You Just Sold a Business or a Property. Where Does the Cash Go for Income?

The first six months: do less than you want to

The least commercial advice in this post is the first advice, and it is the part we actually believe. For roughly six months after the wire lands, do almost nothing.

There are four reasons, and none of them is about market timing.

The first is that you are not yourself. Selling a business you built, or a property you owned for twenty years, is a loss as well as a gain, and people underestimate this consistently. The identity is gone, the calendar is empty, and a large number is sitting in an account. That combination produces decisions that look strange in hindsight.

The second is that you are about to become very interesting to a great many people. Advisers, brokers, sponsors, charities, family members and the person you met at the closing dinner all arrive within weeks, and several of them will be good. The ones worth working with will still be there in six months. The ones who will not wait are telling you something.

The third is that your tax position is not final. Purchase price allocation, escrow releases, working capital true-ups and any earn-out are still moving. Allocating money you may owe is the most avoidable error available to you.

The fourth is that cash is not idle in the way people fear. Treasury bills and money market funds pay something while you decide. The cost of waiting two quarters is small. The cost of committing $2 million to an illiquid vehicle in week three, before you understand your own obligations, is not.

One practical version of doing nothing: move the proceeds into short-dated Treasuries or a government money market fund, set a date six months out, and make no irreversible decision before it. Write the date down. It makes saying no to people much easier.

Settle the tax bill first

This is the most common and most painful first-year mistake, and it is entirely mechanical.

A sale produces a tax liability in the year of the sale, and for most sellers part of it is due through estimated payments in the quarter the gain is realised, not at filing. Investors who allocate the full proceeds in the autumn and meet the bill in April have to liquidate something to pay it, sometimes at a loss, sometimes from an investment that cannot be liquidated at all.

The components vary enormously with deal structure. A stock sale and an asset sale produce different results for the same headline price. In an asset sale, the purchase price allocation across equipment, goodwill, inventory and real property determines how much of the gain is capital and how much is ordinary. Deferred consideration, seller notes and earn-outs each carry their own timing. State residency at closing can be worth more than any investment decision you make this year.

The federal estimated-tax safe harbor, under Internal Revenue Code §6654, protects you from an underpayment penalty if you pay the lesser of 90% of the current year's tax or 100% of the prior year's tax — rising to 110% of the prior year's tax if your prior-year adjusted gross income exceeded $150,000 ($75,000 married filing separately). That 110%/$150,000 structure has been fixed by statute since 1991 and is not indexed for inflation.

For 2026, long-term capital gains brackets run 0% up to $49,450 of taxable income for a single filer ($98,900 married filing jointly), 15% up to $545,500 ($613,700 married), and 20% above that, with the 3.8% net investment income tax stacking on top once modified adjusted gross income exceeds $200,000 single or $250,000 married filing jointly — making a gain effectively taxed at 18.8% or 23.8% once NIIT applies.

Section 1202 qualified small business stock changed meaningfully under the One Big Beautiful Bill Act for stock issued after July 4, 2025: instead of a single five-year cliff, a graduated schedule now gives a 50% exclusion at three years held, 75% at four years, and 100% at five years or more (with the non-excluded portion on three- or four-year stock taxed at a flat 28% rather than ordinary long-term rates), the maximum exclusion cap rose from $10 million to $15 million, and the issuer's gross-asset ceiling rose from $50 million to $75 million. Stock acquired on or before July 4, 2025 keeps the old rules: a flat five-year holding requirement, the greater of $10 million or 10x basis as the cap, and a $50 million gross-asset ceiling.

The practical step is simple. Before you allocate anything, have your CPA compute the liability, including state, and move that amount into a separate account in something that matures before the payment is due. Treat it as spent. What remains is the number this post is about. It is usually smaller than the number in your head by a margin that reorders your plans.

Reserve, then income, then growth

A sequence, not an allocation. We are not going to tell you how much belongs in each layer, because we do not know your obligations and we are not your adviser.

Reserve. Cash or near-cash covering living costs, remaining transaction liabilities, the tax bill if unpaid, and known commitments in the next two to three years: a house, tuition, a parent's care, a partner buy-out. Reserve is not an investment and should not be evaluated as one. Its job is to ensure nothing else ever has to be sold at a bad moment.

Income. Assets whose purpose is to produce a recurring, reasonably predictable stream that covers the spending the reserve is not meant to fund. The test of this layer is not total return. It is whether the cash arrives.

Growth. Whatever remains, invested for appreciation over a long horizon, with an explicit acceptance that it will fall by a lot at some point and that you will not need to touch it when it does.

The sequencing matters more than the proportions. The reserve exists so the income layer is never forced to liquidate, and the income layer so the growth layer never is. Structures fail from the bottom up, when someone with no reserve sells the thing they meant to hold for a decade to pay a bill they knew about.

