Real estate has been producing more wealth than any other industry from many years now. In fact, the NAR 2017 Member Profile revealed that the median gross income of REALTORS was $42,500 in 2016. It is indicated that the gross income is 25 percent higher than the median annual wage for all workers. The reports also point out the correlation between income and the number of hours worked. According to the report, those who typically worked less than 20 hours per week had a median gross income which was less than $10,000 a year. On the other hand, those who worked for 60 hours or more per week earned the median gross income of $100,000 or more per annum.
Besides the work hours, it is the diversification and investment in real estate that can definitely lead to increased income and wealth creation.
The Purpose of Diversification
Traditional wisdom advice, “Don’t put all your eggs in one basket.” Accordingly investing in one asset class can damage your financial well-being.
One of the major objectives of diversification is to reduce risk. It is difficult to accurately predict how an asset class will behave or generate returns in the future. Also, diversification ensures that the loss in one category is offset by high returns in the other, thereby reducing the overall risk of investment. Further, by adding real estate to a portfolio, you can maintain your returns while decreasing risk.
Real estate is a tangible asset and an investor can do things to a property to increase its value or improve its performance. For instance, improving the exterior, re-tenanting the building with higher quality tenants or replacing a leaky roof can enhance the aesthetics and value of the property. This provides the investor with a greater degree of control over the performance of real estate investment than other types of investments.
How Can Investments in Real Estate Lead to Increased Income and Wealth Creation?
- Cash flow: Many people invest in rental properties because of the cash flow. Cash flow can definitely provide an ongoing and monthly income that allows the owners to build a business, travel or reinvest in the more real estate. Cash flow from real estate is stable and far more predictable than most other businesses. Further, cash flow easily helps you float through your bad days and live well during the good times.
- Tax benefits: Tax exemption is one of the benefits of investing in the real estate. For instance, rental income is not subject to self-employment tax. Furthermore, the government offers tax breaks for property depreciation, maintenance repairs, legal fees, insurance, travel expenses, and property taxes. In fact, the investors are also entitled to lower tax rates for their long-term investments.
- Real estate appreciation: Appreciation of capital assets over time is one of the major benefits of investing in real estate. Precisely, the value of the property will be worth way more 20 decades from now. This has encouraged many investors to invest in real estate for long-run benefits.
As a long-term investor in real estate properties, it is about understanding the rules that will keep you away from losing your money. Follow the rules and increase your income to generate long-term success.