Today, we're in a world that has been through massive market swings in recent years, including 50% losses in equities at one point all the way to record setting numbers in different segments of real estate, like industrial warehousing and distribution, and some different markets all while dealing with record high inflation and rate turbulence with huge hikes and difficult financing.
The question is where have all the safe, consistent, reliable investment opportunities gone?
For today, we’re gonna talk about income funds, which are one investment model that is becoming extremely popular because of its stable cash flow, reliable returns, and flexible returns for investors to get their money back.
Income funds are becoming a comment and an important part of many investors' portfolios. As they're often stuck dealing with markets in flocks, as well as inflation, eating away at their hard earned savings.
Welcome! Nic DeAngelo here with Saint Investment Group. We currently have over 150 million in real estate assets under management, and are doing an additional raise of 100 million dollars.
The reason that I take the time to make these videos is to educate our viewers on the importance and the details of investing, especially in real estate. I believe that investing is the 100% no-question to financial freedom and after years of working sole crushing hours in the office to succeed, it was my investments that brought the biggest returns and allowed me to live a more happy and more balanced life. So for that reason, I want to share this education with you.
Also, as a reminder, I'm not an attorney, I'm not a CPA, I'm not a CFP, etc. That means you should definitely check with your investment professionals before making any major decisions, because these people understand your specific set of circumstances because every investment decision is different and has different considerations.
Let's jump into our topic today of income funds. This is a topic that we love at Saint because we've personally been using income funds for years, and they represent the foundation of our investment model early on. We spent a huge amount of time analyzing all kinds of different investment models and crafting what we believe is the absolute best balance of flexibility, high returns, and dependable income for our investors. In the end. Our final decision was to go with the income fund model.
So today we're gonna share the details of our many, many months of research to find the perfect investment model for what we were looking for so that you can understand how great this model can be for investors to make passive income consistently on an ongoing basis. We're gonna start today with the definition and the explanation of income funds in general.
So basically what is an income fund, then we're gonna drill down and discuss what type of investment terms and investment returns you can expect commonly in income funds and then we're gonna wrap up with some instances where income funds can be a huge benefit to your personal investing, as well as some examples where income funds might not be the best fit for you. Also, make sure you read till the end where we'll give some real life examples of how investors used income fund successfully to majorly boost their returns and their lives.
So what is an income fund?
Investing overall primarily has two major objectives:
In the end, many growth investments often involve a higher degree of speculation and risk in order to achieve the higher returns that their investors often expect.
On the other end of the spectrum, you have income investments.
This is in stark contrast to something like the growth fund model, which is more based on appreciation and the hope and assumption of future growth of those assets. So as with anything in the investment space, most of the cookie cutter standard issue in income funds.
In this example can be found on wall street. Income funds are often considered lower risk than funds that prioritize capital gains or appreciation and because income funds typically do have significantly more flexibility, investors can access their money more easily, which further drives down the risk to the investors because let's face it when things hit the fan, being able to get your money back quickly takes major risk off the table, as opposed to being stuck in a downward investment for years and years and years.
Additional sources of stable income that you'll see in income funds include money market funds, known as certificates of deposit, treasury bills, and bonds. Again, very commonly you'll see very safe stocks that pay dividends regularly.
In Saint's case, we have something a little bit more unique that you see less commonly. We use 100% real estate assets for our income fund and these assets pay consistently through their rent payments and mortgage payments. known as the mortgage owner like the bank in many instances, and own the loans attached to real estate properties, or we own the properties themselves and people either pay their mortgage or their rent to Saint.
These are consistent payments that we collect and receive and once we receive these payments, we turn around and we pay the investors first and then from there, Saint makes whatever's left over after paying out the investors. So to be clear, we pay our investors first, every time we only invest in conservative assets and then we only make what's left over after paying out the investors and covering all expenses, and with every asset that we purchase, we always have the top of mind of stability and consistent payments to make sure we are never missing payments out to our investors.
So, through this investment strategy and investing conservatively and consistently we've been able to achieve over 100, I think it's over 110 months in a row of distributions to our investors and partners. This is remarkable and very few funds have consistently paid out that many distributions in a row and that's by design. That's why we like this model because we can prioritize long-term planning and consistency over trying to squeeze out every single penny in a deal like many of these growth models, just by the nature of their model. They're stuck playing a game where they're typically taking on more risk to increase their returns, and therefore there are gonna be hits and there are going to be missed.
