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).
:)