Episode Transcript
[00:00:00] Hello and welcome to the Annuity Straight Talk podcast, episode number 228. My name is Bryan Anderson, founder and creator of AnnuityStraightTalk.com Got a bit of an alternative episode for you guys today, something several people run into. I don't run into it a whole lot, but you might be seeing what I've been seeing. And then there are a few case studies in the past where this has been part of an analysis.
[00:00:25] Please, like subscribe or comment on any of your favorite podcast platforms or on YouTube. Share it with your friends and let me know what you think.
[00:00:35] If you want to schedule a call with me. It's the top right corner of any page on annuitystraighttalk.com that says schedule a call. So annuities versus real estate for episode 228 over the past few months I've been seeing a lot of ads that suggest people surrender annuities and buy into commercial real estate fund. The ads promise 12% or more cash flow and even suggest that these guys guys will pay your surrender charges to get out of the annuity. Ah, those things are just garbage. Go with the higher payment. I'll pay the charges and take care of it. So I'm putting this on the radar now because options like this tend to be cyclical and may work out for a while. There are serious risks involved no matter what they say. Comparing commercial real estate to annuities is the old cliche of apples and oranges, and annuities are guaranteed and real estate might have high yields at times, but that cycle can lead to stagnation that lasts for years. It depends on a lot of factors. I'm not going to take one side or the other, but like anything else, try to approach it objectively. I know people love real estate. It's an incredible investment. I understand that. It's just not the same thing and not what we're talking about. There are strong opinions for or against real estate, mostly based on personal experience and preference, location and all that stuff. It's not necessarily a retirement option for a lot of people, although it's used by a lot of people for retirement because a real estate portfolio is something that's built over time and can provide steady cash flow with capital appreciation. It's not common for someone to get to retirement and become a serious real estate investor. It's usually something that has been built well before that. Also, real estate is one of incredible inflation hedge. If you're talking about rental properties, the rents do correlate to rise with inflation. There are no Direct comparisons to annuities, they're just two totally different assets. My stance is that there's no way to say which one is better in specific cases. One is clearly better than the other, but it's just not something that I can state and nobody else can state it definitively. With real estate, timing and locations make all of the difference in the world. Now, one of my closest buddies, great guy, really successful, a lot of respect for him. We have a lot of fun and hang out and do some cool things together. He started his career in real estate at about the same time I started in this business. He's done very well.
[00:02:47] He sold real estate, owns several investment properties, rental real estate. You will never be able to convince him, and I wouldn't try, that real estate isn't the best thing in the world. He is suited to long, patient game and set up his business in a prime market at just the right time. So good for him. I'm happy for him because you know, I like him, I want him to do well. We talked about it a few years ago and he strongly believes in, you know, he asked questions about my business, he said, well yeah, annuities are good and I understand what you're doing, but why wouldn't people just buy real estate? It's not the same as what he's done. To build 25 years of a portfolio is not the same as someone getting to retirement with a 401k and saying how do I get some guaranteed income, right? Not to knock his philosophy, but it worked out well. And I reminded him that his career lines up really well with a 25 or 30 year bull market in Montana real estate. And not every city or region in the country has presented the same opportunity. Most people don't like the idea of investing in a tangible asset that resides out of their home state in another state, let alone on the other side of the country or where ever you have to go to chase a hot real estate market. Not saying it's a bad investment I see and have had the opportunity to compare it to annuities. When people who have owned say a rental property or a second home for quite a while, they don't want to keep up with it anymore.
[00:04:09] Property management, ongoing maintenance, property taxes, new roofs, new siding, new bathrooms, get it updated. They add cost and decrease cash flow. If you don't have years or decades of appreciation and paid down loans, it can take a large chunk out of your cash flow. And so again, starting from scratch in retirement, not the best thing. In some cases the value gets really high rent doesn't match the values outstrip the rent is one way I've heard it and happen in hot markets like California and Florida. Some places in Texas, Arizona, certainly in Montana. There's one couple a handful of years ago I met sold a home in Florida. They took less than half the money after paying taxes.
[00:04:51] Less than half the money generated an income stream and an annuity that matched what they were getting in rent.
