- Crypto and other potential risky assets almost took the spotlight from real estate in 2020
- The US surprised home owners to the upside in 2021, particularly given the exodus from major cities
- Trends converge in different parts of the world with no fixed view on global real estate
Q4 2020 hedge fund letters, conferences and more
With the rise of Bitcoin and other alternative forms of investment, many people are questioning the viability of real estate investments. Yet crypto bubbles and government intervention are a real concern – and American real estate behaved the opposite during the pandemic crisis, defying expectations of a downturn. The new TRUiC Real Estate Investment Industry Guide for 2021 provides a lot of clarity on these questions.
Today, lowered interest rates and the volatility of the global market as a result of the COVID-19 pandemic has caused many investors to diversify their physical and financial asset holdings into alternative forms of investment. Investment in cryptocurrencies like Bitcoin has become a popular alternative to traditional forms of investment. Yet other forms of investment opportunities, such as gold, and various commodities and foreign currencies have also become viable investment alternatives to real estate investment, traditionally considered by investors as a “safe haven”.
What were the alternatives and how did they perform to date?
Real estate investment has for years been a trusted and reliable form of investment. However since the financial crisis of 2007-8, institutions and private individuals alike sought out alternative forms of investments, like Bitcoin, gold, commodities and foreign currency as very real alternatives – some outperformed, but the trends may be turning.
Bitcoin
Bitcoin is one of the newest investment opportunities that is quickly catching on worldwide. As the most popular cryptocurrency, Bitcoin’s popularity as a sound investment alternative to real estate investment stems from the fact that Bitcoin is an intangible asset used as an alternative to money and exchangeable on a global market. Bitcoin can never be inflated, is easily bought and sold on a cryptocurrency exchange and has long-term potential for financial success. However 2021 started with turbulence: Janet Yellen declared that the U.S. will explore limiting the use of Bitcoin. The inconvenient truth about cryptocurrencies is no doubt a something to consider.
Gold
Gold may be the most popular long-term form of investment. Gold has for centuries been a representation of money and wealth. Today, investors can either buy gold items or they can buy funds that invest in physical gold. Yet gold does not pay returns in the way stocks and bonds do, the only way investors can make money from gold is by selling it at a higher price than what it was purchased for. Gold does not have the best return rate in relation to other forms of investments and investors should not expect large cash-like returns.
Physical commodities
Commodities are raw materials with commercial or industrial uses. However, if investors want to invest in commodities, it needs to be traded on an official and recognized exchange. Tradable commodities range from industrial and precious metals, energy sources, collectibles and art, to foods and fibers and even livestock and meat. Investors can simply purchase or exchange the physical quantity of the commodity they want on a given commodity exchange.
Foreign currencies
Foreign currency is also a popular investment strategy. Investing in foreign currency is simply exchanging one currency for another. It’s considered a safe investment option because investors can always exchange the currency they own, if it is depreciating, for a currency that is appreciating in the global market. Investing in foreign currencies is a cost-low and easy-access investment strategy.
Alternative investment strategies compared to real estate investment
According to the U.S Department of Housing and Urban Development, the residential housing market decreased significantly due to the practical implications of the COVID-19 pandemic on the housing market. Yet the same could not be said for the real estate investment market.
The real estate investment market has remained a multifaceted type of investment where people purchase property with the intention of renting or selling it at a profitable rate. The possibilities of real estate investment are endless. Investors can flip the properties they purchase, rent it as a residential or business space or even transform it into a vacation rental property. These are all avenues real estate investors can explore to increase the return on their original investment.
Investing in Bitcoin, regardless of how lucrative an investment it may be, is a high-risk investment with little to no government regulation. Investing in gold has low cash returns and does not offer high return rates. Investing in commodities only results in positive returns if commodity prices appreciate in value and investing in foreign currency, which has a high possibility for losses well beyond the original capital input, is the most volatile of all the alternatives.
On the one hand, real estate investment is a costly investment that requires much maintenance, but on the other hand, it is one sure way investors can guarantee immediate and long-term returns on their investment.
What real estate investment guides say:
The TRUiC Real Estate Investment Industry Guide of 2021 takes prospective investors through a step-for-step guide to help them get into real estate investing. The guide helps prospective investors decide which type of investment strategy they would like to employ, explaining in detail each of the strategies: Wholesaling, Buy and Flip, and Buy and Rent. It points out that cash buyers are at a clear advantage over those who may risk falling victim to rapid changes in either exchange or interest rates.
The same real estate investment guide also lists other types of real estate investing, such as real estate investment trusts, commercial real estate, buying raw land, mixed-seed real estate and much more. The guide gives prospective investors detailed insights into the various real estate investment strategies they can enter into and also tangible advice for investors interested in formally registering their real estate business as an LLC.
Real estate investment: the long term view
Analysts acknowledged several risk factors in the US property market. Unlike the alternative investment opportunities, real estate investment under normal circumstances, will for the majority of the time bear positive returns, whether in the form of rental income, profits from sales, or property appreciation in the long-term. Short term risks remain profound. Regardless of the rise in Bitcoin and other investment opportunities, real estate investment remains a reliable and trustworthy form of investment as it is underpinned by bricks and mortar.
Suggested reading: See “Everything you need to know about real estate investing”
