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Andrew

My first loss on PeerStreet

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This home was a money-loser, but I still got 87% of my money back.

I’ve been investing in real estate through PeerStreet since January of 2018. During that time, I’ve invested in 87 properties, 60 of which have been paid off.

I just had my first loss on a PeerStreet investment. But here’s the beauty of investing in real estate-backed loans: you usually get at least some of your money back in case of a default.

In my case, I invested $2,346 in a home in Conroe, Texas. It went south quickly; the buyer stopped making payments after just two months. After the last interest payment on September 5, 2018, the homeowner failed to make any additional payments.

The home went into foreclosure and was sent to auction. PeerStreet was the winning bidder at the foreclosure sale in February of this year and then began marketing to home to sell.

Several offers came in prior to hiring a broker. The first offer ended up falling through after due diligence. The buyer couldn’t get financing because of an issue with the property elevation.

A second buyer came through and bought the house.

When everything was said and done, investors got 87% of their money back.

It took a while. Money wasn’t returned until October 30, 2019, so it was over a year since the buyer stopped making payments.

But losing a bit on one deal isn’t bad. Of the 60 loans I’ve invested in that have been paid off, this is the first to take a loss. The others paid at least 7% interest.

This is a lot better than my results with unsecured loans at LendingClub. My return there is less than 2% after accounting for all of the write-offs. I’ve earned more in my savings accounts.

5 Reasons Why You Shouldn’t Buy a Tesla

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There are a lot of people buying Teslas these days now that there’s a more affordable option in the Model 3.

It’s a sweet car. All Tesla cars are nice. Electric is cool. Once you go electric, you’ll never go back.

But if you’re on the fence and want someone to talk you out of it, here are 5 reasons to not buy a Tesla, coming from someone who has owned a Model S for three years.

1. They cost a lot to fix

It’s going to a while before we understand how much it costs to fix a Model 3. But when it comes to body shop work on a Model S or Model X, it’s really expensive.

Take a look at the picture at the top. Some unfriendly person hit our car in a parking lot and didn’t leave a note. It left quite a dent but only on one panel. Take a guess at how much it cost to fix this.

If you guessed “more than $10,000”, you were right.

Ouch.

(On the plus side, general maintenance isn’t necessary.)

2. Insurance is expensive

Our insurance covered the hit-and-run. But the cost of fixing a Tesla means that insurance is very expensive.

The insurance cost wasn’t bad when we first bought our Tesla. But premiums soared as insurance companies figured out the cost of fixing these vehicles. As my agent tells it, they’ve had to total cars that normally would cost $20k-$30k to fix. And then there are the dings and bumps that would cost a few grand to fix on most cars that cost $10k.

Be prepared to shell out a lot of money to insure your Tesla.

3. It takes forever to get parts

Body shops have only one source to get Tesla parts: Tesla itself. The same goes for fixing things at a Tesla service center.

This means it can take a long time to get a Tesla fixed.

Case in point: a rock hit our windshield and we need to get it fixed.

On most cars, this is something that can be fixed within a couple of hours by a mobile installer. But you won’t find many windshield companies that can do Tesla windshields. We had to get it through Tesla and it took two weeks to get it in. Oh, it also costs $1,300. That’s a lot more than most luxury cars.

4. Service centers are in disarray

Tesla is still trying to figure out how to service cars. You have to wait a long time to make an appointment and then service is slow.

I dropped my car off yesterday afternoon for the windshield replacement. They are also swapping out the HomeLink module that failed. I figured they could turn it around that afternoon. Instead, they informed me it would probably be two days! It’s because they’re so backed up. I’d rather have them tell me to bring my car in when the mechanics will be able to do the work.

In the early days, they used to give you a Tesla loaner. Those days seem to be over because they are selling all available cars. Now they’ll get an Uber for you or a rental car, but rarely a Tesla. Most premium car brands give you a loaner in the premium brand.

5. Owning a Tesla comes with the same headaches your phone has

You know when your phone gets a software update and things break? Or the user interface changes and you have to re-learn how to do simple tasks? That’s what owning a Tesla is like.

On the one hand, it’s cool that Tesla can push updates to your car. On the other hand, these updates often break the car.

Earlier this year one update had a bug that caused your dashboard to frequently reset while you were driving.

Yes, while you were driving!

It took a couple of weeks to push out a fix.

Tesla released an entirely new user interface a couple of weeks ago. The timing wasn’t smart since Tesla support was already overwhelmed with new Model 3 buyers.

The interface takes a lot of getting used to. But it also took out one of the safety features that many people use–the ability to keep a rearview camera at the top of your screen while driving. Tesla pushed out a fix for this within a couple of weeks. Yet it strikes me that Tesla doesn’t really understand how people are using its interface. If it did, it wouldn’t have removed the rearview camera option in the first place.

