Here is a slightly different post for once.
With all the recent turbulence, I've been thinking about different asset classes, their performance and pros and cons.
At least for me, over my life time I have only had two major investments - crypto and property (residential rental). I've been in and out of crypto since 2013, and property since 2006.
So how do I feel about property vs crypto right now? Especially given that (at least in New Zealand) property is on an incredible upsurge (+25% in a year!) there are no taxes to pay on long term capital gains, while crypto has had a very hard time and the FUD seems relentless.
Well, right now my investing is still 100% in crypto and I would never consider buying another rental property ever again. When the time comes I'll sell that rental and reconsider my options - perhaps stocks or crypto, depending on market cycles.
But here's the thing, while it may seem like heresy - in my view for the average person, property is FAR riskier than crypto. Here's why.
The first point is that unless you are a multi-millionaire you are not going to have the cash to buy a full rental. In my city, average prices are around the $1.2 Million (that is in NZD - so for all figures in this post, the USD is around 70% or so - $840k USD for that property for example, but note that our wages are low - around NZD $50k a year less around 30% taxes if I include sales taxes and council rates). That gets you a three bedroom house on a tiny section in an average suburb - probably with a long commute to work.
So you are going to need to borrow. It varies, but over time generally you can have a 20% deposit. So let's compare a $240,000 investment into crypto vs a $1.2 Million investment into property with 80% debt.
So first of all we have entry costs. Crypto has a tiny cost of entry aside from researching wallets and keys etc. With property, to purchase can take months, with thousands of dollars lost to inspections, building reports, legal fees etc.
And of course you are borrowing - $960,000 in this example. That has a cost which for most properties (again in my city) will put you into a negative cash flow position. Non-property investors don't realise the sheer amount of costs involved in having to have a property retrofitted properly, have it upgraded for rental standards and maintained. And trust me, in rental properties things break and decay like you wouldn't believe (especially with kids or pets).
I think my record for debt was at one point $1.4 MILLION. That is a giant sword hovering over your head, which if things you wrong will ruin you and your family for life and put you into bankruptcy. Even if I somehow lose all the keys to my multiple wallets, I lose my crypto but ironically the government here will effectively reimburse me 39% or so of the lost crypto as at tax refund (I'm not kidding).
So your rental is going to cost you money out of your pocket probably for years to come - and of course with a heavy risk of interest rates increasing. Now if you happen to lose your job or have unexpected costs come up, you'll be forced out of the market perhaps with a lost.
Crypto has no holding cost and as you will know, can be parked or put into cefi or defi to earn you passive income. My farms are currently earning an average of around 269% per annum (non-compounded). That pays for itself pretty damn fast.
Now crypto can be diversified (if you want). It could be a spectrum of crypto assets, or it even be a mix of stable coins and bitcoin. And you can adjust your position to up or downgrade your risk based on the market. And if the market has extreme turbulence or fear, you can instantly move your position to cash at the touch of a button with a tiny fee.
With your $1.2M property you are effectively going "all in" into a single asset with massive leverage. You are facing multiple black swan events which can happen - a building defect, a title problem, gang moves in next door or even an earthquake (in NZ our second largest city literally had this and it wiped out a huge portion of housing). And as you are leveraged x5, a 20% hit will wipe out all your equity. Now compare the chances of that (or even just a property bear market) to the black swans for crypto - i.e. Satoshi wakes up and market sells his coins, blockchain collapses etc.
Critically with crypto you can dollar cost average, a little bit at a time, with no risk that you are entering the market at the wrong time.
And try exiting the market when your tenant has a 1 year fixed lease and the market is turning bearish.
I've never lost sleep with crypto but I have lost sleep with property. Not only did I come close to losing my entire equity in the GFC, but the roof developed an issue which would essentially flood the house during storms - now that is fixed but only after tens of thousands of dollars.
Then there is the people problem. With tenants you are rolling a dice every time as to how things go. With crypto, nobody is calling you ten times a day screaming at you to fix the washing machine. And just wait until they stop paying the rent. I once had a new tenant insist on upgrades worth thousands of dollars - he would literally leave 5-6 voice mails every day with his requirements. Once completed, he then said he had maxed out his credit cards and preferred not to pay any rent for three months (my neighbour then noticed two very nice new European cars parked in the driveway).
Now I am pretty lucky (and picky) with my tenants. But getting a bad tenant is x100 worse than a rug pull or a shitcoin collapse. For example, we have a meth problem in our country - if you get a meth addict or lab in your rental (not uncommon) even if they don't burn the house down your property will be effectively ruined and might require a complete reconstruction. Get a nightmare tenant and you will not be able to evict them for months, meanwhile they will literally destroy the property. And we have new laws now that mean you can't evict them without "cause" but the land lord has to prove the cause. Good luck finding witnesses to bring to Court when your tenant turns out to have gang connections and is threatening all the neighbours.
And when your tenant finally leaves expect to find a huge host of problems (plus weeks of no rent). Let's just say that last time for me, the toilet was left in such a terrible state that the only way it could cleaned was literally with a screw driver (use your imagine here). And the tenant didn't even understand it was a problem!!!
Unless your tenant is absolutely flawless (there are ALWAYS risks), picking your tenant is liked being forced to pick the latest dog coin on pancake swap, and to go all in with 500% leverage, locked in for 3-4 years, with a funding cost of 1-2% per year.
And did you hate the 1 year crypto "bear market" - well property can (and has) bear markets that can last a decade - or in the case of Japan, literally decades.
And finally crypto may be encountering regulatory headwinds, but it is no different with property - whether its new tax rules, tenancy issues, rent controls or banking requirements (and yes over here rent controls are now being threatened). At least in New Zealand, property investors are the new punching bag, with every property in the market blamed on investors (previously it was literally blamed on Chinese investors - but since they were blocked from buying, strangely it has done nothing to stop prices surging). And for property the rules are only going worse - look at Germany for example, where they introduced rent controls RETROSPECTIVELY and literally let tenants sue landlords for the difference.
So I think for non-investors, there is an myth that property investments are "Safe as houses" while crypto is an insane gamble. From my perspective this is far from the truth.
The only good thing that both have in common is they are both scarce (to an extent) and both benefit from insane QE and money printing.
End rant!!
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