“The market is too tight!” Allen said, clearly frustrated as his hand hit the table. “I can’t find any cash flow.”
It was a familiar conversation. Eight of us—experienced investors—had gathered in a room, discussing the markets, our businesses, and how we could help each other grow. Across traditional fixed income, rentals, and syndications, the same concern echoed: Cash flow is getting harder to find.
But while some investors see shrinking returns, others are shifting their focus. Private debt—one of the fastest-growing alternative asset classes—offers an opportunity to generate high yields with a range of strategies. From corporate lending to asset-backed financing, private debt spans sectors, each with its own risk-reward profile.
Beyond Traditional Markets
The private debt market has seen rapid growth, expanding at a 10.7% CAGR, from $1 trillion in 2020 to $1.5 trillion by early 2024. This surge reflects significant capital inflows into the sector. With projections forecasting an 11.6% CAGR, the market is expected to reach $2.6 trillion by 2029. (Morgan Stanley, Preqin)
The demand for capital access is driven by borrowers’ increasing need for the speed, flexibility, and assurance that private credit solutions offer, especially as traditional banks cautiously evaluate lending standards amid current uncertain conditions.
This is seen across a range of industries. Corporate lending is a key sector where middle-market businesses turn to private credit to fund expansions, acquisitions, and operations. These loans are often structured with a floating-rate benchmark with a floor (often SOFR, previously LIBOR), plus a credit spread determined by credit quality and leverage.
These loans often offer returns that outpace the returns of traditional corporate bonds. Higher yields are available to investors willing to take on more risk for distressed companies in need of urgent financing. Niche and consumer finance is a growing sector, encompassing areas like litigation finance, automotive loans, and merchant cash advances.
Private capital is also particularly important for small businesses, entrepreneurs, and startups, which are often underserved by traditional banks due to a lack of credit and track records. Entrepreneurs are increasingly turning to alternative options to fund everything from first-time businesses to more established ventures. The capital addresses specific needs, whether it’s a longer-term loan for business expansion or a short-term loan for a real estate project, often at a premium rate of return.
One of the most established, compelling sectors in private debt remains real estate lending. Hard money loans, bridge financing, and construction loans regularly generate returns upwards of 8%, while offering investors the security of real property as collateral. Real estate lending continues to thrive because it meets a critical market demand—banks are often unwilling to finance short-term projects or properties in need of significant rehab. Private lenders fill this gap, providing funding that traditional institutions cannot.
The Alternative Advantage
Private debt consistently outperforms traditional fixed-income investments. U.S. Treasuries currently offer returns between 4.5% and 5%, while investment-grade corporate bonds hover between 5% and 6.5%. Even high-yield bonds—often called junk bonds—typically max out at 9% and carry risk, especially in turbulent times.
Meanwhile, private debt opportunities across real estate, corporate lending, and specialty finance routinely deliver yields upward of 8%—delivering comparative security and yield.
Private debt is less reactive to macroeconomic shifts compared to traditional bonds, which are heavily influenced by Federal Reserve policies and market sentiment. Uncertainty fosters the exact conditions that private lending addresses. Additionally, private debt agreements are often negotiated with fixed-rate structures, making them more insulated from rate volatility. The deals are often structured with strong lender protections, including asset collateralization, restrictive covenants, and priority lien positions, ensuring investors have a clear path to repayment.
Investors seeking access to private debt have several options, depending on their risk tolerance and level of involvement. For those preferring a more hands-off approach, private credit funds manage a diversified pool of loans—originating loans with high returns. These funds specialize in various types of lending, including middle-market corporate credit, distressed assets, or real estate.
Peer-to-peer and fintech lending platforms have democratized access to private credit for retail investors. However, the quality and trustworthiness of these platforms can vary, so it’s essential to evaluate the risk-reward and perform due diligence on the manager.
A more reliable approach to accessing real estate debt is to consider funds that provide access to a diversified pool of loans, offering enhanced returns with less risk and overhead compared to interacting with individual borrowers. Since lending requires expertise in robust underwriting, risk assessment, and loan servicing, it’s important to choose a fund manager with a proven track record of demonstrating transparency and who manages your capital with the same care as their own.
Among all private debt sectors, real estate-backed lending remains one of the most secure and attractive options. Unlike corporate or consumer lending, where collateral can be intangible, real estate loans are backed by physical assets. This makes the risk easier to manage and the investment more transparent. Public records allow investors to verify property ownership, existing liens, and market valuations, providing clarity not found in other forms of private credit.
For example, fix-and-flip loans—short-term bridge loans for real estate investors—offer some of the highest yields in private lending. Traditional banks typically avoid these types of deals because the borrowers require fast underwriting and funding, need short durations, and often involve distressed properties.
Private lenders step in to provide capital, charging interest rates between 10% and 13%, along with upfront origination fees of 1% to 5%. These deals provide strong returns while being backed by real property that can be rented, resold, or repossessed if necessary. The short-term nature of these loans also enhances the viability and cash flow of a fund, as investors receive quicker returns and flexibility to reinvest capital more frequently.
Risk management is a crucial aspect of real estate lending. Hard money lenders mitigate risk by capping loan-to-value (LTV) ratios at 70% or lower. This means the borrower must have equity in the property, providing a built-in cushion for investors in case of a downturn or default.
Investors also maintain priority in the capital stack, meaning they are repaid before equity holders in the event of liquidation. Additionally, lenders can protect their interests with title insurance and structured lien priority.
For investors like Allen, who was frustrated by the lack of cash-flowing opportunities, private real estate lending presents a compelling alternative. Even managing rental properties falls short of the ideal—where maintenance, vacancies, and tenant issues cut into profits, real estate-backed private debt offers a more passive income stream, with consistent and high-yield returns.
The Future of Cash Flow Investing
As markets shift, investors must adapt. The days of easy cash flow from high-yield bonds and stocks are gradually fading. For those willing to explore beyond traditional fixed income, private debt presents an alternative—an asset-backed investment with built-in risk protections and premium returns.
For real estate investors specifically, private lending provides a way to earn high returns without the operational headaches of property management or direct lending. Short-term loans in this space offer a distinct advantage for cash flow generation, providing quicker returns, recycled capital, and diversified risk—making them a highly attractive option for income-focused investors seeking more frequent payouts.
When Allen hit the table, frustrated by his lack of cash flow, I asked him why he hadn’t explored private debt. For the first time in the five years I’ve known him, he invested in a real estate-backed note. The result? A return significantly higher than the 1% to 4% from high-yield savings accounts, and even better than the 4.5% to 6.5% range of Treasuries and corporate bonds.
If rates decline over the next few years, as many predict, the spread between private debt and other fixed-income options will only grow wider. If you’re seeking cash flow, it might be time to consider private debt as the next addition to your portfolio. The opportunities are there—you just need to know where to look.
About the Author
Kevin Amolsch formed Pine Financial Group, Inc in 2008 after leaving a small mortgage company as the senior loan officer for residential lending. Kevin started out in banking, working at First Bank in the lending department while in school. From there, he started his first real estate investment company, which is still active today.
He and his companies have closed on over 2,500 transactions as a buyer, seller, or private money lender. He is a two-time bestselling author, a sought-after expert in real estate finance and investing, and has been quoted in The Denver Post, The Denver Business Journal, The Las Vegas Review Journal, Forbes, Yahoo Real Estate, and many more.
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