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My first loss on PeerStreet

October 31, 2019 by Andrew 1 Comment

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.

Filed Under: Invest

Why I stopped investing in LendingClub notes

July 6, 2017 by Andrew Leave a Comment

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.

Filed Under: Invest Tagged With: lendingclub, peerstreet

Earning great returns with real estate-backed loans on PeerStreet

August 25, 2016 by Andrew Leave a Comment

peerstreet

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).

Filed Under: Invest Tagged With: peerstreet

The Future is Bright

January 22, 2016 by Andrew Leave a Comment

future-

History is littered with upended industries and business models. This sort of destruction will continue, and taking a look at what the future holds can present interesting investment theses.

Here’s what I think is on the horizon.

Transportation

A shift to self-driving cars will have monumental social implications and leave a number of battered industries in its wake.

There have been tremendous advances in car autonomy over the past five years, and it’s happening at an accelerating pace. The benefits of self-driving cars are simply too compelling for these efforts to peter out. There will be roadblocks, but the major commitment and money invested in efforts to see self-driving cars through to reality will overcome them.

Here are industries that will be majorly disrupted:

1. Fueling stations. There’s a good chance your self-driving car of the future will be electric. For many people, this means they have a fueling station inside their garage. It’s also possible that fueling stations will still exist outside the home, but they will be very different than they are now.

Whether they sell gasoline or electricity, don’t expect to personally visit them in the future. Cars will automatically visit fueling stations, refill, and then return to your home. Eventually, cars might even refuel wirelessly.

Location won’t matter as much, and there will certainly be no need for multiple fueling stations on valuable street corners.

Gas stations make a lot of their money from selling cigarettes, lottery tickets and booze. What happens when this foot traffic disappears?

2. Car manufacturers, dealers, and for-hire service. It remains to be seen if the leading technology companies working on autonomous cars partner with the existing large car manufacturers or compete with them. Either way, major upheaval is on its way.

That's me with a Google Car in Austin.

That’s me with a Google Car in Austin.

If cars can drive themselves, does it make sense to own one? Why not just open an app on your phone and request a car, which shows up at your driveway within three minutes?

People are already ditching their cars to use services such as Uber, which is disrupting the taxi business. Soon, the people making money with Uber will find themselves without a job, too.

This is one reason Uber is investing in self-driving car research. Uber knows the days of operating a network of human drivers are limited. It will be easy to replicate its business model with self-driving cars, without the pain of recruiting and managing human drivers. GM just invested $500 million in Lyft, with much of the money earmarked for autonomous car efforts.

The biggest expense of your Uber ride is the driver’s time, and that expense is going to go to zero.

How low does the cost of traveling a mile in a for-hire car have to drop before it doesn’t make sense to own your own car? Or at least, that second car that doesn’t get driven much?

I wouldn’t be surprised if Google adopts an ad-funded model for its fleet of cars, charging customers nothing. This will help it skirt many of the regulatory challenges Uber is facing by operating a for-hire car network.

3. Insurance. Gone will be the days of shopping around for car insurance to find the insurer that doesn’t seem to mind that you have a bad driving history or credit score.

The current way insurance is rated will become irrelevant in the future. Assuming you actually own a car, car insurance might be provided by the manufacturer, bundled into a monthly service fee, or charged per mile traveled.

No matter how it is sold, the actual cost of insurance will plummet. Accidents between self-driving cars will be much, much less common than with human drivers. Accidents that do happen will be less severe.

4. Infrastructure. I live in Austin, and we have a major travel infrastructure problem here. The city is growing like a weed, but highway expansion lags. The same goes for most of Texas. Yet missing from the state’s long-range planning for infrastructure expansion is the reality of self-driving vehicles.

Simply put, capacity of existing roads will be much higher with autonomous vehicles. Self-driving cars won’t slow down to take a look at the stalled car on the other side of the highway. Nor will they needlessly tap the brakes, causing a chain reaction and delays. They can also travel much closer together because they’re in communication with the other vehicles on the road.

You know that feeling of getting to the end of a traffic slowdown and wondering what the heck caused it? Your children might never experience this.

It’s possible that infrastructure costs will increase at first because there won’t be an overnight change from human-driven to self-driven cars. Special HOV lanes for self-driving cars might come first.

But eventually, the need to massively expand roadways will end.

The Rise of Robots and Surveillance

Self-driving cars are robots, and they aren’t the only machines taking over functions previously handled by humans — or that were previously handled by machines at great cost. Click here to continue reading…

Filed Under: Invest

Using an IRA to Invest in Alternative Assets

November 23, 2015 by Andrew Leave a Comment

ira-smI’m frequently pitched investment opportunities, ranging from real estate to oil leases to restaurants. I’ve always invested out of my bank account but have been curious if I could invest through my tax-deferred requirement accounts.

The short answer is yes. These investments are possible, but probably not through the broker that holds your IRA.

I reached out to Kirk Chisholm, Principal of wealth management firm Innovative Advisory Group to learn more. I posed this scenario: I want to invest in a real estate deal for a new apartment complex in town. I want to invest through my IRA funds that are currently in an account with a major broker.

UpMoney: Will I have to move my funds to a new custodian?

Chisholm: The short answer is, probably. Although all qualified custodians are allowed to hold virtually any asset in their custody for IRAs, most of them do not. It is the custodian’s choice on what assets they allow their clients to hold at their firm. Most custodians have chosen to specialize in certain asset types, either traditional or alternative investments.

For example, if you ask the broker dealer that you buy and sell stocks through, to hold an apartment complex, they will probably look at you funny. Then they’ll say you can’t do that. What they really mean is that they won’t do that.

You will need to find a qualified custodian that specializes in alternative investments if you want to fully explore alternative investments with your self-directed IRA. There are a number of points you will need to consider to find the right fit for you. [Read more…] about Using an IRA to Invest in Alternative Assets

Filed Under: Invest

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