Instead, we have focused on playing in the field of fixed income to our investors, which is a foundation with the preservation of capital at its core, so that the ongoing income is a byproduct of conservative capital preservation, and long-term strategy.
Also, one thing that income funds can offer that standard funds typically cannot is an evergreen model. That means there's commonly an intention in income funds that the fund will essentially never disband and that it will be there for the foreseeable future. For many investors. This is a huge benefit because they don't wanna look for a new place for their capital every five, seven, or 10 years, and always be worried about the tax implications of it at that time. So within the income fund world, the biggest thing that determines one income fund from another is what the fund invests in and what the terms are of that specific fund.
So let's transition into what type of returns you can expect and what type of terms you can expect when investing in income funds.
So overall, typically income funds have more favorable terms and longer-term investment funds and are often much more flexible being in the real estate market. We typically see real estate funds lock your money after let's say five to seven, sometimes up to 10 years in their fund where there's a return of capital or a sale event and the investor gets their money back. The purpose of an income fund is the exact opposite of that model. These long-term funds, let's say the 5, 7, 10 year funds. They need to lock your money up for an extended period of time because they need the underlying property or assets to perform and appreciate to a degree where the investors and the fund managers both can make some money.
This takes time by default and it also takes an upward trajectory market typically. So if there's a downward trajectory market, your money might be tied up for either a lot longer or you might not make that much or even take a loss with some of these fund models. An income fund on the other hand has the benefit of investing in assets that are already cash flowing and producing returns today. So really there's no waiting around for this reason.
You'll typically see income funds with much more flexible exit terms and timeframes of you getting your money back when you need it. In that regard, there are two terms to understand, as far as it relates to income funds, and return of capital to the investors. The first is what's called the lockup period. This is the initial period in which your capital must remain in the fund, more or less.
It's the minimum amount of time you can keep your money in the fund and still receive the returns that are projected for this period of time, and allows the fund to take the money and place it into assets that are going to get a minimum return for the fund so that they at least break even, or make a couple of bucks on that investment.
On your behalf, after this lockup period expires, you can then request your money back at any time and enter the second phase, which is the return of capital period. For some funds, there is essentially zero lockup period and the second you need your money, you can get it back. This is common for funds that hold assets like bonds and dividend-paying stocks. It's worth noting that these funds typically pay a very low return. We're talking like in the one to 3% range for some of these, but the upside is you can get your money back essentially instantly.
So they're so liquid and easy to get out of. For example, in Saint income fund, which is based in real estate. We have a one-year lockup period, which is insanely short for the returns that we offer, which are typically over double what wall Street's offering and also compared to many of the other real estate funds with the 5, 7, 10 year holding period. A one-year lockup is ridiculously low.
Additionally, while we offer over twice the returns of most wall street income funds, the benefit is that our income comes from real estate assets. So it's a huge buffer from the equities and the stocks and the bond markets because if those are all tanking, we're still good in the real estate sector and typically still receiving consistent payments. So it's a way to diversify with consistent income beat wall street by over two X typically, and have less risk from all the wall street style investments and stocks that are so common in people's portfolios.
So we talked about the lockup period. Let's talk about the second period of time, which is called the return of capital period. The return of capital period begins after the lockup period has already expired and it begins the moment that you request your money back, what the return of capital period is from the time you say, “Hey, I'd like my money back to the time that you get your money.” That is the return of the capital period. For some funds this is instantaneous. You sell it off and you're done and you get it really quickly. Again, those typically have much lower returns off the other end of the spectrum of the funds we talked about previously, where you can't get outta the fund at all until they are done with your capital.
That means there really is no return of capital period, as far as your request, it's when they're done with the fund and the assets are sold and that's 5, 7, 10 plus years later for many investors that timeframe does not work well because you need your money when you need it. Not when they're ready to give it to you.
If there's anything we've learned in the last handful of years from crazy market dynamics and turbulence, it's that when you need your money, you have got to be able to access it and think about waiting years for that decision to be someone else's is not a good model for me and I'm assuming it's not a good model for you as well. So for that reason, that's why we chose to structure it differently for the Saint income funds and have a relatively short return of capital period to get you money. When you're asking for it, we chose to go with a 90-day or less return of capital period. In the Saint income fund, we have a 90-day or less return of capital period. This means when you request your money back, you will receive your funds requested back within 90 days or less.
