Author Topic: Anyone ever use Yield Street?  (Read 13678 times)

ducky19

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Anyone ever use Yield Street?
« on: November 01, 2016, 07:17:49 PM »
Saw an ad for them and started looking into it. Seems legit, but thought I'd air it out here before spending any more energy researching. Anyone use them before? If so, were you pleased with the results?

talltexan

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Re: Anyone ever use Yield Street?
« Reply #1 on: November 02, 2016, 06:43:39 AM »
I think I heard about this as being a project started by a retired NFL player, maybe Ray Lewis of the Baltimore Ravens.

Proud Foot

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Re: Anyone ever use Yield Street?
« Reply #2 on: November 02, 2016, 09:21:18 AM »
Yes Ray Lewis is involved as an investor although he is not listed on the website as a founder.  It seems legit to me and an unique opportunity if you are an accredited investor.  More attractive if you barely meet the criteria as they have low investment minimums.

StressLess

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Re: Anyone ever use Yield Street?
« Reply #3 on: November 12, 2016, 02:19:59 PM »
anyone else have any experience with Yield Street?

Been seeing a lot of ads for it lately...


Reido

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Re: Anyone ever use Yield Street?
« Reply #4 on: November 19, 2016, 12:08:21 PM »
I have some experience using realty mogul, realty shares and crowd street if that helps...
I mostly buy equity positions, but take the occasional preferred and debt positions.  Anyone else use these?

arebelspy

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Re: Anyone ever use Yield Street?
« Reply #5 on: November 20, 2016, 02:20:57 AM »
Online real estate crowd-sourced and otherwise investment platforms are gonna get ugly the next downturn. 

The JOBS Act is a cluster * for underinformed investors, but great for the shills and con artists.

I wouldn't touch any of those sites with a 10-foot pole.

YMMV.  Just do your due diligence, including understanding the operational and systemic risks.

Good luck.  :)
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frugledoc

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Re: Anyone ever use Yield Street?
« Reply #6 on: November 20, 2016, 11:51:24 AM »
Online real estate crowd-sourced and otherwise investment platforms are gonna get ugly the next downturn. 

The JOBS Act is a cluster * for underinformed investors, but great for the shills and con artists.

I wouldn't touch any of those sites with a 10-foot pole.

YMMV.  Just do your due diligence, including understanding the operational and systemic risks.

Good luck.  :)

What do you mean by ugly?

The worst case scenario is that your investment drops wth the real estate market and you can't get your money out as property is not very liquid in a downturn.

Not really any different to owning a property outright and it is easier to be very diversified.

I actually sold my own rental property and reinvested the money in crowd funded properties and have been extremely happy with the decision 2 years on.

This is in the UK.

arebelspy

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Re: Anyone ever use Yield Street?
« Reply #7 on: November 20, 2016, 03:04:57 PM »
The worst case scenario is that your investment drops wth the real estate market and you can't get your money out as property is not very liquid in a downturn.

The investment dropping and you not getting it back is a pretty bad scenario, to me.

That is certainly not the worst-case scenario though.  Here's one for you: Look into how "protected" you actually are via the lien, versus the company, and what happens if the company has troubles, and run the scenario under which the liens go into trust and are taken to be managed by a third party.

I'm not a huge fan of REITs (for a different reason--I don't think they do what most people think they do, in terms of portfolio diversification--they're super correlated with the stock market, the way real estate itself may not be, but if you understand that, they're a fine investment), but they're miles ahead of crowdsourced real estate, as they don't have the systemic risks all these fly-by-night sites do.  At least with REITs you're looking at a likely chance of a decently positive return.

The risk-adjusted returns on crowdsourced real estate are poor because the risks are higher.

A) You have nowhere nearly the amount of information to make a decision on how quality the investment is,
B) The company's profitability (or lack thereof) as well as liability, etc. all have a direct impact on your investments,
C) There is cheaper money out there for the good investments.  Crowdsourced sites are where a good developer never needs to go, and where anyone else goes to last--because of how much money is looking for an investment right now due to the historically low rates we're seeing, they can get cheap money.  Unless they can't get money anywhere else, because it's a bad investment.  Then go pump it up and dump it on the crowd.

