Over the last few months, I’ve had several terrific conversations with investors to discuss their personal financial position. Usually, investors are interested to know how their plan for retirement is shaping up. They might be leaving a corporate job in a few years, considering taking an early buyout or are already retired. Whatever the scenario, the biggest focus is ensuring they have enough monthly cash flow to pay bills and live. The most important thing each of us must determine is what our retirement number is. Are you trying to replace your current W2 paycheck? Are you trying to earn more in retirement or just have extra money coming in to pay certain expenses? It’s up to you to figure that out because we all have different income and expense needs.
For example, let’s use an investor who is a few years from retirement and makes $200,000 per year from their W2 paycheck. They are probably bringing in about $11,600 per month after factoring 30% going to income tax withholding. If their goal is to replace the $11,600 W2 income with investment income, they have a few options to get there.
Let’s say this investor has built up their 401k over the past 25-30 years and has a balance of $1,000,000. Also, when they retire, they could get a monthly pension income of $5,000, which is $3,500 after tax or a lump sum payout of $1,000,000. When the investor retires, the 401k balance and lump sum payout can be rolled over into a self-directed IRA without reducing the principal balance so the investor can have $2,000,000 generating a return. Once the funds are in a self-directed account, the investor then needs to have a balanced portfolio and some diversification to ensure their investments meet their goal of generating at least $11,600 per month. This investor probably wants to have more monthly income on day one versus higher upside growth in the future, so they likely would invest in higher cash flow producing investments.
Having a Balanced Portfolio
In my opinion, every individual person is responsible for and in charge of overseeing their investment portfolio. It’s essential for each person to determine their goals and figure out what investments are best for them to achieve their goals. All of us are in different phases of life, so figuring out if you need more cash flow today or less cash flow today with more upside in the future is an important personal decision. In addition, reviewing your strategy to have a balanced portfolio with short- and long-term investments is a good idea. Short-term investments can provide quicker access to your capital if needed. Long-term investments typically tie up capital for longer terms with higher returns. Another important factor is thinking about illiquid investments versus liquid investments. For example, investing in a large multifamily property is an illiquid investment because the only way to have a capital event is through a sale or refinancing at an undefined time in the future. On the other hand, investing in a debt fund or a money market account are liquid investments, so you can access your capital when needed.
Diversification
When we first got started, we focused solely on multifamily investment options. As our company has grown and evolved over the years, we’ve pursued initiatives to provide more investment options to investors so you can diversify. Diversification can mean investing in different asset classes, like multifamily, self-storage, car washes, debt funds, stocks, bonds, and cash. Diversification can also mean investing in other geographies, like states or cities. It’s essential to have some level of diversification and a balanced portfolio to ensure you can achieve your goal.
Why the Debt Fund is a Must for Every Investor Portfolio
In 2021, we launched our lending business (aka the debt fund) after decades of private lending experience and solid performance year after year. There was a growing need in the market for a suitable lender to provide excellent service to high-quality borrowers, so we decided to fill that need. In addition, our investors need a place to invest capital, earn a return, and access the capital quickly (i.e., an investment with liquidity). The lending business is focused on short-term loans that are typically about six months in duration. This allows us to provide borrowers with loans and enable investors to have liquidity and access their money as needed. The lending business became a tremendous win-win for borrowers and investors. As of August 31, 2026, we have funded 2,674 loans totaling $609,231,309 since inception. General-partner investment in the fund totals $5.7 million+ as of the same date. With the global issues and economic challenges over the past year, the debt fund has remained a great place for capital and a consistent investment vehicle for returns. Here are three reasons we love the fund.
1. Compound Interest. The power of compound interest can be best understood when looking at the chart summarizing returns for how a $100K investment continues to grow over time and earn more income every time the principle is compounded on a monthly basis. With the power of time and compound interest, the $100K investment can make a 10%+ return in four years when it’s earning 8% compounded interest.
2. Diversification. When funds get invested into the debt fund, they are immediately diversified across all the loans in the fund. If you carry a bank balance greater than $250,000, it might be a good time to consider diversifying the funds out of the bank and into the debt fund so your capital is protected and earning a return.
3. Liquidity. Access to your capital when needed is essential, and the lending business is set up to have short-term liquidity. This short-term liquidity is an excellent way to balance your personal portfolio if you have other long-term and illiquid investments like multifamily, self-storage, and car washes.
The sooner you know your retirement number, the better. If you have any questions or are interested in having a discussion with us, please reach out to our team.
Related passive investing resources
Continue your research with these related guides:
- For a broader overview, see Three Reasons Why We Invest in the Real Estate Debt Fund.
- Next, review Understanding the Sequence of Returns Risk and How Real Estate Debt Funds Can Help.