Annuities vs Real Estate

Lately I’ve been seeing some ads online suggesting people surrender annuities and buy into commercial real estate funds.  The ads promise 12% or more cash flow and even suggest they will pay surrender charges for people to go for the higher payment.  I’m putting this on the radar now because options like this tend to be cyclical and may work out for a while but there are serious risks involved.  Comparing commercial real estate to annuities is like that old cliche, apples and oranges.  Annuities are guaranteed and real estate might have high yields at times but that can cycle into stagnation that lasts for years.  It depends on a lot of factors and I won’t take one side or the other but like anything else I’ll try to approach this objectively.

There are strong opinions for and against real estate, although it’s not necessarily a retirement option for a lot of people.  A real estate portfolio is something that is built over time and can provide steady income with capital appreciation but it’s not common for people to get into it at retirement.  There is no direct comparison with annuities because they are totally different assets.  My stance is that there is no way to say which is better.  In specific cases one is clearly better than the other but it’s just not something that I or anyone else can state definitively.  With real estate timing and locations make all the difference.

One of my close friends started his career in real estate around the same time I started in this business.  He has done incredibly well and owns several investment properties.  No one can convince him that real estate isn’t the best thing in the world and he is suited to the long game and set up his business in a prime market at just the right time.  We talked about it a few years ago and he strongly believes that it’s the best investment in the world.  For many it has been but others haven’t done as well.  I reminded him that his career lines up perfectly with a 25 year bull market in Montana real estate and that 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 in another state or even on the other side of the country.

I see comparisons to annuities when people who have owned a rental property or second home for a while and they don’t want to keep up with it anymore.  Property management and ongoing maintenance add costs 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.  In some cases the value gets really high and rent doesn’t match the growth.  It happened in hot markets like California and Florida.  One couple I met sold a home in Florida and used less than half the money to buy an annuity that would match the income received.  The other half could be set aside for growth and legacy.  In combination the two pools of money did the same thing as a rental might do but without the headache of maintaining a property.

There’s a similar case I’m dealing with in Montana right now.  I met a guy two years ago and he lives in the same town as me.  He is a regular listener of the podcast so it was pretty cool to meet him that way.  After deducting HOA fees and property taxes from a rental he had, the income was low in relation to the property value.  With him getting close to retirement he doesn’t want to deal with it anymore.  Real estate in Montana is so expensive that he can sell, pay capital gains taxes, and put the money in a MYGA that will pay interest of almost double the monthly income he had before.  No mess, no stress, and income with a legacy.  But 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.

Cases like this are unique and not everyone will be in the same position.  Often it’s the taxes that need to be paid on a real estate deal that don’t make it worthwhile.  That’s why I can’t say one way or the other which will be better.  It depends on location and personal preference.  Now there’s a group of guys from Dallas, TX who are telling people to surrender annuities and buy into a commercial real estate fund.  Some guy in a cowboy hat says that he will pay surrender charges for anyone that wants to get out.  It sounds to me like he’s making a lot of money if he can do that and my bet is that it will be at the investor’s expense one day.  They promise 12% cash flow and it sounds pretty good but nothing pays like that forever.  The lawsuits one day will be interesting and I don’t think I’m speculating much to say that.  One of my mentors in this business bought rentals in Dallas in the late 80s.  He was happy to get out at a loss about 20 years later, just to get some of his money back.

Maybe commercial real estate is good in Dallas right now but the boom will cool down one day.  Is it something you want to bet your retirement on?  I wouldn’t go so far as to say that it’s a bad idea to have something like that as an alternative investment, but it isn’t the backbone of a retirement plan.  There’s good and bad with every option available, with annuities and real estate being completely different options.  Rarely can you offer the two as a comparison and when it does happen it’s easy to run the numbers.  You don’t have to worry about a sales pitch when you look at things analytically.  If you need that type of objective analysis with annuities, real estate, or anything else, get on my calendar and we can talk about it.

Have a great weekend!

Bryan

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Last Updated on May 20, 2026 by Bryan Anderson