If you could buy an index fund of all Lending Club loans and the index fund had better liquidity, would you? What about and index of the entire marketplace lending space?
Agree RE is a different beast, but it is very deal dependent. If they are lending for development and people are creditors are pursuing it site unseen that is crazy. If it is consumer borrowing that is a bit different, but begs the question why they can’t get a mortgage?
Lending club backed securities! didnt know lending club did mortgages.
development has a lot of risk but has more return. Personally would not want unless they have good track record at top location. I have seen some places use money for renovations though because they were old and underperforming but they were branded like Sheraton hotel. Lol I subscribed to their deal alerts. Just curious what came out of woodworks.
One issue with real estate is that people seem to calculate assumed price appreciation when calculating returns. So, even when loan cost exceeds cash flow, they project a gain, because they assume prices will go up 7% a year. This is crazy, and is probably a major reason why real estate defaults come in waves and in bulk.
“If you could buy an index fund of all Lending Club loans and the index fund had better liquidity, would you? What about and index of the entire marketplace lending space?”
I don’t know, maybe. Someone would have to construct a sampling methodology for replicating this index. At the moment, the best method is still using LendingClub’s (or other companies) automatic investing systems.
“why they can’t get a mortgage?”
Exactly. Why the F would any good real estate company pay you anything more than 4.x% interest on these peer to peer loans? Something is not good here.
Sometimes they display 2 types of return, 1 is cash yield, another is an irr that has price appreciation embedded.
i did catch that though ohai, I was like aight irr is bs then, cash yield is best approach, the difference ranges. Typically cash yield is around 9 to 15 percent. The irr will go from 15 to 20. Keep in mind the reason why returns are high is they intend to lever the money you give them. Typically these real estate deals are levered by 3x! 35/65 deals
So basically, it is leveraged REITs, but with higher fees and less diversification.
And probably less certainty on asset values. Lots of the valuations are broker opinions and other non appraisal forms of value. While appraisals aren’t perfect and are lagging, they are of a higher quality. This is another reason for the risk. A construction projects value is speculative. It’s not like Lending money on an asset with a known value that has a low standard deviation of outcomes.
Well, I understand why this happens in some instances: they are risky credits. That is why you need due diligence and covenants out the wazoo, which you have none of in this scenario, and why you need to be comfortable converting to equity.
Anybody know what type of assets are typical for marketplace lending?
Some sites like crowdstreet have no platform fees. Some of the sponsors will have fees though like a 70 to investors/30 to sponsors split after a preferred return usually 9 percent to investors as well returnnof capital t. The sponsors themselves will drop most of the down themselves as well. So there is skin in game.
the fees for an etf reit is not just the investment fee itself. The investment fee is akin to the platform fee imo. Each company the etf invests in has fees on their own called operating costs. Plus they aren’t allowed to lever as much. I would look at it in that manner.
Essentially if you had 10m.
you could invest in a reit etf where you are charged a fee to invest in multiple reit stocks. Or a reit stock directly where you skip the investment fee. But I feel the operating costs are bloated! Dividend yield is like 4 percent.
you could also buy a commercial property the traditional route. Where you drop 10m and borrow 20m. And you need to run it, obtain financing for it. Your returns could get cray, I know this lasik doctor who did this.
Or go to crowdfunding site, where they do it similar to the traditional route but with higher costs. The costs will still be less than an operating reit imo. Since they are incentivized to make the investors money before they can make a true killing. In a crowdfunding site you choose the projects you want to join, as oppose to them choosing for you. You also choose the sponsors you want to work with. It’s also very hands off, once you select the sponsor and the project and invest only a minimum of 50k, then you just watch the cash flow back to you.
https://www.crowdstreet.com/spotlight-real-estate-sponsor-fees/
https://www.therealestatecrowdfundingreview.com/crowd-street-review-and-ranking
I tried investing in Lending Club loans a couple years back. The idea seemed ok. I liked the uncorrelated potential of returns.
