Hi {{first_name}},

I often talk about going from $2M to $20M in net worth, or “2 to 20.” It blows people’s minds that it’s actually doable in one lifetime, just by investing in the private markets, rather than working ourselves to a retirement age on the stock market alone.

If you've read the previous Capital Velocity Stack and Tax Elimination Engine (TEE) issues we shared a few weeks ago, you'll see a clear map for how to get there. Essentially by reallocating a $2.5M portfolio, adding three years of new capital, and letting roughly 15 years of compounding do the rest.

But a 100% appreciation strategy has a cost. It requires maximum reinvestment. And while your assets compound on the balance sheet, you keep working for income.

A few years ago, I paid off my mortgage. It felt good for a while. But I had become an active private investor, and the cash sitting as equity in my home started eating at me. I could see it appreciating at 2-3% annually while the deals I was looking at were returning 10-35%. I knew better, and that made the opportunity cost impossible to ignore.

So I pulled it all back out. This time not as an appreciation play.

I put it to work as principal in a cash flowing, private credit portfolio. And ultimately, 100% in our own private credit fund, BuildFlow I, where I’m currently the second largest investor.

Today the distributions from that principal cover my entire monthly mortgage payment with more to spare. The last two quarters of that fund have averaged 12.3% annual distributions (paid monthly), and my mortgage is sitting right about 6%. Let’s call that cash flow arbitrage.

The $20M goal is still the aim. In a well-architected portfolio it could compound toward $30M while you sleep. But there is a number dramatically lower than $20M with a different kind of power. The power of making earned income optional.

It hit me when I moved my home equity into the private credit fund. The distributions covered my mortgage. Earned income stopped being the thing that kept the lights on. That crossroads taught me to think about freedom differently.

Financial independence has a precise definition. It's the monthly passive income number that covers the life you want, landing in your account whether you work that month or not. When you hit it, you work because you want to. Not because you have to.

That number comes from the principal you deploy. And the amount of principal you need is dramatically lower than most people assume. Deploy $4M at 12% cash-on-cash and it produces $480,000 a year, completely passively. That's the top 1% income in America. 

I started calling this the Freedom of Four. Which is such a valuable concept, I wanted to explain exactly how I achieved it. 

This week I’m sharing:

— Walker Deibel
WSJ & USA Today Bestselling Author of Buy Then Build
Founder, Build Wealth

P.S. If you're interested in building passive investment income like what we cover in this issue, consider our BuildFlow I fund. It's a collateralized portfolio of low-LTV commercial real estate with monthly payments or a compounding option. 

It's returned around 12% for two quarters running, and I'm the second-largest investor. Read the full performance here.  Or set up a call with our head of investor relations here. Note: Past performance does not guarantee future results.

Private credit is one of the better ways to produce passive income.

Although first, a quick definition because the term has been thrown around with abandon lately. Private credit is non-bank lending, and it runs the gamut from pristine senior loans to deals that are worth avoiding. However, done with discipline, these funds are among the best risk-adjusted income available. You hold secured debt that sits in front of the owner's equity, so when a deal goes sideways, their money takes the loss before yours does. The Build Wealth fund pays monthly and has recently been yielding around 12% in quarterly returns.

If you had known this type of vehicle existed, how would that change your definition of the word retirement? What would retirement saving even mean to you?

The question may land hard because most high earners assume their income is stable. It doesn't feel volatile, it feels earned and predictable. But the data says otherwise. Research found that income volatility follows a U-shape across the distribution. The bottom decile is volatile for obvious reasons. The top decile is volatile too, due to bonus cycles, commission swings, equity vests, industry restructuring, etc. The stability most high earners assume is cyclical.

So getting back to the question on your definition of retirement, there’s a bit of math to take in and an important strategy to consider. 

It’s the Freedom of Four. Four as in $4M. 

Put that ideal capital to work at 12% cash-on-cash and it kicks off $480,000 a year, completely passively. That's close to the top 1% income in America, with dollars to spare, and it keeps landing through every bonus cycle, every vesting schedule, every quarter the rest of the portfolio has to sweat.