Size the income layer from a shortfall, not from a percentage. Work out what you need annually, subtract what your other assets and any continuing work already produce, and the remainder is the shortfall the income layer has to fill. Then the arithmetic is one division: shortfall divided by realistic yield equals capital required. At an 8% target yield, $120,000 of shortfall implies about $1.5 million. At 5%, it implies $2.4 million. That is the entire calculation, and it is more useful than any rule of thumb about percentages.

Where income can come from

The menu is the same at $2 million as at $200,000. What changes is access, friction and the fact that a few constraints stop binding while others start.

Source	Liquidity	Principal behaviour	Notes
Treasury bills and notes, laddered	High	Returned at maturity	Backed by the US government; income taxed federally, generally exempt from state tax
Bank CDs	Low to medium, penalties apply	Returned at maturity	FDIC insurance limits per depositor per bank become a real constraint at scale
Municipal bonds	Medium	Market value varies	Interest may be federally tax-exempt; credit and duration risk are real
Corporate bonds and bond funds	Medium to high	Market value varies	Duration risk was the lesson of 2022 for many first-time bond buyers
Dividend equities	High	Fully variable	Dividends can be cut; this is an equity position with an income characteristic
Listed REITs	High	Fully variable	Traded with equity volatility regardless of underlying property
Direct rental real estate	Very low	Variable	Produces work as well as income
Private credit and mortgage funds	Very low, locked	At risk	Higher target yields, no daily mark, no exit on demand
Annuities	Very low	Depends on contract	Insurer credit risk; read the surrender schedule before the illustration

Illustrative summary of characteristics only, not a ranking and not a recommendation.

Scale creates four genuine differences. FDIC coverage caps mean several million cannot sit in one bank without a sweep network or an acceptance of bank credit risk, which is why Treasuries tend to replace CDs above a certain size. Direct ladders become practical, so you can own bonds with real maturity dates rather than a fund whose duration never matures. Accredited status opens private placements, which widens the menu rather than improving it. And the tax character of income starts to dominate the headline yield.

For context on the private lending end of that menu, according to Private Lender Link the average Houston hard money interest rate in the second quarter of 2026 was 9.84%, on an average loan size of about $570,000 across 247 loans. That is the gross rate charged to borrowers, before fund fees, before any loss, and before the manager's share. It is not an investor return, and any fund quoting borrower rates as though they were is worth a second look.

The concentration trap

You made the money in one thing. The strongest instinct after a liquidity event is to put the proceeds back into that thing, and it deserves a careful answer rather than a dismissal.

The instinct is not stupid. You can evaluate an opportunity in that industry faster than any adviser you will hire. You know the operators, the margins, the cycle and the lies people tell in that sector. That edge does not evaporate at closing.

But notice what changed. The money came from operating a business you controlled, where your judgement determined the outcome and you could see problems in the monthly numbers and act. Putting proceeds back into the same sector as a passive investor is a different bet: exposure to the industry without the control that produced your result. The skill that made you money was operating, and operating is what you have just sold.

The second version of the trap is holding acquirer stock after a deal that paid partly in equity. It feels like continuity. It is a single-company position, usually a large one, often with restrictions, and it is correlated with the industry knowledge you were counting on as a hedge.

The useful question is not whether to keep exposure to what you know. It is whether the new position has the feature that made the old one work. If it does not, price it as what it is: a bet on an industry, made by someone whose net worth is already correlated with that industry's fortunes.

Where private credit fits

Private credit, including first-lien mortgage funds like ours, is a sleeve inside an income layer. It is not a strategy, and it is not a substitute for the reserve.

What it offers is a target yield above what cash and investment-grade bonds pay, from an asset whose return comes from contractual interest rather than appreciation, secured against real property. Matador Note Fund 1 LLC targets an 8% non-cumulative preferred return paid quarterly, with a target total return of 8–12% annually. Those are targets, not projections. The preferred return is payable only from available distributable cash.

Now the honest part, which for a reader in your position is the only part that matters.

It is illiquid, and the lock-up is long. Our fund has a 24-month lock-up. After that, redemption requires a written request with 90 days' notice, is processed quarterly, and is capped at up to 25% of your balance per quarter, subject to fund liquidity. Returning a full position can take a year of quarters after the lock-up ends, in good conditions. For someone six months past a liquidity event, that is a serious constraint, and it argues for deciding late rather than early.

The income is ordinary in character. Interest reported on a Schedule K-1, with no depreciation shield of the kind rental property provides. And K-1s arrive when they arrive, which for many investors means filing an extension.

Principal is at risk. A first lien reduces the chance of a total loss. It does not eliminate loss. Real estate debt investments involve significant risk, including possible loss of principal.

There is no daily mark. Some people find that restful. Restfulness is not stability, and a position that never appears to move is not therefore not moving.

