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Old 03-26-2009, 06:01 AM
 
1,627 posts, read 2,735,190 times
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I am deciding on buying a REO house in California and rent it out or place my money in a annuity making 3.5 percent?

PROS on Real Estate:

You can rent house out and after paying PT/INS, Maintenance, etc. your return will be 4 percent but you have the appreciation.

Annuity 3.5 perent annually.

What would you do?
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Old 03-26-2009, 08:52 AM
 
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smiling pretty wrote;
Quote:
You can rent house out and after paying PT/INS, Maintenance, etc. your return will be 4 percent but you have the appreciation.
I would like to see your analysis on that! You've left a lot of things out and I can tell you that 4% is a lousy return on SFH real estate.

Buying a bank REO is not going to be a DEAL. In fact it isn't going to be close to a DEAL. Bank REOs are, by definition, "on the market". You CANNOT MAKE MONEY in SFH investing by buying "at market". You have to buy "below market".

I wouldn't buy an annuity either. Anyone who tells you an annuity is a good investment is probably making a commission off of it.

golfgod
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Old 03-26-2009, 03:39 PM
 
Location: San Jose, CA
7,688 posts, read 25,676,365 times
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If you buy a quadplex or larger property you'll get a much better rate of return, especially in later years after it's paid off and you're essentially getting money every month just for paying your taxes and doing enough to make the building not fall down.

The nice thing about annuities is that they can be tax-deferred, so you get the leverage of investing with pre-tax dollars. They'll also be insured by the SIPC. It all depends on how much you want to put into your investing. With annuities, you don't have to do a lot of hard work, run the risk of foreclosure, or gamble on how much your investment will be worth in 30 years. But you pay the price for not taking those risks.
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Old 03-28-2009, 06:06 AM
 
Location: SE MO
231 posts, read 569,540 times
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Quote:
Originally Posted by sonarrat View Post
The nice thing about annuities is that they can be tax-deferred, so you get the leverage of investing with pre-tax dollars. They'll also be insured by the SIPC.
This is wrong. The gains on an annuity are tax deferred but the annuity is funded with post tax dollars. SIPC covers assets in brokerage accounts so only a variable annuity would be guaranteed by the SIPC. A fixed annuity is an insurance product, not a security and as such, not under the perview of the SEC or SIPC. A fixed annuity's only guarantee is based on the claims-paying ability of the issuing insurance company.

Golfgod had a good response in that you failed to consider a lot of stuff. In addition to Golfgod's things, what poped out at me was the tax issue. The deprecation will reduce your basis in the house thus increasing the capital gains tax. If the property increases a lot in value, you may have a serious tax bill when you sell. Or you will be forced into a 1031 exchange. See your CPA for a full explaination.

Quote:
I wouldn't buy an annuity either. Anyone who tells you an annuity is a good investment is probably making a commission off of it.
Golfgod. FYI. An fixed annuity with guaranteed rates can be purchased without fees, commissions or loads. A 3 year or 5 year annuity is compariable to a same term CD and may be a better investment. A variable annuity can also be purchased without fees or commission but no guaranteed rates.

A lot of people disagree with me, but in my opinion, rental properties make poor investments. You have the tax issues, tenant issues, maintenance issues, liquidity issues and etc. and etc. It is easy to become house rich and cash poor. If you want to own real estate, you may want to consider a REIT. REITs are currently dirt cheap and you have a choice of commerical properties, individual houses, shopping centers, condos, etc. REITs have high pay outs and the per share value will likely increase as the economy improves. All the gain without the pain.
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Old 03-28-2009, 08:47 AM
 
