Fractional Ownership Of Commercial Real Estate vs Cryptocurrency In 2022
Investing your money is one of the most efficient ways to build wealth and save for retirement.
There are a variety of investment options available to help an investor diversify their portfolio and decrease risk. Each opportunity has its mix of advantages and disadvantages. Cryptocurrency is a type of digital currency that is protected by strong cryptography. It is built on a ledger system that records and generates new transactions based on prior ones, making them public yet generally falsifiable. Blockchain is the name of the ledger system, and it has the potential to have a huge influence on the Commercial Real Estate (CRE) business. These effects may be observed in changing present patterns, alleviating existing issues, and posing a substantial danger to industrial security. Consider two options: Cryptocurrencies and fractional ownership in commercial real estate.
Also Read: Real Estate, Stock, or Cryptocurrency: The Most & Least Volatile Investment
The Benefits and Drawbacks of Investing in Cryptocurrency
First, let’s take a quick look at crypto. Cryptocurrencies are digital currencies that may be used to buy goods and services. Some people, on the other hand, invest in them to trade for a profit.
While there are other currencies available, cryptocurrency is the most well-known. It was founded in 2009 by Satoshi Nakamoto, a pseudonym for the person or group behind the coin. Cryptocurrencies are created through the process of “mining,” which includes computer software solving hard mathematical puzzles. When the miner solves the challenge, he or she is paid with cryptocurrency.
The Benefits of Cryptocurrency Investing
To begin, cryptocurrency differs from the traditional currency in that it is decentralized, meaning that no single body regulates or controls it. Cryptocurrency transactions are straightforward because they are handled by a network of privately linked computers that share a ledger. When cryptocurrency is exchanged, it is made public through the blockchain. Furthermore, because there is a limited supply of Cryptocurrencies in circulation, a government cannot just print more. This protocol makes crypto-currency inflation-proof, which is one of the primary reasons people are interested in cryptocurrency.
Another advantage of cryptocurrency is that it has a low entrance barrier. While the price of a single cryptocurrency is now fluctuating between $30,000 and USD 40,000 at the time of writing, a person can obtain far lesser amounts. Satoshis are these units, and they account for a small portion of a cryptocurrency. At the moment, one dollar buys around 2,700 Satoshi. There is also a multitude of Cryptocurrencies that can allow you to purchase a whole currency for far less money, with Ethereum being one of the most prominent, currently going for around USD 2,300.
Long-term earnings in Cryptocurrencies are also feasible, with a seemingly exponential increase. Cryptocurrency’s value has increased by over 6,000 percent in the previous five years. That number was closer to 9,000 percent at its peak in April 2021. Other currencies have returned more than 1,000% during the previous few years. In addition, many institutional investors are becoming interested in cryptocurrency, with JPMorgan recently declaring that it will be the first big bank to provide retail crypto fund access. Some believe that the price of the cryptocurrency will soon exceed $100,000 and that it will eventually replace fiat currencies such as the US dollar or the Euro.
Also Read: Cryptocurrencies Vs Real estate – Which Is the better investment option for you?
The Disadvantages of Investing in Cryptocurrency
While there are some characteristics of cryptocurrency that appeal to investors, there are also significant negatives. For starters, it is not a movable asset. A cryptocurrency cannot be held in your hand since it exists exclusively on the internet. This opens the door to cyber-attacks and other sorts of cybercrime, which might rob you of your assets. This lack of transparency also makes determining the real value of a coin difficult, which can lead to it being traded for a larger value than it is genuinely worth. These reasons lead to the worry that cryptocurrency will burst and leave investors with nothing. Furthermore, there are no dividends or rentals paid by holding cryptocurrency, therefore there are no chances for passive income flow.
The only method to make money with cryptocurrency is through capital appreciation (an asset growing in value), which you will realize when you sell the coin. Another disadvantage of cryptocurrency is its tremendous volatility. As you may have seen, we had to emphasize several times that the current prices of the coins reflect what they were trading for at the time this article was published.
Cryptocurrency has risen from roughly $10,000 in October 2020 to over $60,000 in April 2021 in just one year. It then fell below $30,000 in mid-July 2021, before rising 31% in the last week to $39,000. This isn’t the first time cryptocurrency has experienced such severe volatility.
