I recently got a payout from a private real estate fund, and boy, was it a lifesaver! I’d just bought a house in October 2023, and my finances were stretched thin. I was like a fish out of water, gasping for some financial relief. On top of that, I was hit with unexpected requests for more money from various private funds. As the main breadwinner for my family, this was a stressful time. I was just one big expense away from falling into debt. But then, I got a capital distribution of $105,951.76 from my initial investment of $47,000. This was a huge relief and a reminder of why investing is so important.
Here’s what I want to share with you:
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Treat your investments like expenses: After college, I started treating investing as an expense. This was a way to trick myself into investing more, knowing I had a habit of spending on unnecessary things. I used to make impulsive purchases like a motorbike and a car, even though I lived in Manhattan where public transport was efficient. No one told me to save and invest wisely, and I learned the hard way after the dot-com crash in 2000 and losing my job at Goldman Sachs.
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Invest in private funds and companies: Since 2003, I’ve been investing in private funds and individual private equity and real estate deals. This requires a leap of faith as you’re locking up your money for 5-10 years with no guarantee of returns. But I figured that by consistently investing in private opportunities, I would eventually get regular capital distributions.
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Patience is key to building wealth: My approach to investing is like waiting for a movie to come to Netflix instead of watching it in the theater. It’s about being patient and saving money. Similarly, few people are willing to lock up their money for 5-10 years with no guarantee of returns. But if you can convince yourself that investing money is like spending it on a movie ticket or a luxury car, you might find yourself investing more and becoming wealthier.
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Be responsible when buying big-ticket items: After buying a house, every new expense can seem unexpected or larger than it really is. For example, after buying my house, I had to spend $1,200 on car maintenance and then another $535 two months later. Then, I got a $20,000 capital call from a venture debt fund. These expenses would have happened regardless of my home purchase, but they felt more painful because I was living paycheck-to-paycheck.
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Receiving capital distributions is a joy: As a private fund investor, you tend to forget about each investment after a year. So when you receive a capital distribution, it feels like winning the lottery! It’s like getting a tax refund. Even though the money was yours to begin with, you’re still grateful.
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Invest for the unexpected: A lot can change over a 5-10-year period, so you must invest for the unexpected. When I started investing in this private real estate fund, I didn’t have kids and my expenses were about half of what they are today. Now, this capital distribution is especially gratifying as it will be used to support my family.
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Keep investing for an unknown future purpose: When you have surplus cash, it’s wise to invest most of it even if you don’t have a clear investment purpose. In ten years, you’ll likely be glad you did. There are countless unforeseen expenses your future self may encounter, making saving and investing for the future imperative.
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My future investment plan: Over the next couple of years, I’m focused on rebuilding my liquidity. I plan to save about 60% of my cash and cash flow in money market and Treasury bonds, aiming to reach a cash reserve of ~$200,000. I also plan to invest in the S&P 500 and the Fundrise Innovation Fund. Over the next three years, I aim to establish $500,000 of exposure to private artificial intelligence companies.
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Never underestimate the importance of liquidity: The past six months of experiencing a liquidity crunch were unpleasant. For the next three years, I’ll prioritize investments that provide liquidity. I’m going to reduce my allocation to illiquid, closed-end venture capital funds by 50%.
I hope my experience inspires you to invest more for your future. Here’s to more unexpected capital distributions!
Have you received any large capital distributions recently? How do you plan for future capital distributions for cash flow and tax minimization purposes? Are the private markets finally thawing?
If you’re looking to invest in real estate without all the hassle, check out Fundrise. They offer funds that mainly invest in residential and industrial properties in the Sunbelt, where valuations are lower and yields are higher. I’ve personally invested $954,000 in private real estate since late 2016 to diversify my holdings and earn more passive income.