Sometimes it's much less or very soon. Oftentimes we can return your capital much sooner, but 90-days is our technical timeframe. So on that note, it's worth mentioning in the fund world that typically the longer your capital's held, the higher return you can expect on an annual basis.
So for that reason, income funds typically do have a lower return than many of these 5, 7, 10 year funds. But the trade-off is you get much more flexibility, typically significantly less risk and on our side, we found income funds just to be more strategic for most investors and in our case, because we're able to deliver returns that beat wall street, typically by two X, we found that we can deliver to investors kind of the best of both worlds. So what returns can you expect typically from income funds, most commonly you're gonna see income funds return around the range of let's say three to 6% is pretty common.
For most income funds. You can expect returns around the three to 6% annually range and at the higher end of income funds, you'll typically see around 8% to 9% right now for the Saint income fund, we offer 8% annually, which is on the much higher side of that spectrum of income fund returns. So while income funds are unique, they are amazing for some people and they are not a good fit for others.
So let's go into some examples of where it might be great or where it might not be a good fit for investors. Here's a rundown of the pros and cons of income funds.
To start with, first, let's talk about the pro of simplified diversification. With diversity, through investing in a fund that has broad assets, many different assets. So any one asset having an issue is not going to affect the others and the consistency of returns to investors is likely not to be interrupted. If you're looking for diversification in your portfolio, this might be a good fit for that reason because you basically have hundreds or thousands of investments that back up the dollar figures that you're receiving from that fund. Another pro is just the fact that it pays out stable income payments. This can make financial planning and income planning much more simplified for you. If you need to rely on that income. For example, if you are a retiree, it's probably a lot easier to map out your monthly budget and your income, knowing that that income fund payment's gonna be consistently there. Another important pro is capital preservation because income funds are typically investing in more conservative and already established assets.
Assets that are already cash flowing in place and performing often, these assets are less risky and the risk therefore to the investor is often less.
The last pro that we'll go over is one we've already talked about, but it's worth noting in this category, which is just the incredible amount of flexibility that most income funds have.
Now let's talk about some of the downsides or instances where income funds might not be a good fit for you. So issue number one, with income funds, they are not risk-free.
All they may often be less risky than other funds that are growth and appreciation based. They still do carry risks and this is primarily affected most by what underlying assets are in the fund. For instance, if you invest in an income fund that's based on equities or specifically really volatile equities, then if the equity in the stock market declines or goes way down, you are likely at a much higher risk in that income fund investment. That's why knowing the fund inside and out and understanding what they invest in is so important, no matter what kind of fund you're investing in.
Another issue that you can find in income funds is that in strong up trending markets, there is an opportunity to be leaving a lot of returns on the table. There is an opportunity that other types of funds that are more growth-centered will outperform income funds.
The truth is in strong upward trajectory markets. Some of these growth funds are actually really good and take advantage of that huge jump up in value and appreciation. Now with current market conditions, you saw this most drastically when the federal reserve, when the FED was investing directly into the market, this was called quantitative easing and this is where the saying don't fight the FED came into play so much money from the FED was being pumped into the system. Assets were going through the roof. Equities were booming and many assets were hitting record levels consistently, but the Federal Reserve, the FED is not doing this anymore.
Now we're seeing more quantitative tightening because of inflation going through the roof. They're trying to actually cool off the market. So if you stick with the dynamics of don't fight, the FED, you actually want to be as far away from growth investments as possible right now, because the Federal Reserve's goal is to slow down the economy. It's to reduce the appreciation of assets and reduce asset costs. With that said there's many models of funds that even though they have much more risk, they also produce higher returns. So if you're someone that's return sensitive, you need every single percent of returns, which most investors are typically not. But if you need that and you need to achieve every percent of return, and you're less worried about risk, there are probably better fits for you than an income fund. Also, if you're willing to put your money away for 5, 7, or 10 years and have that tied up for that period of time, and there's no issues with that on your end, then one of the major benefits of income funds might not apply to you.
Therefore you might be looking more toward growth funds. So that begs the major question who exactly are income funds best for? The simple answers are that income funds are best for whoever needs another stream of income that is entirely passive. Typically very low risk and very flexible with getting your money back to you while this definition might sound like it applies to literally everyone.