Cryptocurrency rose from $1,000 to just about $20,000 in 2017. After nearly 4 months, the value had dropped back to $7,000. This volatility makes it difficult for even the most risk-averse investor to invest since they know they might lose the whole value of their investment at any time.
Finally, governments throughout the world do not now control the usage and trade of cryptocurrency, which is unlikely to change in the future if cryptocurrency becomes more ubiquitous. However, it is unlikely that government organizations such as the IRS would discover a mechanism to control cryptocurrency sales and transfers. When it happens, the value of the currencies will almost certainly fall – just look at what occurred in China a few years ago when they stopped the crypto trade.
Also Read: Retirement Planning: Traditional real estate method vs. Cryptocurrency?
Let’s now look at the benefits and drawbacks of commercial real estate.
The Benefits and Drawbacks of Commercial Real Estate Investing
Commercial real estate investing is without a doubt one of the finest methods to save for retirement and develop wealth – it has undoubtedly survived the test of time as an investable asset. There are several methods to invest in commercial real estate, including investing with developers, wholesaling, house flipping, BRRRR investment, and Real Estate Investment Trusts (REITs). Investing in real estate is incredibly popular, and for good reason: it offers benefits that other investments just do not.
The Advantages of Commercial Real Estate Investing
One of these benefits is that you will receive a physical item that you can see, touch, and feel. It has inherent value because of what it is, not because of what people think it is worth. Real estate is also a need, as people will always need a place to live, work, exercise, and so on.
As an investor, you will also have the ability to force the asset’s appreciation. You may make strategic changes that will result in higher monthly rentals and, because the value of real estate investments is based on the net income they create, boost the property’s worth. These renovations might range from fresh paint and elevations on the property’s outside to security upgrades or even a full inside refurbishment.
Real estate also provides a consistent source of revenue – passive cash flow! These monthly rentals may be utilized to cover a property’s mortgage payment, all expenditures, and yet leave enough for profit. Rents often rise in tandem with inflation, making real estate an excellent inflation hedge. One of the most significant advantages of being a real estate investor is the tax incentives and deductions that you will enjoy when you own real estate, which may make it more profitable than other types of investing.
Real Estate Investing’s Consequences
While real estate offers numerous benefits, it also has some drawbacks. The asset is not as liquid as other forms of investments, which is one downside of real estate investing. In contrast to equities, which may be bought and sold at any time, real estate is not always readily traded. Because it might take months or even years to find a qualified buyer for a property, real estate is a longer-term investment than other asset categories. However, if you are investing through fractional investment options, then you need not worry about liquidity as these fractions of commercial investments are easily traded in the market.
The cost of purchasing and maintaining real estate is exorbitant. Acquiring a facility can easily cost hundreds of thousands, if not millions, of dollars, providing a considerable barrier to entry. Furthermore, as the property owner, you are accountable for the general condition of the structure. Owners may need to repair expensive components such as an HVAC unit or a complete roof system. There are other low-cost real estates investing choices, such as wholesaling, but these come with their own set of obstacles. This limitation of commercial real estate is also solved by fractional ownership as the amount required to acquire these high profile investment opportunities are comparatively smaller and you need not worry about maintenance as it is taken care of by middlemen or fractional commercial investment opportunity providers.
What Impact Does Cryptocurrency Have on Commercial Real Estate?
Property Search Procedures Have Been Improved
The effect of cryptocurrency and blockchain technology can greatly enhance the present methods for seeking and leasing properties in the CRE market. Brokers, tenants, purchasers, and other CRE sector participants already utilize multiple listing services (MLS) to share and access property listing data. In addition to being subscription-based and difficult to access3, this approach makes it more difficult to identify appropriate homes. Furthermore, the veracity of the information presented is frequently at the brokers’ discretion and desire. As a result, the listings may contain erroneous, incomplete, or fragmented information.
