NFTs Versus Real Estate Investing
NFTs appear to be the latest fad in investing. So, how do they stack against real estate for investors?
If you’ve heard your kids chatting about NFTs, but haven’t explored them yourself yet, it stands for Non-Fungible Token. These are forms of digital art that people can buy and invest in.
Almost anything can be a NFT today. From digital movie tickets, to collectible pictures, to in game purchases.
Some of these have sold for tens and even hundreds of thousands of dollars. Like the cryptocurrencies which are often used to buy them, they may go up and down in value. But, how do they stack up against proven investments like real estate?
Buyer Pool
One of the strengths of real estate is that there is a huge resale market for it. At the right price point the potential resale market for a wholesale property, house flip or rental apartment may be tens of millions or even of a billion customers. That creates liquidity and value.
Not many people are in NFTs yet. Meaning that there aren’t many people to sell your virtual Logan Paul playing card, virtual home in a game, or old movie tickets to.
Need
Real estate is a need. A forever need. People will always need shelter. It is even more urgent than food and water. This will never change. Even in a recession people need shelter.
When things get tight, there may be little need or desire for digital art.
Hard Assets
Even physical artworks used to be valuable because they were rare and tangible. Going digital changes these dynamics.
The problem with public stocks, crypto and other virtual assets is that they can go to zero and leave you with nothing.
Even in the worst case scenario in real estate. You still have the hard asset. You can still get cash flow from it. It’s value will eventually exceed its previous high.
Cash Flow
It may be possible to get cash flow from NFTs. Perhaps there is someone willing to pay to rent your virtual playground online, or to pay for a viewing of your favorite athlete's photo.
However, we do know that people will for sure pay for rent on real homes and other property. Being able to generate that consistent cash flow is a critical financial difference.
Leverage
You may be able to borrow against your bitcoin or use a credit card to leverage your NFT purchases. Though, the market for financial leverage in real estate is clearly far larger, more liquid, and can provide even the average new investor access to millions of dollars in financial leverage to scale quickly.
Summary
NFTs may be fun and interesting. They may even be a gateway for getting your kids interested in investing and to teach them some valuable financial lessons.
They may not be the safest or most profitable investments by any means, but if you are tempted, then it doesn’t hurt to throw $10 or $100 of play money at them that you make from investing in real real estate.