I kept my focus on the highest rated credit and just wanted to get 5-7% for starters. I also only bought seasoned loans on the secondary market - when people needed liquidity I was there to buy at a discount.
The problem was just the admin of it. I mean, if you invest a $10k portfolio, it takes a while and a good amount of effort to get yourself fully invested. Then of course, these are all amortizing loans, so suddenly a week or two later instead of 100% invested you are 95% invested, then 90%, etc pretty quick. So you CONSTANTLY have to be reloading the portfolio. It gets tedious and not worth the effort IMO. There are computer programs you can hire to do it for you but I’d rather look at every loan myself to make sure it matches my own sniff test.
In addition, you have to realize that these are unsecured loans. So if another recession hits and these people are struggling, they’ll say F the loan & my credit score - I need to pay my rent/mortgage/food. These loans will be the first to get hit and will be correlated to the markets for sure.
Out of hundreds of loans had one guy default on me for $7. I was pissed and wanted to find this chump. That’s when I decided this was stupid. Made my 6% or so in the year I did it and then got out.
As you just mentioned though, the returns are not uncorrelated with other risky assets. You just don’t see a mark-to-market on the loans, so you don’t observe that they become less valuable if economic conditions deteriorate, due to a higher implicit probability of default. Imagine if you sell lots of low delta SPX puts. You might only have to pay cash to settle the puts if the index is down say 10%, but that doesn’t mean the put value was uncorrelated with the index at smaller moves.
You should also consider how marginal taxes affect your net returns. If you are in the highest tax bracket, you’ll be paying 37% on interest income, vs 20% on long term capital gains, or about 1% difference on those 6% returns. It might be a bigger difference if state income tax is progressive.
Depends on the platform. But typically they are trying to go after the hard money market
Bumping this given our new accreditted Investor status. Has anyone tried realcrowd or crowdstreet?
i think im going to go for realcrowd via a taxable account with accreditted status. im hoping that when i do k-1s that the depreciation offsets the distribution. i’ll just eat the cap gains when it matures. hopefully i’ll be retired or something and taxes with bbe negliginble. anyways somehwere between 25 to 50k, i want it as low as possible to start. i was initially thinking of putting it in sdira/roth. but i dont want to waste teh precious depreciation and low cap gains. not to mention the risk of ubti and the high fees for an self directed custodian. a penny for your thots. a nickel for the tits!
I’d be careful with peer lending on anything other than consumer. I have not seen much evidence they are run in an effort to protect the position of investors. They typically seem run in an effort to grow quickly. I suspect there may even be a bit of fraud by the borrowers from some personal experiences
so this isnt p2p lending. this is more like tenured sponsors thats been around for over 20 years seeking equity or debt to fund their 100+ unit apartment complexes worth 20m and up. usually the ltv to cost is something between 20% to 50%, so some are very levered, and some are safer. i am going for equity portion only. the sponsor exposure can vary between 0% to 51% of the equity side. some places have crappier vetting process though. i think the top ones in terms of high quality and largest marketshare are these crowdstreet and real crowd for accreditted. there is one for poorer people that use fundrise. there is one up and coming one called arbor crowd that i find interesting too though, but their offerrings are too limited, only accreddited, and their min ask is 100k. they make their money on debt side i think. but they carry a 51% exposure o nequity.
Why would a tenured sponsor seek equity or debt go to this website instead of a bank who provides better loan to cost than 20 to 50%?
lower down. better returns. usually these palces requires a 35% down payment. the sponsors who invest in these deal will usually put down only 5% to 15% of equity for the overall deal. but they’ll collect on acquisition, disposition, assets under management. etc etc. as the investor ur looking at cash on cash of 5 to 12% and irr that can go up to 15% to 25%.
banks can only make up to a certain amount of the loan. so sponsors hustle for the equity portion and pay up.
Poor nerdy
i dont use lending club. never had. i am inquiring about real estate crowdfunding. real crowd. crowdstreet. arbor crowd.