How to Invest for Annuities with Commercial Real Estate (It Can Be A LOT Easier Than You Think)
So, what the heck is a commercial real estate annuity, and more importantly, why should you care?
This is another investing question I get a lot, so I thought I’d sit down and write up a simple, short, and actionable explanation for you.
There can be a few different takes on this, but essentially, a commercial real estate annuity is a term used to describe a particular kind of investment transaction or vehicle that allows the investor to easily place their money into a portfolio of properties (instead of just one), that returns a regular annuity, while also mitigating risk and maximizing potential return on the investment.
What does that mean for you?
Annuities are a great option for investors who might be nervous about dumping all of their capital into a single property, and/or doing so on their own.
In my opinion, the best way to invest for annuities with commercial real estate involves just that: joining up with a team that knows exactly what they’re doing, and spreading out the risk by investing in multiple properties at once.
But we’ll get to that in a minute...
The Benefits of Investing for Commercial
Real Estate Annuities
Simply put: one of the best ways to “do” annuities is via commercial real estate.
Why? Well, for one thing, investing in commercial real estate -- in general -- is one of the best investments you can make.
Let’s take a look at the first nine reasons that come to my mind (there are many more!)…
Make Money While You Sleep (Passive Income!)
To me, this is “the big one.”
Commercial real estate investing has many benefits that other investment vehicles, like stocks and bonds, wish they had.
As an investor, you will not only receive passive income and appreciation from the property, but also tax benefits, risk diversification, increased buying power, and more.
So long as you research the individuals or groups with whom you plan to invest, you will watch your passive income and wealth grow exponentially while taking advantage of all of the ancillary perks, as well.
If you invest properly, you’ll get paid while you’re on vacation. You’ll receive income while you sleep. And eventually, you may even get to a point where you don’t have to actively work again. Unless, of course, you intend to continue building your portfolio.
And one final thing that should be it’s item in this list… because they are largely passive in nature, commercial real estate annuities are a great way to ultimately replace your “active income.” In other words, your income is no longer tied to the amount of hours you put in on the job.
Tax Advantages
The tax advantages provided by commercial real estate investing are incredible.
Not only do you benefit from the income, appreciation, and stability (see below), but you will also receive many tax benefits.
As a property owner, one of your first benefits is your ability to write off the interest payments you make on your mortgage. So, not only are you using someone else’s money to buy commercial property, but you can also write off their profit for providing you with that capital.
Other write-offs include any renovations, maintenance, ongoing upgrades, or other expenses related to owning and operating the asset.
If you decide to owner-occupy the property, meaning you actively run a company out of the premises, then you’ll find additional tax benefits.
The rent and maintenance expenses paid for by your business will be a tax write-off to that business and the income you collect as the property owner (I recommend the property ownership entity being entirely separate from the business, but that’s a conversation for your CPA) is taxed at a much lower rate since it’s considered passive income.
If you decide to sell the investment, you’ll benefit from capital gains tax, which is significantly lower than most investors’ ordinary income tax, and you can even exercise a 1031 exchange into another property without paying taxes at all.
In the end, with these tax advantages, you’ll ultimately be able to legally shelter your income and keep more of the money you earn. What’s not to like?!?
Forced Appreciation
In commercial real estate, an asset’s value is directly correlated to its Net Operating Income (NOI). By raising a property’s net operating income, you can increase the value significantly to any potential investor.
This intrinsic appreciation is largely due to the commercial real estate industry’s use of capitalization rates (cap rates).
In commercial real estate, you have far greater control of a project’s destiny, whereas investments like stocks and bonds don’t allow you to have much more influence other than buying and selling based on the market.
Depreciation
One of the many reasons commercial real estate is so profitable is the ability to take advantage of depreciation.
As buildings wear out over time, the IRS allows owners of investment properties to deduct a certain amount from their income every year before tax is applied as “depreciation expense”.
Since this is an imaginary or paper expense, in that you’re not paying for it out of pocket, the more you claim in depreciation the more you can walk away with after taxes.
It’s a Tangible Asset
Commercial real estate is a physical, tangible product.
You can see it. You can touch it. You can even live or work out of the investment you’re making.
Unlike stocks, bonds, and most of your other investment options, commercial real estate has value not only in the income and cash flow it throws off, but also the land itself and the property’s improvements, such as the building and infrastructure.
In a worst case scenario where your income falls to zero because either the tenant has defaulted on their lease or has moved out, you still have valuable assets to fall back on, which certainly protects your downside.