Yeah, Tesla is still cool.

OK, if you have the money, buy a Tesla. All of their cars are awesome. Just be aware that it won’t be a panacea.

Buying (and returning) a used car through Carvana

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Carvana delivering my car.

Driving a new car is exhilarating, even if the initial excitement is short-lived. But the process of buying one is rarely so: Pushy dealers. Endless negotiations. Upsells.

It’s even worse when you buy a used car. Many dealers shunt you off to a second-rate sales experience when you opt to buy used.

For many reasons (worthy of another post) I prefer to buy late model used cars whenever I can. After my family’s second car finally called it quits over the winter holidays, I begrudgingly set out to find a replacement.


Off to the used car lot

My first stop was CarMax. CarMax has a lot of good things going for it. If you’re trying to narrow down a short list from a lot of different cars, you can check many of them off your list in an hour or two at CarMax. They carry just about every make and model. It’s very efficient.

This was my first time test driving at CarMax and I came away wondering how the company stays in business. I sold a car to CarMax a while ago and the process was very easy. But just about every car I test drove at CarMax had a problem with it.

The plug-in hybrid had no battery life left. Worse, it had a serious transmission problem.

Another car had a flat tire and was running on run-flats.

Another had a seriously jacked suspension.

It was almost comical. When I got into each car I played a guessing game about what would be wrong with it.

To the big brand dealers

My next stop was to the luxury brand dealer used car lots. It was a step up from CarMax because the cars actually worked. But I was flummoxed by a couple of things.

1. I had a few specific requirements for the car, including a backup camera. I found that most dealers are inconsistent in how they label the features their used cars have.

2. Pushy salespeople.

The BMW dealer was particularly frustrating. Its website had a horrible user interface. Figuring out which options the cars had was almost impossible. Some car listings had all of the features listed while others had just basic info.

I assumed that the salespeople would have better data on which cars had which features. So when I sat down with a salesperson and told him I wanted to drive a car with a backup camera,
I was shocked at what happened next. He literally opened the website, went to each car listing individually, and clicked through all of the pictures looking for which ones had photos of a backup camera!

Nirvana at Carvana

Frustrated with my real-world experiences, I decided to check out online car sellers.

The idea of buying a used car sight-unseen might be scary to you. I’ve done it before, though.

Online-only used car sellers tend to have generous return provisions to make you feel comfortable. For example, Carvana has a 7-day, no questions asked guarantee.

Carvana seems to be the heavyweight in online used cars. It’s a publicly traded company with a $3 billion market cap. Compared to a couple of other online used car sites, Carvana has higher standards for the cars it will sell. It doesn’t sell any cars that have accidents reported on their CarFax report. It also seems to stay away from cars that were used for a special purpose, such as fleet and rental. [Update: it seems that Carvana has been adding more fleet/rental cars.]

And compared to all of the dealer sites I visited as well as used car aggregator sites like AutoTrader, the user interface and search features were much, much better on Carvana.

You can search by dozens of different features so that you can find exactly the car you want:

I found a 2015 BMW 3 Series that met my requirements.

Ordering at Carvana

All of Carvana’s cars have fixed prices, so there’s no haggling. You reserve your car online through a checkout process, much like buying anything else online. There’s a bit more information they need, of course. We’re talking about a big purchase with state regulations.

I was paying cash for the vehicle. Carvana needed to verify the funds and offered an online way to connect to my bank account. I was a bit uneasy about giving my bank account info to a third-party tool, so Carvana did a simple phone verification instead. They called me and then three-wayed with the bank to confirm the funds.

I spent a total of about 10 minutes online and 10 minutes on the phone to complete the process.

There was one drawback to buying a used car at Carvana rather than a local used car dealer. Carvana required me to add the car to my insurance before receiving the car. When I buy a car from a dealer in Texas they need to see that I have insurance but I don’t need to add the new car. Since my insurance company covers new cars for 30 days without adding them to the plan, buying a car at Carvana essentially required me to pay for an extra month of car insurance.

Delivery day!

Carvana has a cool gimmick for getting your car. They have “car vending machines” in select cities including my hometown of Austin. Your car is delivered via an elevator and conveyer belt from a five-story machine.

They will also deliver the car to you via flatbed truck for free. I watched a video of the vending machine online. It was really cool, but seeing the video was good enough for me. I didn’t want to spend an hour roundtrip going to the vending machine. You can check out the vending machine here:

My delivery person called an hour before my scheduled delivery to verify I would be available. She then showed up right on time and unloaded the car (see photo above).

She let me take the car for a quick spin to make sure there wasn’t something obviously wrong with it. Next up was about 5 minutes of signing paperwork.