Combine C (making a much higher percent of investments being poor going there) with A (the fact that your due diligence is so limited) and it just makes for an ugly situation when the next downturn comes and these projects start failing.

There's more, but I probably don't need to rehash it.  Do a search for previous discussions on the forum.
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Reido

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Re: Anyone ever use Yield Street?
« Reply #8 on: November 20, 2016, 07:39:02 PM »
Well, I guess as with anything, the devil is in the details.

I'm not a huge fan of debt instruments for some of the reasons you mentioned earlier - I'd prefer to go with Equity in the properties.  The debt instruments are usually first lien, but have immense debt/value ratios...  I've seen many at 95-100% of purchase price.  Obviously, a small blip in the market can crush that investment.  Some of the "preferred" equity positions that I've seen are similar to second liens - there's a first lien loan that accounts for 75% of property value, and the preferred is basically a mezzanine that increases the buyers leverage to 95% or some such percentage.  These, I agree, are not as safe as they appear - and there's good reason they yield 9-13%.

I purchase equity for a multitude of reasons and I have many metrics that I adhere to in order to minimize risk.  I think of it as owning the property directly - because it IS

talltexan

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Re: Anyone ever use Yield Street?
« Reply #9 on: November 21, 2016, 06:37:41 AM »
Reading these well-considered arguments against Yield-Street, etc., reminds me of my own experience with Prosper.com back when I was living in Illinois. Things were fine until the financial crisis, but many families making choices between keeping conventional products current (like their mortgages) and online products (such as loans through prosper) were never going to stiff their mortgages.

I probably only lost about 15% of my investment, but the lack of liquidity was frustrating.

arebelspy

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Re: Anyone ever use Yield Street?
« Reply #10 on: November 21, 2016, 07:10:26 AM »
Reading these well-considered arguments against Yield-Street, etc., reminds me of my own experience with Prosper.com back when I was living in Illinois. Things were fine until the financial crisis, but many families making choices between keeping conventional products current (like their mortgages) and online products (such as loans through prosper) were never going to stiff their mortgages.

I probably only lost about 15% of my investment, but the lack of liquidity was frustrating.

Yup.  I've had similar discussions around LendingClub (and Prosper before that)--the returns look good.  The risk-adjusted returns are terrible.

MMM like(d?) LendingClub.  We'll see if he still does after the next down turn.  Ditto Peer Street, or whatever crowdsourced RE company he recommended awhile back.  :)
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frugledoc

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Re: Anyone ever use Yield Street?
« Reply #11 on: November 21, 2016, 09:45:25 AM »
Maybe the UK sites are further ahead than US ones in this regard.  For now, I prefer to diversity into multiple rental properties via unleveraged crowdfunding.  I don't have the time or inclination to self manage multiple rentals, but still want to chose the properties myself, so a REIT isn't for me, and the returns I have made so far have been far higher than UK reits and also very liquid.

I'm not worried about not being able to get my money out in a downturn.  If you own a property outright it would be the same situation.   When the downturn ends you will still own/part own a property and can collect rental income throughout.

Reido

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Re: Anyone ever use Yield Street?
« Reply #12 on: November 21, 2016, 01:23:06 PM »
Ok...  It appears that frugaldoc and I are discussing something different from what everyone else is.  It's equity investments, not debt instruments like yield street or peer street.

The equity deals allow you to actually own the property and collect the rent checks, not interest on a loan. I see the risk adjusted returns here as being excellent.

I think it's critical to utilize low leverage, however, and those deals can be hard to find at times. Many other investors are looking to make a quick buck by buying a property and renovating it and selling it quickly. These are going to get crushed when the property market falls. The low leverage purchases should be fine, though. You should be able to wait it out and find new tenants if things go south.

What site do you use frugaldoc?

frugledoc

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Re: Anyone ever use Yield Street?
« Reply #13 on: November 21, 2016, 03:31:25 PM »
In the uk I use property moose and property partner.

One does low end/high yield properties and the other does more upmarket/lower yield

i must admit though, I am heavily into asset backed lending too lol!

