How to compare investing in real estate to fixed annuities

Question

I began investing in rental properties about  5 years ago.  My 403B investments (variable annuities) are not doing anything special.  I attended a seminar on fixed index annuities recently and would like to hear input on: 1) investing more money in rentals vs. my 403B  2) putting my money in a fixed index annuity vs. variable or 3) investing more money vs. fixed index annuity

Adam Christopher Zaleski · Answer

Real estate is local and you have a better chance of creating a competitive edge by having insider knowledge of the neighborhood, city or community.

The real estate returns increase when you increase leverage. Try to figure out your comfortable level with leverage. If you want to pay all cash for rentals and have 0% leverage, the real estate returns are going to be low and you still have more work than stocks.

Ali Boone · Answer

Well, I can't speak to annuities specifically, but in general if you are weighing rental properties versus things like annuities or stocks or whatever, it's helpful to understand where/how/why rental properties can surpass non-RE options in income streams.

Check this out-

https://www.biggerpockets.com/renewsblog/2016/02/0...

So if you know the true benefits of rental properties, then you can better compare you options. <---- Pun. Ha.

Paul Caputo · Answer

Put your money where it works best for you. But also be smart and keep some money where it's safe and some where you'll get better returns with a higher risk. That's not just real estate that's all investing.

If you're at a seminar, the person running the seminar is selling you on whatever it is. I'm not saying such seminars are bad, many are great but that's the reality. My firm does CPE Seminars and while they're educational and provide CPE credits they always produce business even though that's not the primary goal. A seminar on fixed index annuities may have the primary goal of selling you fixed index annuities. Look at the motivation of who is presenting the information.

Depreciation is quite interesting @Ryan Taylor, it's one of the greatest untapped resources for all commercial and rental property owners.

Ryan Taylor · Answer

Hi @Ray Miller You say you're 403B investments aren't doing anything special. What ARE they doing? Can you quantify how much return you're getting for these investments? I think that would be a good place to start. Next, how are you rental properties doing? Can you quantify this as well? Since you're asking this question, it seems to me that maybe neither one is out performing the other. Is that true?

I have been wondering the same thing in the last few months. I've got a 401k i've been feeding as well as a mutual fund I've had for about 12 years now. I feel that these are good and safe investments, but they're definitely geared for the long term. I personally don't want to wait until I reach retirement to reap the benefits of these investments. What are you goals for your investments? Nearer term or longer term? Good question to ask yourself.

If you're looking for nearer term gains with the added bonus of monthly cash flow, real estate has a number of ways to make these things happen. You're in the right place to learn about these methods as well!

Two interesting things, and here are many others, that have stood out to me are:

1. Depreciation on rental properties and the tax benefits (https://www.youtube.com/watch?v=SvE98I8EcGY&t=1096...)

2. Having tenants pay down the mortgage puts money in your pocket. In my calculations, mortgage pay down puts 12% or more in my pocket each year. My 401k definitely isn't doing that. My 401k also can't compete on the 10% Cash on Cash return I make each year.

I think it comes down to your comfort level. Watching BP podcasts, reading, playing with the BP rental calculator are all ways I've expanded my comfort zone when it comes to real estate. The more I learn, the more comfortable and possible it seems to keep moving forward with real estate investing.

Ryan