You Can Get Paid Quarterly
When you invest in commercial real estate for annuities, those annuities are paid out quarterly (at least that’s how we do it).
There are several reasons for this, but the main one for us is to better serve our investors.
Now, you may be wondering why I’m talking about “our” investors or the way “we” do it… good question.
I’ll talk about it a bit more in the next section, but one of the best -- and easiest -- ways to invest for annuities is via commercial real estate syndications. And that’s part of what we can do for you. Again, more on what a syndication is in a minute...
Build Your Own Retirement Portfolio
As we’ve already seen, Commercial real estate can be an incredible wealth-builder.
These properties can provide you with cash flow, appreciation, tax advantages, and other benefits unlike any other investment vehicle.
If you’re looking for the ultimate retirement plan, commercial real estate investments might just be the path for you and are a terrific way to diversify, if nothing else.
And when you do it correctly, you’re in charge of your portfolio, a portfolio of assets you can understand and even visit anytime you want to.
And finally, You Can Build Your Portfolio Without Becoming a Property Manager
This is one of those “hidden” big ones that shouldn’t be overlooked.
What many people fail to realize when they launch a career in real estate investing is that, when you do that, you’re also launching a business as a property manager.
Now, of course, you can hire that job out.
Or, you invest in a way that doesn’t require you to be on the property, making sure everything is OK 24/7.
Let’s find out more about how to do that in the next section.
How Do Commercial Real Estate Annuities Work?
When it comes to commercial real estate annuities, there are many ways to invest, but let me quickly cover the top three (including the one I think is best for most investors)...
Do It Yourself
Contrary to the last item in the last section above, you can buy annuities and build your commercial real estate empire all by yourself.
It’s done all the time.
The benefit of doing this is total control over your destiny.
The main drawback is that, well, you’re doing everything yourself, or at least managing others to do everything for you.
And that’s not an insignificant undertaking. If you want to go down your own road, I salute your grit and self-determination, but understand that you’re facing one hell of a learning curve.
Real Estate Investment Trust (REIT)
Like ETFs and mutual funds, you don’t actually own anything when you invest in a real estate investment trust. But REITs can help you diversify your investment portfolio, as they will invest in multiple different asset classes.
Like other stocks and bonds, REITs have plenty of the long-term data to offer, which will help dispel any uncertainty about the ups and downs of the real estate market.
It’s recommended that if you decide to invest this way that you stay away from non-traded REITs and aim only for publicly-traded REITs. Non-traded REITs have become notorious for their lack of liquidity, higher fees, and lack transparency, creating unnecessary risk for investors.
Sponsor via Syndication
And here we are. In my mind, syndications represent the best opportunity for investing for annuities in commercial real estate.
A commercial real estate syndication is a way for investors to pool their funds together in order to buy a larger and more stable asset than any of them could on their own.
Some of the pros of commercial real estate syndication include:
Larger assets and projects
More stability due to higher unit counts and / or location
Less money out of your pocket if you’re the syndicator / deal sponsor
Completely passive real estate investing and cash flow if you invest with a sponsor
They can support onsite, professional management
And, all of the tax benefits, forced appreciation, and write offs just like any real estate investment
If you love taking the time and effort of researching a market, making calls yourself, and laying down a bit more risk, you’ll probably want to work with a brokerage to handle your commercial real estate investments, that’s the DIY path.
If you don’t have the time for research, road work, negotiations, and paperwork, real estate syndications -- the Done For You choice in this analogy -- might be the answer.
I’ll say this, if I had to start over from scratch, I’d go all in on a trusted, proven syndication.
Passive, stable, tax advantaged, and a higher chance for return on investment? Sounds good right?
How to Buy an Annuity via Commercial
Real Estate Syndication
Investing in commercial real estate annuities can be an extremely profitable way to grow your money, including if you’re concerned about putting your eggs in one basket..
Do you have $100,000 or more to invest and are you wondering how a commercial real estate annuity might grow your wealth... without months of research, paperwork, and hassle?
Me and my team are always available to chat, with zero pressure.
We’ve run a commercial real estate syndication (one of the best -- and easiest -- ways to tap into annuities) in greater Nashville, TN for over 3 years.
And if this is the first time you’ve heard the term “syndication,” don’t worry. It’s essentially the easy button of commercial real estate investing. We do all the heavy lifting on your behalf.
Like the idea of an opportunity to build long-term, generational wealth while taking advantage of truly passive income is interesting to you? We’d love to talk...
Click here if it’s time to invest in commercial real estate, without all the work.
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