Here are some categories where income funds aren't an incredible fit. The first is older, retired investors. Those that fall under this category of retirees who maybe have a large nest egg or a large savings built over many years, can benefit majorly from an income fund. While we've talked about many of the benefits already, this group of people can typically not have very high-risk exposure because that nest egg likely isn't going to be built back cause in their lifetime that nest egg probably doesn't have enough time to be built back up.
But these individuals also need that stream of income to live off of because they don't have the income from their job at that time, they're retired. Additionally, an income fund being entirely passive. This allows retirees to enjoy their golden years without having to personally manage the assets and without worrying too much about risk. The best example I have from this from my personal experience is an older gentleman that had an insanely impressive career. This guy's career had multiple C-suite spots in major fortune 100 companies for decades. Not only that he managed to also have multiple successful exits during that period of time. and in addition, he also managed to build multiple successful startups with successful exits. This guy had an incredible career and what an inspiration.
What I expected, however, is that he would have an empire of assets, just tons of real estate, tons of stocks, tons of everything, because he was so sophisticated in the business world and had such an impressive career and he did have those things, but there was also one big problem he's in his mid-eighties and his career and portfolio had become a major time and energy suck on his life and on his energy and on his focus.
So instead he was looking for something safer and more steady to invest his huge net worth into that would take less management on his side and be dependable with the income he could receive. But also he had a consideration that was unique to him in his situation. The sad truth is he didn't know how many years left he had in this short life. So a five, a seven, or even a 10-year fund holding period, because the reality is most likely the fund would outlive him. The good news is that at the time of this filming, this gentleman is alive and well and kicking and happy and his investment is killing it and he's doing great.
But I tell the story because it's a good illustration of a retiree that maximize the use of an income fund for their situation perfectly. The next example of investors that are great for income funds are investors who specifically accumulate streams of income. There's an amazing new movement. I've seen where people are positioning and strategically finding new investment models so they can become full-time professional, passive investors. Essentially their entire model is built around finding one investment after the other, that's going to consistently pay them and add to their income and cash flow. The ultimate goal here is major financial freedom. Some of these people you can find in the fire community, some of these people you can find fire community, which stands for financial independence and real estate others are just independent investors saving aggressively and investing in diversifying aggressively as well, either way, this movement is amazing and I'm a huge fan.
Honestly, it's basically what I did early on in my investment journey as well, build my income, reduce expenses to as low as they physically can be, save as aggressive as possible and invest as much as I could physically invest without starving to death. When I found out there were other people doing this, it was like music to my ears. They got it and I'm so happy that there were other people that were thinking that way.
Income funds offer individuals like these an opportunity to pile cash higher and higher and receive returns higher than what they would in the bank. If they just put the money away in the bank and were waiting for different investments, also with the flexibility that income funds offer, if these individuals find a better opportunity to invest in, they can take that money out and take advantage of that other opportunity that may pay a higher return as well.
So if I was a full-time passive investor, that's the exact model I'd be using to avoid savings. Instead, put it in an income fund, take that money out when I needed it for higher-yielding investments and park that money in those higher-yielding ones and then as I got more income coming back in, go back to the income fund. I love that model and the people utilizing that are brilliant.
The next category of people who would benefit most from an income fund, this one was surprising for me, but now that I understand it, it's an absolute, no-brainer and that is real estate developers. The amount of real estate developers who can benefit from an income fund is amazing. Just think about the standard development model. They identify a project, raise the capital, then spend many months or multiple years entitling the project. Are you following me here? Are you tracking with me?
There's a huge chunk of time that these developers have to sit with the money that they've already raised, and they're not able to directly deploy it into building the actual assets. That means there's a period of time. They're getting essentially zero on that money that they've already raised.
Do you realize how much having zero returns for multiple years impacts the final returns or the IRR of an investment? The answer is it's brutal. It absolutely Smothers it. So when I began learning that savvy developers were utilizing income funds to park their money until their entitlement was complete and earn returns while their money was sitting there getting through the entitlement process, it clicked immediately as an expert strategy for high-level developers. Also, it's one of those few times where it's a win, win, win. It's a huge win for the developers. It's a huge win for the income fund and most importantly, it's a huge win for the end investors on both sides and for the last example of groups that can benefit the most from an income fund. I'll talk about the one most dear to my heart, and that is entrepreneurs and busy, successful high-level professionals. For this category and for it to make sense, I'm actually gonna share a personal story.
