Rental Properties vs. Annuities for Lifetime Income

Author

George Tsividakis
May 02, 2025

How to build your own inflation-protected paycheck—without handing a lump sum to an insurance company.

1 | The Two Paths to “Guaranteed” Retirement Income

Rental Real Estate (“DIY Pension”)

Commercial Annuity

Up-Front Capital

20–25 % down per property (leverage!)

100 % lump-sum premium

Income Source

Monthly rent – expenses = cash flow

Insurance company promises fixed payments

Inflation Protection

Rents rise with CPI; loan payment stays flat

Payments typically fixed (or modest COLA rider)

Liquidity

Refi/HELOC or sell asset

Surrender charges; illiquid after purchase

Legacy

Heirs inherit property & equity

Income stops at death (unless costly rider)

Control

Choose tenants, renovations, exit timing

None once contract is signed

2 | Understanding Annuities—Pros & Limitations

  1. Immediate or Deferred – Pay the insurer today, start receiving checks now or at a future date.

  2. Perceived Safety – Payments backed by the insurer’s claims-paying ability (plus state guaranty limits).

  3. Costly Guarantees – Riders for inflation, joint-life, or death benefits sharply reduce the base payout.

  4. No Equity Growth – Principal is consumed by the insurer; nothing left for heirs.

Typical $500 K lump-sum annuity for a 65-year-old male yields ≈ $32 K / yr.
(Assuming 6.3 % payout rate, no COLA, single life.)

3 | Building a DIY Pension with Rentals

Capital: Same $500 K leveraged 25 % down.
Purchase: Four cash-flowing duplexes @ $500 K each (total asset value $2 M).
Loans: 75 % LTV, 30-yr fixed @ 6 %.
Gross Rent: $3,200 per duplex → $12,800/mo portfolio.
Expenses + Debt Service: 65 % rule → ± $8,300/mo.
Net Cash Flow: ~$4,500/mo = $54,000/yr (already 68 % more than the annuity).
Long-Term Upside:

  • Tenants amortize $30 – $35 K of principal annually.

  • 3 % appreciation grows portfolio equity an additional $60 K+ per year.

4 | Managing Key Risks

Risk

Mitigation in DIY Pension

Vacancies or Non-Pay

Screening, reserves, professional management (8–10 % of rent)

Unexpected Repairs

Capital-ex reserve ~5 % of gross rent; insurance coverage

Market Downturn

Long fixed-rate debt + positive cash flow cushions valuations

Time Commitment

Hire PM; treat rentals as a passive business

5 | Tax & Legacy Advantages

  • Depreciation Shield – Offsets a large chunk of cash flow.

  • 1031 Exchange – Trade up to bigger assets, tax-deferred.

  • Stepped-Up Basis – Heirs inherit at current value, often tax-free on past appreciation.

  • Refi Instead of Sell – Tap equity without triggering capital-gains.

Annuities, by contrast, distribute fully taxable ordinary income—no depreciation, no equity, no step-up.

6 | Financing the DIY Pension (Powered by LoanFunders.com)

Goal

Loan Type

Why It Fits

Acquire the first duplex

DSCR Loan up to 80 % LTV

Qualify on rental income, not W-2

Scale to 10+ doors

Portfolio Blanket Loan

One payment, simplified estate planning

Value-add strategy

Bridge-to-DSCR

Rehab, raise rents, refi long-term

Legacy transfer

Cash-Out Refi to fund trusts or gifting

Liquidity without selling

Brokers: White-label these products under your own brand while we handle underwriting, draws, and compliance.

7 | Decision Snapshot

Question

Ask Yourself

Want payments that grow with inflation?

Choose rentals.

Comfortable locking in a single provider & fixed payout?

Annuity may suit.

Want heirs to inherit a cash-flowing asset?

Rentals win.

Prefer zero landlord duties at any cost?

Annuity convenience—just know the trade-off.

8 | Conclusion—Build, Don’t Buy, Your Pension

A commercial annuity offers simplicity—but at the price of control, flexibility, and long-term upside. A DIY pension of well-financed rental properties can produce larger, inflation-resistant income while steadily growing equity for future generations.

Ready to model your own rental-driven pension? LoanFunders.com can map the financing path—from the first duplex to a diversified door portfolio.

Let’s design lifetime income you can raise, refinance, and one day pass on.