Information from all listings may be merged into a single decentralized system using a blockchain-based MLS. As a result, property owners and brokers will have better control over their data, avoiding inaccuracies and incomplete data entry caused by human mistakes. This technique will also promote trust and dependability. The total benefit of this blockchain-based MLS includes improved property location and address data, property age and condition, tenant details, rental rates, and even ownership history.
New Investment Opportunities
Cryptocurrency and blockchain technology can potentially introduce new and intriguing investment vehicles to the market. Previously, stock traders could trade firm stocks, bonds, mutual funds, and even commodities such as oil and gold. However, with Cryptocurrencies, there is the possibility of making transactions on commercial real estate properties as well. The globe has begun to trade crypto such as Digix Gold Tokens, which are based on and backed by genuine gold bullions. Similarly, it’s easy to envision how commercial real estate assets may be liquefied and turned into marketable tokens.
In addition to making it easier to exchange properties in this manner, investors who do not have enough funds to purchase the assets in their whole may buy bits and pieces of them. Bitcoin and Ethereum, for example, maybe traded in units as tiny as one Satoshi. The same may be said for commercial real estate holdings. This has two advantages since property sellers may sell their assets in small portions to potential bids rather than looking for a single buyer.
Transactions are shorter and cheaper
Transactions are executed substantially faster since blockchain is founded on a ledger confirmation technique that involves practically everyone in the network. The system checks each user’s transaction, offering a secure and tamperproof verification method. CRE transactions with a cryptocurrency foundation will be executed at the same rate and with the same ease. Furthermore, the cost of completing transactions on the blockchain will be far lower than it is now. The use of a decentralized blockchain network in CRE decreases the costs associated with a more centralized network. Inspection, loan, and registration costs, as well as property taxes, might all be reduced or eliminated.
Risks of Cryptocurrency in Commercial Real Estate
The most serious threat that cryptocurrency offers to CRE is the same one that exists in every firm where it is used–security. Despite the speed and security advantages of adopting cryptocurrency for transaction processing, keeping assets as cryptocurrency exposes the industry to a new sort of financial theft by hackers. As a result of this risk, several organizations, including the Singapore-based exchange, have already been hacked.
This is because, unlike fiat currency, crypto is intangible and only exists as digital forms of cash, leaving them vulnerable to hackers. As cryptocurrency becomes more widely accepted in the market, CRE firms and investors will need to take more precautions to protect themselves from possible threats. This is especially crucial now because crypto has not yet been fully adapted to the point where it can be insured by insurance companies.
So, should you put your money into Cryptocurrencies or real estate?
The decision between investing in Cryptocurrencies and real estate is simple. Investing in real estate provides you with a physical asset that will offer you a stable monthly income as well as capital gains. Commercial real estate has various tax advantages and incentives, and you may utilize leverage to increase your earnings. Commercial real estate is also unaffected by stock market fluctuations, making it an ideal way to diversify your portfolio and minimize overall risk.
Crypto, on the other hand, is more of a speculative bet than a fundamentally sound investment. The price is extremely volatile, and any investor might lose all or a portion of their money. It does not pay dividends and the only way to profit from it is through capital appreciation.
Commercial real estate has substantially less risk, provides more predictable returns, and provides a physical asset. In virtually every situation Commercial real estate is the better investment, although it can’t harm to diversify your portfolio with both. Assetmonk is a real estate investing service that curates investment opportunities in Bangalore, Hyderabad, and Chennai to aid in portfolio diversification. Through fractional ownership, you may invest in luxurious Grade-A residences at a reasonable cost without worrying about legal implications.
Fractional Ownership Of Commercial Real Estate vs Cryptocurrency FAQ'S:
Individual shareholders purchase fractional ownership shares in the asset to share the asset’s benefits such as user rights, income sharing, priority access, and lower rates. The use benefits received by fractional owners are equivalent to those received by timeshare owners.
Cryptocurrency may be a good investment if you’re willing to accept that it’s a high-risk wager that might pay off – but also that there’s a good chance you’ll lose it all. When investing in bitcoin or other cryptocurrencies, it is necessary to approach with prudence.
A person who buys a fractional stake in a holiday resort might use the space for personal reasons while simultaneously making money when it is rented out. When a fractional owner leases out the property for a profit, it becomes an investment property.