I'm around 50% equities, 30% property, 20% high yield asset backed loans.


arebelspy

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Re: Anyone ever use Yield Street?
« Reply #14 on: November 21, 2016, 07:42:18 PM »
I'm not worried about not being able to get my money out in a downturn.  If you own a property outright it would be the same situation.   When the downturn ends you will still own/part own a property and can collect rental income throughout.

It's not about getting money out in a downturn, it's about getting paid at all, and not wiped out.  When you own, you're first in line to get paid.  With crowdsourced investments, you're last.

No, I don't have confidence you'll still own the property by the time the downturn ends, if the loan goes bad.
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Reido

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Re: Anyone ever use Yield Street?
« Reply #15 on: November 22, 2016, 08:50:19 AM »
Well, let's quantify this realistically. If you have a first lien position, then everyone else's capital is a buffer to yours. THEY must take a 100% loss before you lose a cent. So for example, if housing prices drop 10% and they have a 90% loan to value, you lose nothing...  If it falls 50% (very rare aside from the Great Recession) you stand to lose 44.4% if they sell at absolute bottom...  That's not a complete loss. Realistically to get a 100% loss on a first loan issue, the property price has to go to 0.  That's like saying the S+P will go to 0...

On the whole I am tempted to agree with many outside observers that this is a pretty good risk/reward ratio

arebelspy

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Re: Anyone ever use Yield Street?
« Reply #16 on: November 22, 2016, 09:09:49 AM »
Well, let's quantify this realistically. If you have a first lien position

Have you done any research, or just bought straight into pretty stories they tell?

Show me ONE crowdsourced real estate site where you are in first position.

Quote
If you have a first lien position, then everyone else's capital is a buffer to yours. THEY must take a 100% loss before you lose a cent. So for example, if housing prices drop 10% and they have a 90% loan to value, you lose nothing...  If it falls 50% (very rare aside from the Great Recession) you stand to lose 44.4% if they sell at absolute bottom...  That's not a complete loss. Realistically to get a 100% loss on a first loan issue, the property price has to go to 0.  That's like saying the S+P will go to 0...

Sure, all of this is true in a scenario like a hard money loan (but keep in mind, even then there are costs--servicing costs, foreclosure costs, you'll be on the hook for various unpaid expenses like property taxes to clear up liens possibly sold at auction--some of which like tax or HOA may be super-priority, meaning above your first position lien, even if placed later, etc. etc.).

Crowdfunded real estate does not work that way. That is the nice story they tell, but read the actual loan docs. Read the fine print on how it really works, and who really owns the lien.  It's not the people who put the money in.  They have a "secured interest" in the lien, at best.

Well, let's quantify this realistically.
...
On the whole I am tempted to agree with many outside observers that this is a pretty good risk/reward ratio

Yes, let's.  Pick a loan from a crowdsourced RE site.  Any of them.  Link it here.

Tell me how you'd quantify the risk on it.  And let's see if we come to that "pretty good risk/reward ratio" you claim as a conclusion.  You can pick any of them.

This comment by JayP on the MMM blog discussing PeerStreet sums it up:
Quote
Wow, this sounds totally off the mark for MMM. So, I am going to invest in RE “flips” where the investors take most of the risks? Real estate flipping is risky, you are either going to make a great profit or lose your shirt. The idea of taking all or most of the risk, with no upside potential other than the fixed interest rate does not sound smart. Sorry, and I am a big MMM fan on most topics – but this one has me scratching my head.

If you've researched into it and knew this already, your post was deceptive, at best.  If you've just given this a cursory glance, thought that you'd get a first position, and easily recover funds if it goes bad, well, I hope this has helped clear up some misconceptions.  :)

We all want to believe in low-risk, high-yield opportunities.  Combine that with some slick sales pitches, and it's easy to get sucked in.  But please, do your due diligence.
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Another Reader

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Re: Anyone ever use Yield Street?
« Reply #17 on: November 22, 2016, 09:12:00 AM »
I'm not familiar with Yield Street, but in the others I have vetted, you do not have a first lien position.  Read the prospectus to see what you are actually buying.

As I said in another thread, these folks get the crap deals that can't get cheaper money.  They have to maintain deal flow to satisfy the VC capital that keeps them afloat.  The end user/investor is not their priority.

