Commercial real estate has always been a favoured asset class for investors who are in search of steady, long-term returns with substantial capital appreciation. In many cases, properties produce a consistent stream of rental income while offering potential value increases, especially in areas with strong demand. This characteristic can be especially alluring for high-net-worth individuals and institutional investors, as these types of properties commonly have a high price floor. The factors that drive capital value (and return on investment) in this space range from location, asset type, and market demand to broader economic conditions.
In contrast, cryptocurrencies have emerged as a disruptive force in the global financial system, attracting investors with the potential to earn extraordinary returns. Cryptocurrencies like Bitcoin and Ethereum have provided early investors with exponential profits in a relatively short period due to the assets' volatility and speculative nature of the marketplace. The ability to purchase, sell and trade cryptocurrencies is now decentralised and can occur 24/7, allowing for liquidity that many commercial real estate investors often do not experience.
Nonetheless, the question now arises is that: how does crypto compare with commercial real estate for long-term investment viability and risk? Cryptocurrencies potentially allow for quick wealth accumulation but are often accompanied by risk, regulatory uncertainty, and currency fluctuations. Commercial real estate has a history of stability but has a greater financial commitment as well as economic cycles. Investors will need to evaluate these circumstances against their financial goals, risk tolerance, and investment timeline to determine which they feel is best for them.
Benefits of Commercial Real Estate Investment
Commercial real estate is often considered a valuable addition to an investment portfolio due to several key features:
Investing in commercial real estate requires a large capital investment.
Investors may finance a portion of their purchase with a loan.
This sector encompasses a wide range of asset types, including office buildings Grade-A and others, industrial and logistics, retail and shops.
There is a range of opinions among professionals of an annual return rate of 8-12%, which will make it an attractive investment.
Investors can receive rental yields that can be attractive, as well as capital appreciation.
If a prime location property is selected and a balance is found between upgrades and repairs, there is a potential for a property to appreciate 2-3 times its value over 10-20 years.
Once a break-even point is reached, I enable investors to earn rental income for a lifetime without a sales transaction.
Commercial real estate also receives tax benefits, such as a standard deduction of 30% and interest deduction - when borrowed.
If the property is utilised for a personal business, maintenance and repair costs can be offset, adding further financial advantages.
Compared to other investment options, commercial real estate is known for its stability and low-risk factors, resulting in tangible assets for investors.
Rental agreements often include escalation clauses, which help mitigate the impact of inflation on rental income.
The primary risks involve selecting the right property that will attract quality tenants and managing potential vacancy periods.
Understanding these features can help investors make informed decisions in the commercial real estate market.
Cryptocurrency: Should You Take a Shot?
In the last decade, cryptocurrency has developed into a formidable investment category, providing the potential for tremendous returns for numerous investors.
For example, GALA—a cryptocurrency that runs on Ethereum—has exceeded a 32,000% return, whilst Axie Infinity (AXS) provided a return of 18,000%; Terra (LUNA) also delivered an approximately 16,000 % return. Furthermore, other significant cryptocurrencies such as Cardano and Polygon delivered return rates conservatively ranging from 4,000%-15,000%.
Reports state approximately 20 million investors in India entered the cryptocurrency market last year alone. The prices of cryptocurrencies peaked in April 2021, inviting many small investors into the cryptocurrency market. The market capitalisation for cryptocurrencies in the industry reached $1 trillion in February 2021 and later surpassed $3 trillion in November.
For instance, if an investor invested approximately Rs 10,000 to Rs 15,000 into Bitcoin or Ethereum at the start of 2020, there could now be the potential for these investments to grow to approximately Rs 25,000 to Rs 50,000. To further illustrate this investment opportunity, Bitcoin has produced a return of approximately 62.77% since January 1, 2020, Ethereum has produced a return of approximately 398.34%, and Binance has produced an astounding approximate return of 1,281.74%.
However, investors should keep in mind several key factors to take into consideration when it comes to investing in cryptocurrency:
While the potential upside of crypto investments can be significant, they are very volatile and can change dramatically in value.
Given the volatility, it potentially wouldn’t be prudent to invest large amounts of capital in cryptocurrency.
Many new investors are advised to begin by investing a few thousand rupees - for example, Rs 5,000 or Rs 10,000, to gain experience in the cryptocurrency investment class while ensuring adequate diversification.
Cryptocurrency is relatively unregulated around the world, which raises some legitimacy questions and how the government views the investment class, as well as general governance, and safety concerns.
Therefore, investors are advised to invest slowly and cautiously and conduct appropriate research in evaluating risks for this asset class.
Bottom Line
Investment in commercial real estate is a relatively safer, stable option for generating attractive returns adjusted for inflation. Individuals investing in commercial real estate can realise beneficial returns by capital appreciation and steady income from rents, making it a favoured investment for a reliable form of financial return.
Investing in commercial real estate as an investment vehicle is usually less impacted by extreme volatility than many other forms of investment. This rationale provides investors with a sense of comfort.
Alternatively, investing in cryptocurrency can be difficult and presents a risky environment. Although investing a small amount of capital can be done if someone has an interest in trying to participate in an opportunity, it can be dangerous to invest a considerable amount of capital.
The cryptocurrency marketplace is largely unregulated, and much of the governance and oversight by government and financial regulators is not clear. Given these facts, investors need to assess the risks before engaging in the measurement of digital opportunities compared to commercial real estate investments.
Contact RES Management if you want to invest in commercial real estate, and get a high yielding return on investment to secure your future.
