How to Retire with $1 Million & NEVER Spend the Principle
A few months back I wrote an article on retiring with $3.2 Million. That article made some assumptions on high risk, high reward investments. There is a place for that all-in strategy mapped out in that article for some investors-probably earlier in their investing career. If you’re on the other side of your investing career, perhaps within 5 years of retiring, or already retired, the types of deals mentioned in that article (distributions don’t begin for 2-3 years) may not provide for your goals.
How I Envision a Perfect Retirement – from a Financial Perspective
The goal in a perfect retirement is a steady income which covers all expenses and NEVER touching the principle. For me, there seems some security in reaching retirement under these minimum assumptions:
- Paid Off Housing
- $80,000 income generated from $1 Million invested at 8% per annum receiving monthly or quarterly distributions at exactly that amount, or more.
I’ve chosen $1 million as the example here, but depending on earning power, current financial position and lifestyle, this number can be cut in half, doubled, etc and the plan still works. $80,000 per year plus social security should cover the property taxes on that Paid Off Housing and allow for all living expenses plus some travel, leisure, birthday gifts to grandkids, etc
How do You Receive 8% Returns without Losing Principle
Many reading this article know how to obtain 10% returns & even a few points by making short term Private Mortgage Investments to fund Diamond Equity’s real estate deals. Maybe you even have a few more fix & flip investors to whom you loan money. If you’ve made loans like this you know the challenge is keeping that money working for 12 months straight.
For example, you loan $200K on a deal this month, it pays off a few months later at $210K. However, the next available deal is only $140K. So $70K sits around waiting for a $70K deal which comes 18 months later. Right now, many investors I talk with have a certain amount available at any given time and they’d love to be able to place that money and simply keep receiving returns. Perhaps an even 8% return is earned when you do the final calculations over the course of a year.
The Reason I’m Writing this Article
I have two friends who run debt funds which pay 8% preferred interest monthly. Both of their debt funds exceed $35 million in size. They borrow at 8% and then reinvest in large hard money loans that pay 10-15% depending on the risk. They shoulder the burden of losses and also the burden of paying the 8% even when the money is idle. Their investors love it because of the regular distributions and the lack of “down time” while their money sits idle. They live on that 8% return.
Finding an 8% even paying, passive return anywhere else in the market is very rare.
I am considering creating a fund of this nature myself to streamline the returns for our investors. I’ve written this article as a public method of thinking through the idea. Perhaps you have some feedback on whether something like this would be attractive?
No promises on whether an “8% Diamond Equity Debt Fund” will be launched, but in the interim, I am willing to pay 10% & 2 points on our short term loans. You can get detailed info on how those loans work and receiving the next Private Mortgage Investment Opportunity at www.FundRehabDeals.com