ETA:  Arebelspy pretty much covered the problems.  Looking forward to picking a few of these properties for pennies on the dollar when this market goes bust.
« Last Edit: November 22, 2016, 09:14:43 AM by Another Reader »

arebelspy

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Re: Anyone ever use Yield Street?
« Reply #18 on: November 22, 2016, 09:17:59 AM »
As I said in another thread, these folks get the crap deals that can't get cheaper money.  They have to maintain deal flow to satisfy the VC capital that keeps them afloat.  The end user/investor is not their priority.

Yup. Their priority is all about metrics--how many dollars have they funded, how many deals.

They don't care about quality, but quantity, because the bigger they can puff those numbers, the more it sounds good to VC, and the more money they can raise.  Thus, they're encouraged to push bad things through.  Think of the mortgage lenders in 2006; same situation.

There's a direct conflict of interest there.
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Another Reader

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Re: Anyone ever use Yield Street?
« Reply #19 on: November 22, 2016, 09:53:46 AM »
As I said in another thread, these folks get the crap deals that can't get cheaper money.  They have to maintain deal flow to satisfy the VC capital that keeps them afloat.  The end user/investor is not their priority.

Yup. Their priority is all about metrics--how many dollars have they funded, how many deals.

They don't care about quality, but quantity, because the bigger they can puff those numbers, the more it sounds good to VC, and the more money they can raise.  Thus, they're encouraged to push bad things through.  Think of the mortgage lenders in 2006; same situation.

There's a direct conflict of interest there.

Nailed it.

Reido

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Re: Anyone ever use Yield Street?
« Reply #20 on: December 11, 2016, 05:21:43 PM »
OK...  I didn't start posting here to go far into the depths of the crowdfunded debt products so I have to apologize if my post oversimplified the nature of these investments and the theoretical first lien position.

The only product I own is specifically structured as a promissory note against a corporation, where the corporation holds a direct mortgage against the property.  While I agree that this is not exactly the same as holding a direct lien yourself, I would still stand behind my original argument that there is probably a favorable risk/reward ratio to be had.  I believe that the comparable opportunities (those yielding 9-10%) are far less attractive.

Now, there really is NO data yet regarding crowdfunded real estate debt, as it's a very young investment.

There is, however, a good amount of data regarding high-yield bonds.  Keep in mind, bonds are senior unsecured debt and have no collateral whatsoever.

After looking at all of my brokerage accounts, the only high-yield bonds yielding 9-11% and maturing before 2020 are:
Sears Roebuck
Cloud peak energy resources
Everest Finance

These are all CCC rated bonds - according to S+P they historically have a 27% default rate within one year and it peaks up to ~60% as the maturities extend.


https://www.globalcreditportal.com/ratingsdirect/renderArticle.do?articleId=1096793&SctArtId=144805&from=CM&nsl_code=LIME

So, I would not call amy of these "LOW" risk investments.  Still, if I had to choose, I would go with the crowdfunded debt over the high-yield bonds.  Also, in the case of default I'd think that recovery of value would be superior with the real estate loan than the bonds.

http://www.zerohedge.com/news/2016-03-03/how-default-cycle-different-record-low-recovery-rates

Realize, this is an opinion...  Not gospel

arebelspy

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Re: Anyone ever use Yield Street?
« Reply #21 on: December 11, 2016, 05:44:44 PM »
OK...  I didn't start posting here to go far into the depths of the crowdfunded debt products so I have to apologize if my post oversimplified the nature of these investments and the theoretical first lien position.

Fair enough.  I think spreading that idea is dangerous, because it's flat out false, and gives people a false sense of security, especially people who are just buying into the story, and believe that their investment is secured by real estate, which it is not.

Okay, so we agree that the first position lien stuff is not true, let's go to your next part, the bond analogy.

We're not talking about bonds.  Comparing it to a totally different investment type is totally irrelevant, for many reasons. Bonds are much more liquid, for example.  Are you taking a premium into account for the illiquidity when calculating the appropriate return you should be getting on these deals?  Those companies are real companies, making money.  These companies are startups burning through VC cash.  I wouldn't loan the company money, which is essentially what you are doing.  If the company goes BK, your promissory note against the company may mean * all.  And if they do have to liquidate properties to become solvent, selling those liens THEY have against the properties, how much of a discount will they have to take to do so?  How much of a hit will you then be taking?

