does have value. When Bitcoin was first introduced in 2009 the value technically was zero and in 2010 the value never topper one U.S. dollar. It is said the first Bitcoin purchase was for a couple of pizzas at a pizza store. Today, a single Bitcoin is worth around $15,000. You read that right…$15,000, give or take. So, should you jump in?
First, understand Bitcoin is an investment. You’re buying at one price and, hopefully, selling at a higher price sometime in the future. But investment advice needs to come from an investment adviser or your financial planner. What we can do is compare the mechanics of a Bitcoin with investments you’re familiar with such as real estate. If you jumped into the Bitcoin craze early on, say in 2010 and bought 10 Bitcoins for $10, today if you sold all 10 your sales price would be $150,000. That’s quite a return, don’t you think? So how do you invest in Bitcoin? There are various online exchanges that allow you to play in the Bitcoin market and no you don’t have to buy one Bitcoin at a time but invest in the exchange just like any other stock or mutual fund. Bitcoin is purely speculative which many read as gambling. And that’s probably very true because the value can fall just as it can go up and if some major Bitcoin shareholder decided to sell every Bitcoin owned the market would fall and the price deflated.
Okay, now let’s look at real estate. The first thing you might notice about real estate is the name…it’s real. You can buy and sell real estate and it actually exists. If you buy a rental property you can drive by the home and actually see it. Are real estate investments considered a long-term hold? Yes, “flipping” real estate still goes on today but as the real estate market has recovered buy and sell transactions are much fewer than they used to be. Today, most real estate investments are held for the long haul. Over time, the value appreciates adding to the owner’s financial profile. Real estate investing also provides a consistent, monthly cash flow to the owner and there are income tax advantages owning real estate investments. No, you won’t be able to buy a home for $10,000 and in one year sell it for $150,000 one year from now, but expecting Bitcoin to provide the same sort of returns over the next year might be a disappointment. But then again, few anticipated such a remarkable Bitcoin run.