Location: San Jose, CA
7,688 posts, read 25,676,365 times
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Quote:
Originally Posted by dsnellen View Post
This is wrong. The gains on an annuity are tax deferred but the annuity is funded with post tax dollars. SIPC covers assets in brokerage accounts so only a variable annuity would be guaranteed by the SIPC. A fixed annuity is an insurance product, not a security and as such, not under the perview of the SEC or SIPC. A fixed annuity's only guarantee is based on the claims-paying ability of the issuing insurance company.
Qualified annuities can be bought with pre-tax dollars. They have to fund an IRA or other qualified plan though, and you're correct in that they're not the norm..
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Old 03-28-2009, 09:52 AM
 
Location: SE MO
231 posts, read 569,540 times
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Quote:
Originally Posted by sonarrat View Post
Qualified annuities can be bought with pre-tax dollars. They have to fund an IRA or other qualified plan though, and you're correct in that they're not the norm..
Qualified annuities are common in government run retirement plans but less so in civilian 401(k) plans. Generally they give the participant limited choices and provide no mutual fund choices.

Putting a qualified annuity inside an IRA makes no sense. This is putting a tax deferred annuity inside a tax deferred IRA. It gains nothing. This is a very common mistake. A lot of annuity salesmen use this approach to hide the high commisions they will earn by making the client believe they are actually getting double tax deferment. Not!

A person would want to put $5k (or $6k) in a Trad IRA each year in some investment that hopefully will gain more than the low guaranteed rate of an annuity. If there is still money to invest, you can put an unlimited amount into a tax deferred saving annuity or CD.
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Old 03-28-2009, 05:32 PM
 
Location: San Jose, CA
7,688 posts, read 25,676,365 times
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Quote:
Originally Posted by dsnellen View Post
Qualified annuities are common in government run retirement plans but less so in civilian 401(k) plans. Generally they give the participant limited choices and provide no mutual fund choices.

Putting a qualified annuity inside an IRA makes no sense. This is putting a tax deferred annuity inside a tax deferred IRA. It gains nothing. This is a very common mistake. A lot of annuity salesmen use this approach to hide the high commisions they will earn by making the client believe they are actually getting double tax deferment. Not!
Wait.. then why do qualified annuities exist at all? Aren't they completely redundant if they can only be invested in a qualified plan? Something doesn't add up here.
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Old 04-05-2009, 05:52 PM
 
Location: Vonore, TN
122 posts, read 362,282 times
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Quote:
Wait.. then why do qualified annuities exist at all? Aren't they completely redundant if they can only be invested in a qualified plan? Something doesn't add up here.
One reason is to take advantage of so called "Living Benefit" riders available for the past few years. Basically, these guarantee that you will have at least what you put in plus an annual increase of 5% +/-regardless of what happens to the underlying funds, to use when you start taking distributions. For example, two years ago I put, say, $135,000 into one of these. Today, the actual account value is $90,000. However, the "guaranteed" amount for calculating my withdrawals, should I start now, is $148,800 (two years of 5% increases). If the actual account value, due to market performance, is higher than the guaranteed amount at valuation time, then guaranteed amount is uped to reflect that. So, you are proteted on the down side and get the full benefit of the up side (yes, 100% of the up side).

Yes, there are fees (about 3% per year for the underlying mutual fund fees, the insurance and administrative features, and the living benefits rider - probably about 2% more than if I had just invested the money in mutual funds), yes there are early withdrawal penalties, yes, they can be complex (what I've described is the basic concept) Of course there are policy provisions that could effect your maximization of the rider benefits, but knowing that I have shifted the "risk" of a down market to the insurance company while still being able to benefit from an up market has helped me sleep a little easier over the past 18 months.

This is not for everyone, and you should only put a portion of your IRA in one of these, but it is a strategy that lots of people are considering. In fact, if you read about what is causing many of the life insurance companies financial woes right now, it is the liability they have on thier books for these annuities which baby boomers have been buying for the past five + years.

I am neither an insurance salesman or a financial advisor, and the person who got me into this made sure i went in with my eyes open understanding how these things worked. In hindsight, it is probably one of the better financial decsions i've made in the past few years.

Jeff
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