Investing in bitcoin or real estate?

Is it better to rent or own your property? There is no picture from the point of view of those who invest in bitcoin.

Buy or rent?

It seems logical that buying real estate is ultimately more interesting than renting. An investment against a dead loss. There is no photo at first glance.

However, in reality everything depends on the rate of return on savings. But before getting to this strong argument, let's review the obvious parameters that underlie the return on a real estate investment: price and rates.

Historically, real estate prices rise more or less quickly. In France, prices have almost tripled over the last quarter of a century (from 1995 to 2020) who was particularly prolific for stone. This corresponds to an average annual increase of close to 4%.

However, buying your property shortly before the 2008 subprime crisis turned out to be a bad deal. According to the US Home Price Index Case Shillerwe had to wait until 2017 for prices to return to their historic highs.

We even had to wait until 2021 if we speak in terms of “real” real estate prices (adjusted for inflation).

Olivier Berruyer did the math in this superb video presenting a very sophisticated simulation tool taking everything into account (notary fees, agency fees, property tax, rental taxes, insurance, annual works, etc.).

It appears that we must wait 10 years for buying to become more profitable than renting if we assume that real estate prices rise by 3% per year, that the loan is over 25 years and that the remuneration of the The savings is 3%.

In other words, selling your home before this 10-year period means losing money compared to the situation where you would have remained a tenant during this period (reimbursement penalties, agency fees, etc.).

The wait increases to more than 25 years if property prices fall by 3% per year during the first five years before appreciating again at a rate of 3% per year.

Clearly, it is only from the age of 25 that the owner's assets begin to slowly surpass those of the tenant.

The borrowing rate

Another very important parameter is the borrowing rate. The previous example took into account a borrowing rate of 3.50% with insurance at 0.25%.

This rate is crucial to assess the profitability of an investment. Here is the yawning difference between rates of 1%, 2% and 6% for a loan of 250,000 euros over 25 years:

-1%: The loan costs 33,000 euros in interest
-2%: The loan costs 68,000 euros
-6%: The loan costs 233,000 euros!

Will we see 2% rates again soon? probably not. The governor of the Bank of France, François Villeroy de Galhau, declared at the start of the year that “the ECB will not cut rates as low as between 2015 and 2022 (0%)”.

“Our key rate could average around 2% over the entire next cycle”he confided during the World Economic Forum.

In other words, if the ECB's key rate is reduced to 2%, borrowing rates over 20 years will be close to 4%. Today they are around 5.5%.

This means that borrowing capacity will be significantly lower than what has been experienced over the past 15 years. The real estate euphoria of recent years will therefore end.

Borrowing capacity has also been severely reduced by the recent rise in energy and food prices. The Wall Street Journal calculated that food prices have jumped 40% in four years in the United States. This is so much money that can no longer be used to finance a home loan.

And by the way, let's not forget that peak oil is fast approaching and half of the trucks are transporting food.

Bitcoin, the strong argument

The most important parameter for comparing profitability between buying or renting is the remuneration of savings.

Still thanks to Olivier Berruyer's simulator, it appears that it will always be more profitable to rent rather than buy if the savings are remunerated at more than 5%.

The reason being that for equal accommodation, rent costs significantly less each month than a monthly loan repayment. The difference can therefore be invested and earn money.

Obviously, it is difficult to find a guaranteed return of 5%. This doesn't work with Livret A. You have to go through a large investment fund like Amundi to get there.

Or better yet, invest in bitcoin… The annualized return of bitcoin is 64% over five years and 67% over ten years.

Here are his annual performance since 2015:

2015: + 35%
2016: + 125%
2017: + 1331%
2018: – 73%
2019: + 95%
2020: + 301%
2021: + 66%
2022: – 65%
2023: +156%
2024: +70%

All this to say that we are well above a 5% remuneration rate… Billionaire Michael Saylor expects an annual return of 40% for the next decade.

Those who invest in bitcoin therefore have no interest in investing in the stone.

Finally, remember that gravity and wear are unforgiving. The value of real estate suddenly collapses after a certain time. Unless you invest in permanent renovation expenses. And even so, we shouldn't expect a miracle after a century.

Bitcoin will have no trouble surviving over the centuries.