To match that $480,000 with the old 4% rule, you'd need $12 million saved — and you'd watch it shrink every year, since the method works by spending the balance down. The Freedom of Four gets you the same income from a third of the capital, and the $4M stays right where it is.

So retirement stops being a finish line you save toward for thirty years. It becomes a number you fund. And the day you fund it, you can consider it done.

This is where David Swensen, legendary investor and creator of the endowment model or ‘Yale Model’, comes back to the conversation. (In case you missed it, two weeks ago we went deep into his strategies and his dual outlooks for institutions and individual investors. Outlining how the walls blocking private markets for individuals are coming down.)

For years, the advice to individual investors from experts like Swensen was to stay in index funds and leave alternatives to the institutions. It came down to three walls in the way: access, governance, and time horizon. Two of those have already fallen since Swensen shared that advice. Changes in regulation in recent years have opened more access to private markets and removed governance holds. That was the whole point of that issue. The one wall that’s left standing ahead of individual investors is the time horizon.

Time horizon is the institutional edge you already own. The trick is knowing how to use it. A ten-year lockup only helps you if you can sit through it without flinching, and most people can't, because their capital is tied to a life they're still actively funding with earned income.

A passive income floor is what makes the hold effortless. Once the $480,000 lands, regardless of anything else, you can lock capital up for a decade and barely notice. You can ride a 30% drawdown without selling at the bottom. The income floor turns you into the investor the endowment model was written for.

You don't need to stand on the top of the ladder to begin. Every $100,000 deployed at 12% is another $1,000 a month you didn't have to work for. And the income floor compounds itself toward the next rung while you go on living your life.

It’s a ladder for a reason, you start on the lower rungs and work up. To start you only need to find capital that's already yours and not earning much, and move it one rung up. You don't have to wait on the big net-worth number to start building passive income. The Freedom of Four works from whatever rung you're standing on today.

Step 1: Find your idle capital.
Run a fast audit of every dollar sitting in low-yield positions: treasuries, money-market funds, stagnant brokerage cash, anything earning 4% or less. Whatever that sum comes to is your entry point. Every $100,000 you redeploy at 12% becomes roughly $1,000 a month you didn't have to work for.

Step 2: Locate yourself on the ladder.

Each rung pairs a deployment amount with the income it produces at 12% and the slice of American earners that income puts you among. 

Note: Above is illustrative only. 12% cash-on-cash. Income futures are rounded.

Pick the next rung up from where you sit right now. That's the only target that matters this year.

Step 3: Choose cash or compound.
The fund lets you switch quarter by quarter. At the lower rungs, you compound because the cash flow is small enough to leave invested, and the principal climbs toward the next rung faster. At the upper rungs, compounding becomes an inflation hedge.

Step 4: Sequence it with your growth engine.
The Freedom of Four is your cash-flow engine. The Capital Velocity Stack — real estate, private equity, the tax layer — is your appreciation engine, and it's how the ultimate $20M gets built. There's two ways to combine them.

Both paths land in the same place, and the full sequencing becomes a separate issue.

For now you find the idle capital, pick the next rung, and fund it. The Freedom of Four starts paying the month you fund it.

This week, we're leaning into the lessons of Walker's personal portfolio. The Freedom of Four is best understood by watching someone live it, one deal at a time.

Image: Medical office building in our BuildFlow I portfolio, with a freshly signed 10-year triple net lease.

A few years ago, I had enough cash to pay off my mortgage. I decided to move in another direction. I worked with a private bank to make it interest-only.

That may sound backward. But there is strong math behind the purpose, and it gets me to my income goal in a quicker way.

It gets better with taxes. 

The income from the fund is taxable, but mortgage interest is deductible. Therefore, the dollars covering my interest are returned to me, essentially tax-free. I keep some equity in the house since equity lowers my risk. Another win. And for me, I’ve learned the right number is never 100%.

