Most people dream of greater financial freedom, personal freedom, and a future full of opportunity, and there are a few paths to realizing those visions. Real estate investing, for example, opens up a world of opportunity for increasing income and creating those exact freedoms. There are a few ways to get your foot into the door in the world of real estate investment, and this article outlines some of the ways that real estate investing can be a path toward taking more control of your life. Then, it outlines some of the key principles to keep in mind as you begin that process.
#1 Be Your Own Boss
Being your own boss means you work for yourself and not an employer. No longer will you work primarily to make someone else wealthy — it means you won’t be handing over your time, work, and hard-earned revenue to another individual or company; instead, you will reap the full financial benefits from all you do. In addition to the financial benefit, being your own boss gives you the independence and freedom to focus on the aspects of life that you want to pour your energy into. You will work as much or as little as you need, make the decisions for your company/portfolio, and you manage the outcome. If you are interested in pursuing a higher return via more risk, then you are the sole decision maker in that process. Lastly, being your own boss carries a unique sense of accomplishment, ownership, and pride in the progress you make. For example, if you acquire a low performing asset and turn it around, you can proudly state that your hard work paid off.
#2 Control Future Income
Most Americans live according to the income on their W2 – that is, their employer offers them a sum of money each year in return for them performing their job. Earning an increase in income depends on various factors, some of which the employee can’t control: Individual performance, the company’s process in giving raises, and the company’s overall performance. However, when you work for yourself, your work controls your future income. The harder you work, and the more strategically you work, the more you are able to provide yourself an avenue to increase your future potential income without relying on the decision of others or the performance of others. It is all dependent on your motivation to succeed.
#3 Grow with Appreciation
As a result of appreciation, your wealth is typically always growing. Real estate appreciation https://www.mashvisor.com/blog/how-to-calculate-real-estate-appreciation/ refers to the concept that the value of an investment property increases with time. There are two different types of appreciation to consider. First is that appreciation that comes naturally with time. Second is the kind of appreciation that comes with renovations and increasing rent, to name a few. This means that over time, with the right investment, your money will continue to increase as long as you are investing in an operating investment property. It is important, though, to invest in an established or growing location to ensure that your asset follows this trend. Those assets in declining markets could suffer in the long run — losing value rather than building it.
#4 The Tax Benefits
When you work at a salary or hourly job, the taxes you pay are pretty straight forward depending on the tax bracket that you fall into. For example, if your annual income is $50,000, you will be paying 22% federal taxes plus the state taxes according to your place of residence. There is no flexibility in the amount that you pay. However, when your income is being produced by your investment properties, you can utilize the IRS codes to improve your position. https://www.fool.com/millionacres/taxes/real-estate-tax-deductions/top-5-tax-advantages-real-estate-investing/ Here are the main details in tax law to be aware of:
You can deduct certain expenses related to your property; this allows you to invest in your real estate and reduce the taxes you pay according to the amount that you invest.
You can depreciate the cost of the physical property. The IRS takes into consideration that real estate, as a tangible asset, loses value over time due to wear and tear; therefore, you can document depreciation of your property over time and deduct the property’s anticipated losses.
According to the Tax Cuts and Jobs Act of 2017, you can pass up to 20% of taxable income using a pass-through deduction.
When you sell a property, you will pay capital gains taxes instead of income taxes, which are generally lower.
You can invest tax-deferred or tax-free via strategic methods such as 1031 exchange, opportunity zones, and specific retirement accounts.
Although you may have experience and expertise in one investment strategy or market, there is no certainty for the future. Unexpected economic shifts, pandemics, and other events can drastically alter the path of an investment strategy. Therefore, to avoid massive losses and position yourself well in a constantly changing world, it is smart to diversify. In real estate, this can come in numerous ways – different markets, asset classes, and funds. The benefits of diversification https://www.investingsimple.com/7-ways-to-diversify-your-real-estate-investments/ are that it minimizes risk, preserves capital, and helps generate consistent returns.
Preparing for Your Future
There are various ways to get started in real estate investing. You can acquire a property on your own, invest in a syndication or REIT, or get some friends and family together to buy and manage an asset. It all depends on the position you are currently in, as well as the resources you have at your disposal. The sooner you make your first foray into real estate investment, the sooner you will enjoy the increased freedom that comes with growing your income and becoming your own boss. It is never too late to take concrete steps toward making those visions a reality.
Read more about how to invest for your future here – Real Estate Investing as a Retirement Plan.