Buying A House Vs Investing In The Stock Market

TL;DR:

• Investing in real estate and the stock market are both passive income sources
• Investing in the stock market can potentially yield better returns over time
• Both come with its own set of risks that all investors should consider

Unpopular opinion: Investing in the stock market is better than investing in real estate over the long term. Put simply, an investment in real estate earns just three to four percent per year historically; on the contrary, investments in the stock market post about 10 percent annual returns. That can amount to an impressive return on investment (ROI).

And, when you invest with Q.ai’s artificial intelligence-powered technology, you’re well-poised to maximize your returns and minimize your risks.

So, would you invest in a house or a stock? Why? Let’s unpack the answers to some of the most frequently asked questions about buying a house vs. investing in the stock market.

Download Q.ai for iOS for more investing content and access to over a dozen AI-powered investment strategies. Start with just $100 and never pay fees or commissions.

What are the best ways to earn passive income?

There are a wealth of ways to earn a passive income, including both investing in real estate property and investing in the stock market, whether you choose to put your money in stocks, exchange-traded funds (ETFs), bonds, or other assets.

Investing in both real estate and the stock market can help your money make more money over time. If you’re asking yourself questions like, “is it better to invest in real estate or an index fund,” or “is it better to invest in rental properties or dividend stocks,” the answer is a nuanced one.

First, you should seek to identify what is the best way to make a passive income in real estate. One of the most lucrative ways to make money in real estate is by buying up rental properties and, well, renting them out to others who foot the bills for you. When you rent them, the tenants essentially help to pay off your mortgage and, ideally, you can earn a passive income on top of that. 

For example, if your mortgage is $1,000 per month, you might charge $1,500 for rent per month. This means that you can pay off your monthly mortgage bill and pocket the extra $500. While much of that money may go to covering utilities (if you don’t charge extra for those) and handling any repairs, the goal is to profit at least a little to put money away each month.

Plus, as your home hopefully appreciates in value over time (thanks to a whole host of factors from home repairs to possible gentrification of the neighborhood), you’ll be able to sell the property for even more down the line—if you indeed choose to sell it eventually. Many people choose to buy property, hold it and then sell it again when the market ticks up—even without ever renting it.

But owning rental properties does require some level of legwork—so it’s not totally passive. For example, you still have to hunt for properties, address repairs and renovations, hire property managers, screen tenants, field tenant questions and concerns, and more. 

When you invest in the stock market with index funds, dividend stocks, ETFs, bonds, and other assets, however, you can be more hands off with a lot less upfront costs. (This is especially true when you invest with technology like Q.ai, which automatically allocates your funds for you. All you have to do is select your investment strategy and sit back while artificial intelligence crunches the numbers.)

Plus, you can also choose to invest in real estate by investing in real estate trusts and securities. For example, a real estate investment trust (REIT) is a corporation or trust that uses investor funds to buy, rent and sell properties, and 90 percent of the profits are paid out to shareholders as dividends. Real estate mutual funds and real estate ETFs typically invest in REITs to provide broad market diversification. 

Other securities like real estate investment groups (REIGs) and real estate limited partnerships (RELPs) are options, as well.

Should I invest $500,000 in real estate or stocks?

If you have $500,000 to invest, you’re already in a good position. On average, the typical 20-something-year-old has just $10,711 invested, according to wealth-management platform, Personal Capital (via Business Insider). Meanwhile, the average 60-something-year-old user has over $210,900 invested. Still, that’s well below $500,000.

In fact, only 14 percent of American families are directly invested in stocks, according to the Pew Research Center. That said, just over half (52 percent) do have some sort of investments in the stock market, most of which are retirement accounts like 401(k)s.

With half a million dollars, you have more potential for serious returns, but investing in anything—investment properties and the stock market alike—also comes with bigger risks.

Because real estate sees annual returns of about three to four percent, you can get quite the bang for your buck. However, given the S&P 500’s average 10 percent annual return, dropping a cool $500,000 in an investment account can ultimately skyrocket well into the millions by the time you reach retirement, even if you never add another penny.

Real estate properties are often identified as either good investments or bad ones based on a gamut of factors like rent prices, property taxes, neighborhood vibes, the local job market, school accessibility, future development plans or lack thereof, natural disasters like flood zones, and more. But putting your money in ETFs and mutual funds can help you to diversify your portfolio to mitigate the risks involved. 

You might also be asking yourself, can I get a loan to buy real estate? And, yes, you may be eligible to apply for loans to cover the cost of your mortgage. But you will need to pay off your home loans over time—and interest can add up as you do.

Sure, some lenders will allow you to use personal loans for purchasing stocks—and people do it—though it’s not as common as using loans to put down on homes and other real estate properties. That’s largely because the down payment you need for a property tends to be a lot more than what you need to get started investing—which can be as little as a few dollars, compared to an average of 12 percent, according to the National Association of Realtors.

While you may be able to easily cover the cost of your down payment with half a million dollars, it might be a safer decision to spread that money around in a diversified portfolio.

Should I buy a house or invest in stocks?

It’s ultimately up to you to decide. But here is the bottom line:

• Buying a house requires work and upfront costs when it comes to house hunting, screening tenants, and hiring property managers. Being a property owner is also work in and of itself, as you must take care of repairs and renovations and handle tenant questions and concerns.
• Buying stocks and other assets—intangible assets, unlike real estate property—require far less work when you leverage the power of AI through technology like Q.ai. It’s one-click investing, and you can even consider real estate-focused securities.
• It’s a lot more difficult to diversify with physical real estate properties than it is to diversify in the stock market, in general. And a well-diversified portfolio tends to perform a lot better over time than one that’s pigeon-holed in one sector or type of asset.

Worried about buying and selling your stocks at the right times? Q.ai uses AI to automatically adjust your portfolio when the market moves up or down, so you don’t have to actively manage your investments.

Plus, Q.ai offers a Downside Protection feature on some investment strategies called Signature Kits. This feature works to identify risks like market volatility, recession, inflation, and changes in interest rates. And, as it does, it moves your money around to protect it. So you don’t have to spend your time thinking about those things while you should be thinking about your personal investment goals.

Download Q.ai for iOS for more investing content and access to over a dozen AI-powered investment strategies. Start with just $100 and never pay fees or commissions.