I'm trusting a fund to make my mortgage payment. Why? Because of where we sit in the capital stack.

We hold the secured debt, in front of the borrower's equity — their money takes the loss before ours ever does. We have takeover rights on every loan. And we never want a borrower to fail, but if one does, the long-run math makes us more profitable. We’re in front of the equity instead of being the equity. I believe in it enough that I'm the second-largest investor in our fund AND I continue to increase my investment in it.

But cash flow is only one slice. I think about my whole portfolio as pizza by the slice. Some slices appreciate. Some are built for tax efficiency. BuildFlow I is the cash-flow slice. Every asset has to do one job well, but none of them are trying to do ALL three. 

That one decision — funding the fund instead of the house — changed how I see my own income. My recent deposits looked like this: $4,911 in February, $5,029 in March, $5,381 in April, plus a $10,652 profit share for the quarter. North of $100k a year, landing whether I work or not. When I don't need the cash, I flip to compound mode and the principal grows on its own, increasing my passive income later.

From this financial structure, your home stops being a vault for dead equity and becomes an asset that works. Debt stops being a burden and becomes a lever. Your income stops depending on you.

And the climb to this higher rung starts wherever you are. It might be allocating a better-yielding sleeve of the equities you already own. Your first $1,000 a month that arrives without your effort. One $50k or $100k deal a year, funded entirely by cash flow. The top 20% of earners, fully passive. Or — like a few of our investors — you realize you never have to work again.

$4M is real money, I know. But private markets are the only road that carries you from $2M to $20M in a lifetime, and as one of our readers you're likely already accredited. $4M is far more reachable for you than for 80% of the country — and it's less than a quarter of the $20M I've already mapped out for you.

I'm building an appreciation portfolio and a cash-flow portfolio at the same time. The view only goes higher.

BuildFlow I is a private credit fund: a portfolio of loans secured by commercial real estate, paying monthly, with the option to compound. Today it has $53.6M deployed across 14 active loans at a 70% average loan-to-value.

That LTV is the whole point. It means the borrower has put up 30% of their own money beneath our position. If a property loses value, that 30% cushion absorbs the hit before a dollar of fund principal is touched. We hold the secured debt and sit in front of the owner's equity — when a deal goes sideways, their money takes the loss first.

The returns come from discipline, and discipline shows up in what we turn down. Every loan needs a unanimous yes from all four managers, one of them a former bank lender. Last quarter, $274M in deals came across the desk and we funded $7.85M — roughly three cents of every dollar reviewed.

The loans are fully collateralized, backed by cash-flowing commercial real estate with known sponsors. Each loan prices at origination and reprices on renewal, with a weighted average maturity of about 2.65 years. Because the portfolio refreshes continuously, the yield moves with the market across rate cycles rather than locking in at yesterday's rate.

Compared with a stock portfolio, the historical volatility is much lower and the risk-adjusted return is higher — because we're in front of the equity instead of being the equity. That's the case made in the author’s stack section, and it's the reason for increasing the investment position.

Interested in joining the team of investors in the fund? You can learn more about our BuildFlow I data room here. You can also set up a 1:1 call with Mike Brown, Head of Investor Relations, and determine if private market investing is the next step for you.

Note: Past performance does not guarantee future results.

Meet an originator of the Freedom of Four: King Edward IV. The merchant king who made the crown pay for itself. Trading wool himself, living "of his own," and assumed to have died solvent for the first time in 200 years. He funded the life instead of working for it.

The rest of his legacy we'll leave to the history books. A ruthless king, but a brilliant balance sheet.

The Freedom of Four. For your sovereignty.

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This is not financial advice. Illustrative output of a reasoned thought experiment. Not a backtest, guarantee, or prospectus. Actual results vary based on market conditions, fund selection, timing, fees, taxes, and factors not modeled. Private credit, CRE, and leveraged strategies involve significant risk including loss of principal. Consult a qualified financial advisor.