How to Invest in Property With an Annuity
Real estate investments may provide a lucrative opportunity for you during your lifetime. But you might wonder how to invest in real estate when all you have is an annuity -- an insurance policy that guarantees you an income payment for life or for a set number of years. The annuity may convert an existing savings to these monthly payments or it may defer the payment and function more like a long-term savings account. The funds in the latter type of annuity are ideal for property investments.
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Instructions
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Gather your annuity policy contracts. Make sure you have enough money in your annuity to invest in a property. Annuities have surrender charges that are imposed by insurance companies. They exist to encourage long-term investing in the contract. But the surrender charges do not persist forever.
The surrender period usually only lasts for a set number of years. After the surrender period is over, you may withdraw money from the contract freely without worrying about paying a penalty to the insurer. Even before this time, you may make withdrawals from the policy up to a certain amount. This is called a "free withdrawal" window. The Internal Revenue Service imposes its own penalty of 10 percent for making withdrawals before age 59 1/2.
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Locate the property you want to invest in. You'll be investing in a property outside of the annuity using the annuity funds. Investing outside of the annuity allows you to put money into real estate and diversify your savings. Any profits from the property can be deposited back into the annuity.
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Make a withdrawal or policy loan. Annuities sometimes allow loans. A policy loan from the annuity will not incur a 10 percent penalty from the IRS if you're under age 59 1/2. Likewise, a loan escapes the penalty imposed by insurance companies. But you must repay this loan. If you're buying a home, you may repay this loan over a long period. Otherwise policy loans from the annuity must be repaid within five years or they are treated as a taxable distribution by the IRS and most insurance companies.
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Invest in a variable annuity with a real estate investment trust, or REIT. REITs represent an investment in real property. They give you returns derived from rents or mortgages without the hassle of actual ownership and management of the property.
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