[00:04:57] So the other 60% or so what they netted from the sale could be reinvested elsewhere for legacy planning changes, whatever they wanted. So two perfect situation where the two assets, the annuity plus the other investments would combine to do what rental property might do on their own. But they didn't have the headache of maintaining a property, which for some people means property management. That could take 10 or 15% and all those things. They got the same thing. It was a whole lot easier. And they didn't have to worry about a property or a flood or backed up toilets or a bad washing machine, whatever it is. I'm dealing with a similar case in Montana right now. I met a guy a couple years ago, it was interesting. I met him because he listens to the podcast. Found out he's in my same town, which is awesome. It's cool to meet people like that. And he's got a rental property locally after he deducts the HOA fees, property taxes. The income was low in relation to the property value. Now he's getting close to retirement and I think he wants to travel a little bit. Doesn't want to deal with that again, it's a single unit different if you have multiple units and you get a break on the property management, all that stuff or if you do it yourself. He didn't want to deal with it anymore. Real estate in Montana is incredibly expensive. He can sell pay capital gains taxes. Even if he just puts the money into a myga, it's going to pay guaranteed interest and it will almost double the monthly net that he was getting after paying the HOA fees and all that stuff, just the interest. So he won't. The principal will stay intact if he takes less and the principal will accumulate and grow. No mess, no stress income with legacy, whatever else he wants to do with the money. Okay, now this doesn't mean I'm going to tell everyone to sell their rental properties and buy an annuity. It may not work out the same way. So cases like this are unique. They do come up and not everyone will be in the same position. Often it's the taxes that you got to pay on the sale that discourage people from doing it. That'll bring the net proceeds down to a level. And I do have talked to a lot of people. I'd like to sell it but I'm kind of stuck. They depreciated the asset over a while, capital gains maybe on the whole value and all that stuff. So yeah, that's one of those reasons why it's not a hot topic for this market because rarely does it match up where an annuity is a good way to look at an alternative. But it does happen, just not that often. So I cannot say which one is better. It depends on location and personal preference. Now this group of guys from Dallas who are telling people to surrender annuities and buy into commercial real estate and I love it because their ads, it's got some very healthy guy sitting there, old cowboy. If you're in an annuity, let me talk to you. I will pay your surrender fees. Got a cowboy hat on. We'll take care of that. Get you 12% income guaranteed.
[00:07:40] Then we'll take you back to the chuck wagon for some breakfast. Whatever he's going to say, real down home, no nonsense Persona that he has. Sounds to me like he's making a lot of money. He's going to pay surrender fees and give you 12% income. I don't know if he said guaranteed, but 12% cash flow. Oh, they're just doing. It's a piece of cake. So I want to put it on the radar if it ever pops up that something goes haywire in that they've been advertising nationwide, probably got a lot of people come to do it. The lawsuits one day will be interesting. I don't think I'm speculating to say that's possible.
[00:08:12] But he got some of his money back, was glad to offload it. So his experience is way different. My friend in Montana who built a really nice portfolio over years, maybe commercial real estate's good in Dallas right now. The boom will cool down one day. Is it something you want to bet your retirement on? Again, getting into it's different. I'm not going to say that it's not a good idea for a portion of your assets. But even in the advisors I know that sell REITs and things like that, the investment companies who handle suitability to review your portfolio before they say it's a suitable investment for you are typically limiting people to maybe 10 to 15% of their net worth in something like that. An interest bearing asset with some risk on the property backing it, it could be like a little bit of diversity diversification. But it is not the backbone of a retirement plan. There is good and bad with every option available, no matter what you do, and you have to understand and take an objective approach to that. Rarely can you offer the two as a comparison. And when it does happen, it's easy to run the numbers. It's very simple and very objective. You don't have to worry about a sales pitch when you look at things analytically, because that's what again, of all the assets that are available, each one of them's got a sales pitch attached to it, and you just need to learn how to wade through it and figure things out. So if you need that type of objective analysis with annuities, real estate or anything else, get on my calendar. We can talk about it. That's the top right corner of annuitystraighttalk.com this is been episode number 228 and we're talking about real estate and annuities. Like subscribe or comment on any of your favorite podcast platforms are on YouTube. I'd love to speak with you have any questions about this or anything else. So get on my calendar and I look forward to seeing you guys next week for episode number 229. All right, thank you so much for joining me and have a great day. Bye.