Sizing is yours, not ours. The characteristics above make private credit a poor home for money you might need and a candidate for the part of an income layer that is genuinely long-term. Where that line falls in your case is a question for the people in the next section.

People to have in the room

Four, and they are not interchangeable.

A transaction attorney, ideally the one who papered the sale, for anything still open: escrow, indemnities, non-competes, earn-out mechanics.

A CPA who understands the deal, not only one who files returns. The difference matters most in the first year, where allocation, instalment treatment and estimated payments are decided or discovered.

A fiduciary adviser. Ask whether they are a fiduciary at all times and in writing, how they are paid, and what they receive from third parties for placing your money. Read the conflicts section of their Form ADV. An adviser paid only by you has one incentive; an adviser paid by sponsors has two.

An estate attorney. A liquidity event changes what your estate looks like, and several planning techniques work better before proceeds are invested than after.

And to be explicit, because this is the closest thing on this site to individual advice: Matador Lending LLC is not a registered investment adviser. We are a lender and a fund manager. We do not do financial planning, we do not manage portfolios, we have no view on your overall allocation, and nothing on this page is personalised investment, tax or legal advice. We have one product and an obvious interest in it. Take the framework; take the sizing question to someone who is paid to answer it and has no product to sell you.

Questions to take to that meeting

Print this. Take it to the CPA and the adviser separately, and compare the answers.

For the CPA

1. What is my total federal and state liability on this sale, and when is each payment due?

2. Is any part of the gain eligible for instalment treatment, and does that help or hurt me?

3. How was the purchase price allocated, and how much of my gain is ordinary rather than capital?

4. Does any part of the transaction qualify for a small business stock exclusion?

5. What should I be doing before 31 December that becomes impossible on 1 January?

For the adviser

1. Are you a fiduciary at all times, in writing, for all of my accounts?

2. How exactly are you paid, in total, including anything from third parties?

3. What annual income does my balance sheet produce today, with no changes?

4. What is my shortfall, and what yield is required to fill it?

5. What in this plan cannot be reversed, and for how long?

6. What happens if I need $500,000 unexpectedly in eighteen months?

7. What is the largest risk you see in what I am proposing, and would you say so if I disagreed?

For yourself

1. What do I want the money to do, in one sentence, with a number in it?

2. What would I have to believe for this decision to be wrong?

3. Is there any reason this has to be decided this month?

Question 15 is the one that saves the most money.

Frequently asked questions

Q: What should I do with money from selling a business?
A: The common sequence is to settle the tax liability on the sale first, then set aside a cash reserve covering living costs and known obligations, then build income, then consider growth. Most experienced sellers do very little in the first six months beyond parking the proceeds somewhere safe and liquid. We are not investment advisers and this is not personalised advice; the sequence is a framework, not an allocation.

Q: How much of a windfall should go into income investments?
A: We will not put a number on that, and you should be wary of anyone who does before seeing your tax bill, your obligations, your other assets and your timeline. The answerable version is arithmetic: what annual income do you need, what does the rest of your balance sheet already produce, and what shortfall remains. Size follows from the shortfall, not from a rule of thumb.

Q: What taxes are due when you sell a business?
A: It depends heavily on whether the deal was structured as a sale of stock or of assets, how the purchase price was allocated, whether any portion is deferred or contingent, and your state of residence. Asset sales commonly produce a mix of capital gain and ordinary income including depreciation recapture. Estimated tax payments may be due in the quarter of the sale rather than at filing. This is a question for your CPA, before closing where possible.

Q: Should I invest a windfall all at once?
A: Both approaches have defensible logic. Deploying at once puts capital to work immediately; phasing in over several quarters reduces the consequence of a badly timed single entry and, more practically, gives you time to learn what you actually own. In illiquid private investments the question is sharper, because a commitment made early cannot be reversed if your circumstances change six months later.

Join the newsletter while you are in the six months of doing nothing; it is written for people deciding rather than buying. When you have your tax number and a shortfall figure from someone who is paid to give you one, book a call and we will go through what this asset class does and does not do.

Important disclosures. This article is for informational purposes only and is not an offer to sell or a solicitation of an offer to buy any security. Any offer is made only through the Private Placement Memorandum, Operating Agreement and Subscription Agreement of Matador Note Fund 1 LLC, which govern in all cases and should be read in full, including the risk factors. Interests are offered only to accredited investors as defined in Rule 501 of Regulation D, pursuant to Rule 506(c); accredited status must be independently verified. Real estate debt investments involve significant risk, including possible loss of principal. The 8% preferred return is non-cumulative and is payable only from available distributable cash at the manager's discretion; it is not guaranteed. The 8–12% figure is a target objective, not a promise or projection of results. Targeted returns are not guarantees of future performance, and past performance is not indicative of future results. Figures describing prior lending are the manager's own lending record and are not audited fund performance. Nothing here is legal, tax or investment advice. Matador Lending LLC is not a registered investment adviser.

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