That was it. Then I had seven days to drive the car and get it inspected. Any problems? Just return it.

Trying the return policy

This review is going to be a bit different from others you read because I ended up returning the car and testing the return policy.

Let me start by saying this was not Carvana’s fault. The car was fine. I just made a mistake. I’m meticulous, so I’m a bit ashamed to admit my mistake…

The car came with “keyless entry and ignition”. I assumed that this meant there was a button on the door that I could press to unlock the car. My retired Infiniti from 2007 had this feature. So surely a 2015 BMW would.

But everything on a BMW is an option.

“Oh, you want the car to drive? That’s an upgrade.”

It turns out that opening the door without taking the keys out of your pocket requires an additional package called Comfort Access. This package is part of another package, so it wasn’t listed on Carvana’s listings.

When I realized my mistake a couple of hours after getting the car I felt a pit in my stomach. What an idiot. This was one of the few must-have features I wanted and the car I selected didn’t have it. It was a true face-palm moment.

So it was time for me to test Carvana’s return policy. I called them up and told them I wanted to return the car.

No problem, sir. And no questions asked.

Maybe they would have asked if I didn’t tell them why I was returning it. But they didn’t give me any grief. They offered to pick the car up within 48 hours.

At this point, I was so enamored of the company and how it operates that I offered to return the car to their vending machine. I wanted to see what it was all about. I returned the car the next day. The entire process at the vending machine took about 3 minutes. I signed a piece of paper and they initiated an ACH transfer back into my bank. They even paid for an Uber for my ride home.

If you’re in the market for a used car, I recommend checking out Carvana.

Why I stopped investing in LendingClub notes

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In 2015 I wrote about how I was investing in peer-to-peer loans through LendingClub as a way to juice returns on my cash.

Unfortunately, it hasn’t worked out so well. My returns to date are below 2%.

This isn’t because I invested in riskier loans. LendingClub predicted that, based on the automated investing approach I had, I’d see returns of 5.5%-8.3%.

Of course, I started investing before news came out the LendingClub was up to shenanigans. But here are a couple of other things I learned along the way:

1. The house always wins. I originally looked at LendingClub from an investor’s point of view only. I didn’t bother to look at how it works for borrowers. I should have paid more attention to this. It turns out that borrowers pay an origination fee when they get a loan. For a while this was 5% off the top on all but the best loans; now it is 1.00%-6.00% depending on the borrower.

So if the origination fee on a loan is 5% and the person borrowers $10,000, they end up only getting $9,500 and LendingClub gets $500 before a single loan payment is made. See the conflict of interest here? It’s in LC’s best interest to originate as many loans as it can, even if they won’t be repaid. They win even if investors lose on any given loan.

2. There’s a lot of fraud. I know that LendingClub and its peers have taken steps to address this lately. But when someone takes out a loan and doesn’t make more than one payment, something is fishy. It turns out lots of people were taking out loans on multiple platforms at the same time. I also question how much work goes into verifying borrowers’ data.

Another thing to keep in mind is that you’re making loans with 3-5 year maturities. If marketplace lending like LendingClub starts to tank and delinquencies go up, you’re kind of stuck. There’s a marketplace for selling loans but it’s not as liquid as you might hope.

I’ve shifted my money that would go to LendingClub to PeerStreet. I feel more comfortable investing in loans that have something as collateral, and PeerStreet delivers that. You can also invest in shorter-term loans there.

Earning great returns with real estate-backed loans on PeerStreet

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Over the past six months, I’ve invested in a fixer-upper house in Los Angeles, a brownstone in Chicago, a vacation home in Colorado, plus eight other properties.

I’ve done this from the comfort of my home and without putting more than $3,000 at stake in each property.

How have I done this? With a service called PeerStreet.

PeerStreet lets you invest in short-term loans that are backed by real estate. This should make them more secure than unsecured notes you can buy on LendingClub.

Most of the real estate loans are for rehab projects, buy-to-rent and similar investment properties.

You can peruse loans, find ones that meet your requirements and then invest as little as $1,000 in each one.

Here are some reason I like PeerStreet compared to regular peer-to-peer lending:

1. Real estate-backed loans – All of the loans are backed by real estate, and the loan amount leaves some cushion in the loan in case the borrower defaults and the home value has fallen.

2. Personal guarantees – Most of the loans also have a guarantor, and you can see their credit score.

3. Diversity – You can invest in notes backed by real estate all over the country, giving you diversity in case of a downfall in one region.

4. High interest rates – rates are usually between 7%-10%.

PeerStreet makes money by taking a small sliver of the interest for itself.

If you are interested in investing on PeerStreet, use this link to get a 1% yield bump on one of your investments (and I’ll get the same bump as a reward).