Previously. I had several successful businesses that we were running at the same time, a super busy, super fast-paced, and constantly evolving industry. The pace was absolutely grueling and the competition was fierce, but the good news is overall. We were actually thriving in these businesses. Our customers were raving fans. We had a 40 plus staff. We had an organized track, 40-plus-person staff and we were crushing our numbers that said there was one person that was definitely not thriving.
And that was me. Well, the business might have been crushing it. I was the one getting crushed by the business and as the business got more successful, it got much more difficult to grow and build the business. At the most difficult point, I was only sleeping a few hours a night. My personal relationships were completely gone and even my long-term romantic partner and I called it quits. I was having major health problems at this time stemming from not sleeping, eating a terrible diet, and essentially living off of coffee to make matters worse, even though the business was very successful overall, it was really lumpy financially month to month, meaning some months we would literally be doing multiple seven figures in the green and other months I'd be coming out of pocket to keep the business afloat. Imagine what that would be like for a stress level.
So while my stress was essentially permanently through the roof and my daily focus was 100% on this business. I did one thing extremely successfully, extremely early on, and was smart enough to do one thing early on and that was whenever I was flush with cash and had a bunch of cash coming in. I would immediately take that and I'd invest the vast majority of it and I was primarily into passive real estate investments. So while I was at that darkest moment, my health and relationships were failing. My romantic life was failing and the business was absolutely crushing me with the stress of the huge highs and the huge lows. I took a moment and I sat down and I analyzed my income to really understand my financial situation a little bit better. When I did this, I found something that shocked me. It turned out that after years of carefully investing my income and savings, that my returns from the real estate were actually rivaling my returns from the business that was crushing me on a daily basis.
When looking at the math, not only were they comparable to each other, but I was spending close to zero time on real estate and I was spending countless hours on the business. This blew my mind when I realized it, but it also had an important second impact that I could not have predicted early on while my business was doing these huge ups and downs. That income stream that was coming from my real estate investments had mellowed out my income over time, essentially with that stable income, although the business was going up and down, it was smooth from the real estate investments, being a counterbalance and money that I could depend on every single month when I realized the stability of the real estate investments and the income I was getting from them, it allowed me first off to reduce the stress majorly and to just be calm and more focused on what I was doing and analyze the situation that without that knee jerk reaction to events. Next, it lets analyze my situation, knowing that my income was covered, knowing that my living expenses were covered and when I was sitting down and calmly analyzing the situation, what I realized is that it was best to prepare those businesses for sale and that I could confidently conclude that selling those businesses would be the best decision, but without that real estate income, I would've been terrified to let go of those businesses because my income would've been tied directly to those. I wouldn't have been able to let go of them without the major fear of where my next meal coming from other than the cash that I made from that business sale.
So all in all, having these other investments did is it smoothed out the income of the businesses because having that set stream of income significantly reduced the stress of those ups and downs in the business and it also allowed me to make the best business decisions, because I knew that the things were covered that I needed covered. All in all, investing in real estate, saved my butt during one of my darkest moments in my career and my life.
So that's a pretty good outline of some of the most common investor types that would benefit most from investing into an income fund model.
As always, I recommend you searching it out for yourself and doing additional digging to make sure that it would be a good fit for your situation. With real estate evolving so much in recent years, it's extremely important to be up to date with the new tools and opportunities that exist in today's market. Things like real estate income funds that were not common in the past can be a major benefit to your portfolio with the added returns and the increased flexibility they can bring you. Additionally, if you have a pretty diversified portfolio or maybe some of it's in a higher growth, higher risk situations like stocks or crypto, etc
An income fund can be the balancing factor to make sure that you're balancing an ongoing income with things that can yield higher in the longer term.
All right, that about wraps it up for the discussion of income funds, but if you wanna learn more about our specific income fund or other educational resources that span all across real estate and investing check out our website at saintinvestment.com, and if you want to check out many of our free resources that include eBooks articles, videos, all kinds of different trainings, check us out at saintinvestment.com/resources.
Cheers! Stay Hungry!
A master in Investment, Marketing, and Capital Raising.
Nic has honed his focus on the Real Estate and debt markets with Saint Investment Group and pursues large-scale Distressed Asset purchases with his partners and syndications.