In today's challenging interest rate environment, retirees often struggle to find reliable income sources that can keep pace with inflation. Traditional fixed-income investments like CDs and bonds may not provide the returns needed to maintain your desired lifestyle during retirement.
Traditional vs. Alternative Income Sources: A Logical Comparison
Let's compare some common income options for retirees:
Cash Flow and Total Returns for Various Investments
.
The Logical Case for Alternative Investments
Premise 1: Traditional income sources are currently providing historically low yields relative to inflation.
Premise 2: Retirees require consistent income that maintains purchasing power.
Premise 3: Private real estate lending funds have demonstrated higher income potential (though with different risk characteristics).
Conclusion: Therefore, for appropriate investors, incorporating alternative investments like private real estate lending may enhance income potential while maintaining reasonable risk levels.
Alternative Investment Considerations
Many retirees are exploring alternative investments to complement their traditional portfolios. Two options gaining attention are Coefficiency Tidewater Fund II and Coefficiency Alternative Real Estate Investment Fund I, which provide capital to real estate developers for renovation projects.
While Tidewater Fund II focuses specifically on debt investments in Virginia and North Carolina, the Alternative Fund offers a broader approach with debt, equity, or hybrid investments across a wider geographic area in the Mid-Atlantic and Southeast states. This flexibility allows the Alternative Fund to potentially capitalize on a diverse range of real estate opportunities beyond just debt investments.
How These Funds Work
Unlike directly owning and managing rental properties, investors in these funds take a more passive approach:
• The funds provide capital to developers for purchase and renovation of properties
• Loans are typically secured by first-lien mortgages on the properties
• Monthly income distributions provide regular cash flow
• Professional management handles all underwriting, due diligence, and loan servicing
Performance Perspective
Tidewater Fund I has delivered consistent monthly preferred returns of 10% annually since inception, plus additional returns bringing the total IRR to 13.4%. This means investors received:
• The 10% preferred return as monthly income
• An additional 3.4% compounded return
The Alternative Fund builds on this successful model but expands the investment approach to include equity and hybrid investments, potentially offering different risk-return profiles.
However, it's crucial to understand that past performance never guarantees future results. Each investment cycle brings different market conditions and challenges.
The Logical Decision Path for Investors
For retirees evaluating these options, consider this decision framework:
1. Premise: You need income beyond what traditional investments currently provide
2. If: You are an accredited investor with sufficient liquidity elsewhere
3. And: You can accept the illiquidity of private investments
4. And: You seek income diversification beyond traditional sources
5. Then: Alternative investments like Tidewater Fund II or the Alternative Fund may be worth considering
Specifically, the Alternative Fund might be more appropriate for investors seeking:
• Broader geographic diversification
• Exposure to both debt and equity real estate investments
• Potentially higher returns (with corresponding higher risk) through equity participation
If you're concerned about generating sufficient income in retirement and traditional sources aren't meeting your needs, it may be worth exploring whether a portion of your portfolio could benefit from alternative income sources.
Note: Independent Financial Planning has no formal relationship with Coefficiency Capital Partners. This post is for informational purposes only and does not constitute an offer to sell or solicitation of an offer to buy any securities. Investments are available only to qualified investors through a private placement memorandum.
