As I indicated in a prior post, I’ve decided to experiment with Equity Crowdfunding to determine if it’s a viable passive income stream. I narrowed the field down to 3 online platforms, each with their own particular twist on equity crowdfunding.
The plan is to invest $10,000 with each platform over the next 12-18 months to get some hands-on experience with how they operate. The ultimate goal of course is to turn the experiment into a permanent investment strategy to help fund my Freedom Years.
This review covers YieldStreet, the second online platform I funded recently.
I intend on updating this post throughout the experiment, by adding sections to it based on different milestones and events.
I signed up for the YieldStreet platform around the same time I funded my PeerStreet account.
Upon registration, I completed some questions to confirm accreditation and other details. A welcome e-mail was sent with some introductory information, and an opportunity to speak directly with the YieldStreet team.
I didn’t have any time to connect for the intake call, but was ready to invest in open offerings within 2-3 days.
Unfortunately the investment process and my first experience with YieldStreet was not that positive. They pre-announced an investment opportunity that I was very interested in, which was launching the following day at a specific time.
I made sure I was ready the next day during that time to make my first investment, since I had heard they tend to sell out fast. At the designated opening time, I accessed my account, and the system crashed on me after multiple tries within the first 5 minutes.
This was a very frustrating initial experience, especially since things went a lot more smoothly on PeerStreet. I sent them an e-mail expressing my frustration. Within 24 hours they had issued an e-mail to all investors that tried to access the opportunity apologizing for the technical issues.
They acknowledged their site was not prepared for the level of interest and volume, and offered to guarantee a pre-commitment on any future opportunities for those affected. This meant that I would be guaranteed a spot on any future investment of my choosing.
I appreciated the fact they proactively addressed the issue, unlike other companies, and signed up for an opportunity a few weeks later.
YieldStreet focuses primarily on real estate and legal finance investments. The litigation financing opportunities are what really drew me to this platform. They’re unique offerings compared to the other platforms, which mainly focus on real estate.
Here’s an Infographic from YieldStreet which helps explain how the litigation financing works…
The YieldStreet team conducts due diligence on these opportunities and allows less than 10% of them to make it to their platform.
Each litigation financing opportunity is essentially a portfolio like a mutual fund.
That portfolio is made up of multiple lawsuits “packaged” up as one investment.
YieldStreet evaluates the following characteristics of the portfolio during their due diligence:
- Obligor’s Credit Rating which works like an individual’s credit score ranging from AAA to D. They look for a high percentage of A- or higher ratings.
- YieldStreet looks for a healthy concentration of advances so the portfolio is not heavily dependent on any one advance or lawsuit.
- They also make sure that the concentration is balanced with respect to the number of obligors, as well as case type.
- Interestingly, they apply a Loan to Value (LTV) ratio to their litigation portfolios in a similar manner to real estate. They make sure that the value of advances does not exceed 10% of the overall case value.
In addition to the above type of legal financing, they will also occasionally finance law firms directly.
Most of the litigation opportunities I’ve seen on YieldStreet have ranged from 12-15% interest roughly speaking. The terms are typically longer and can range from 16-36 months.
They are also involved in commercial real estate, which is another attractive option on this platform.
My YieldStreet Strategy
Since their volume of offerings is fairly low compared to other platforms, and their minimum investments are higher, I decided to invest the full $10,000 in a litigation offering.
These offerings are fairly popular and sell out very quickly, but since I had a pre-commitment from them, I was able to invest in one quickly.
Here’s a summary snapshot of the opportunity I invested in…
This particular portfolio is offered at 12% interest rate with an 18 month term.
The details of the make-up of the portfolio are shown below. It’s fairly diversified, and matches the general characteristics YieldStreet follows during their due diligence.
The actual investment process went smoothly that time since I had a pre-commitment guarantee. I simply uploaded all the necessary documents for proof of accreditation, and confirmed my commitment.
Based on the investment returns anticipated, and assuming I don’t run into the issues covered below, here’s what I should be expecting about a year and a half from now:
Accelerated Pre-Settlement Portfolio IX: $10,000 Investment @ 12% for 18 Months = $1,800 in Interest
My initial investment of $10,000 should return $1,800 total, since the duration is 18 months.
The investment just recently started paying interest, and paying back principal so it’s already cash flowing. It will be interesting to see how it performs overall.
The are obviously some risks with this type of investment, which I’ve summarized below:
- Court decides against plaintiff(s) / Assuming it even goes to trial
- Settlement amounts are lower
- Obligors could default / Note that 76% of them are A- or higher
- Plaintiff does not pay / This is mitigated by the fact they’re 3rd inline for payment after me
- Term goes beyond 18 months / This is an estimate by YieldStreet
I’ve been fairly happy with the YieldStreet litigation portfolio so far. It’s already returned a healthy amount of interest, and some of my principle. Both of which get deposited back directly into my bank account, unlike the other platforms.
I’m about a third of the way or 6 months into the investment and it’s returned $570.37 in interest, which is still on track with the 12% expected return.
Since this investment is event-based the timing on the returns have been inconsistent, which makes it difficult to have a good sense of the performance on the overall portfolio.
I like the ease of the platform so far, and how quickly investments start earning interest.
So much so, that I decided to invest in an additional opportunity on the platform…
This one is a commercial real estate opportunity which is expected to earn 9.5% interest and pays out monthly, with the first 6 months paid upfront. The minimum investment was high at $25,000, but the LTV ratio was attractive at only 45.6%.
Assuming it lasts for 12 months, I should expect a return of $2,375. There’s a chance it could be extended for an additional year.
We’ll see how this one performs, but I feel comfortable with the risk relative to my principal protection.
So far YieldStreet has had the most interesting opportunities on their platform. I like the fact they’re fairly diversified and not always correlated to the stock market or traditional real estate. They sell out quick, and they close at a much faster pace than the other platforms.
If I had to consolidate my investments unto one platform eventually (but across various investments), I’m leaning towards. We’ll see how I feel at the end of the experiment.
This investment approach may be a practical way to accomplish those goals.
So far, YieldStreet still gets a Thumbs Up!
I’ll update this post occasionally as things develop, in the meantime you can check out some of YieldStreet’s current offerings by registering on their site.
Readers, anyone else use YieldStreet? How’s your experience been, and what’s your strategy? Would you consider Equity Crowdfunding as part of your strategy? What do you think about litigation financing? Share your thoughts and comments below!