Would you directly lend on a high-yield bond to one of these startups burning through VC money?  I wouldn't.  That's essentially what you're doing, though, with a nice story about how real estate is backing it.  Try and see how that will play out if things go bad though.  (And if they go bad, they go bad at the same time, for the company and the properties--i.e. if real estate hits a down cycle, their funding dries up, and the properties go down in value.  Double whammy.)

Comparing the bonds are not apples-to-apples, as you seem to imply.

I wouldn't loan money to my neighbor.  So it'd be nonsensical to say "Still, if I had to choose, I would go with the crowdfunded debt over the loan to my neighbor."  Totally irrelevant.

So given the vast differences which makes your analogy not hold, let's look at the investment itself, and see if it's a good investment.

Therefore, I repeat:
Well, let's quantify this realistically.
...
On the whole I am tempted to agree with many outside observers that this is a pretty good risk/reward ratio

Yes, let's.  Pick a loan from a crowdsourced RE site.  Any of them.  Link it here.

Tell me how you'd quantify the risk on it.  And let's see if we come to that "pretty good risk/reward ratio" you claim as a conclusion.  You can pick any of them.

Tell us how you'd quantify the risk.

If you can't quantify the risk, how can you claim you think it's a good risk to reward ratio?

I don't mean to pick on you, I just think there will be hundreds (literally, not exaggerating) of people searching for and reading these threads on these crowdfunded companies, and not do any more research than casual, shallow cursory readings.  And they see "first position lien" claims, and "good risk to reward" claims and go "Cool!" and dump in money to something they don't understand and shouldn't be investing in.

I'd rather they have truth (liens held by you are not against the property, the company has liens) and data (quantified risk).

:)
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If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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Reido

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Re: Anyone ever use Yield Street?
« Reply #22 on: December 11, 2016, 07:56:49 PM »
Ok... So let me clarify the investment structure...  The entity holding the lien is a third-party corporation, not the crowdfunding site.

 Upon reading through the entire prospectus for the third time, I do have the admit I was distressed to see that this third party entity holds all of the mortgages and issues all of the promissory notes that are traded on the site, rather than each individual loan being issued by a separate corporation. I shot an email to the crowdfunding site and they basically said that it was their opinion that this could lower costs but still not jeopardize the investments with counter-party risk due to the default of other mortgages.

I have to admit that I'm now skeptical. Still, this site is not the same corporation that issues the debt securities. And yes, I would be more concerned if the solvency of the site were to impact my investments.

With regard to the bond argument - both are fixed income securities. Bonds may be somewhat more liquid (although if you ever tried to sell an individual bond via a trading desk you'd know that the bid/ask spread is often 2-5% and sometimes higher), but they are both considered to be of the same ilk and have similar dynamics.

If you own the vanguard total bond etf, as many here do, you own mortgages.  23% to be exact.
Ticker: BND

Sears Roebuck is not making money. They're losing money on a regular basis. I'm just using that example to show the opportunity cost if you're trying to generate a yield of ~10% in is market. 


mr_orange

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Re: Anyone ever use Yield Street?
« Reply #23 on: December 13, 2016, 10:05:49 PM »
I don't know anything about Yield Street and some of the comments above seem to be parroting items I have commented about in other threads.  One should NOT group all crowdfunding sites into a common bucket of charlatans and quacks though.  There are some solid shops in the industry.  The trouble is that those that are not insiders have a really hard time determining who the legitimate ones are.  This site has some good information:

http://www.therealestatecrowdfundingreview.com/

I do not agree with all of his rankings, but his heart is in the right place. 

One of the first questions you should ask any candidate platform is how they're financed.  Look for alignment.  Ian who owns The Real Estate Crowdfunding Review seems to think VC backing is a plus.  I wholeheartedly disagree and think it necessarily creates conflict between the SPE investors and the VC investors because the bias is toward deal flow and not toward selecting the best deals. 

A successful marketplace should be part of an assortment of services, some of which deliver near-term profits for the platform without external financing.  The viable platforms will also have the founders investing alongside the crowd to create alignment.  I'd steer clear of any platforms that cannot show both of these items are satisfied.