The growth in p2p lending platforms has opened up alternative investment opportunities for investors that were previously only available to big investors and asset managers. The yields in the range of high single digit to double digit from these investments look attractive when compared to an interest rate of close 2% on savings accounts and bonds. These P2P platforms have also been helping projects owners by providing them with a chance to gather funds directly from investors.
Although these platforms are offering substantial returns to investors, there are also several risk factors to consider because this industry is still immature and the P2P lending platforms have a very short history.
We reviewed YieldStreet, which is one of the key players in the P2P crowdfunding and lending industry, to gauge risk and profit-making opportunities associated with this platform.
What is YieldStreet?
It works both as P2P crowdfunding and lending platform. This platform works on connecting asset-based investments with investors. Its alternative investments asset classes include litigation finance, real estate, commercial finance, and consumer finance. It has also been offering pre-settlement financing, which is a form of litigation finance and helps the borrower in meeting the basic life necessity costs while their cases are litigated.
How YieldStreet Works?
The platform is working on a simple strategy of offering investors access to debt based alternative investments that have a low correlation with market uncertainties and the stock market. These investments were only available to hedge funds managers previously.
For the safety of the lender, YieldStreet is working with qualified originators. These originators provide a loan for a project; the loans are backed by assets from the borrower. YieldStreet currently focuses on four major alternative asset classes.
What is YieldStreet Account Creation Process and Payment Methods?
The account creation and funding process are simple. First, the investor is required to create an account on the platform by clicking the “Sign Up” button on the homepage. Once you are done with account creation, you are free to participate in an investment offering. One can easily make investments by simply visiting the offering page and by selecting the individual offering. After selecting the offering, you need to mention the desired investment amount, and then click “Invest Now”.
After this process, you’ll be directed to a new page where you would actually transfer the funds. They have created a wallet for investors to keep their funds. Therefore, once you have a Wallet, you can use the following ways to fund an investment.
- If the investor has pre-funded its wallet, he can easily pull funds from the wallet without waiting.
- The platform also permits investors to delay funding for two days if they have insufficient funds in the wallet.
- The investor can only choose wire transfer method to fund its wallet. It typically can accommodate up to 5 business days to receive your funds.
What is YieldStreet Wallet?
YieldStreet Wallet is a saving account which allows its users to upgrade cash along with earning 2.2% annual interest on funds held. The YieldStreet Wallet account creation is simple. You don’t need to create a new account if you already have one. Just complete KYC verification to start YieldStreet account. You need to connect your bank account with YieldStreet wallet to transfer funds. Once your funds transferred into the wallet, you will start earning interest on them.
What is YieldStreets Investment and Asset Selection Criteria?
Like other P2P lending platforms, YieldStreet has been working on a specific set of strategies to maximize returns and minimize risks. Therefore, they closely evaluate each project before listing it on their portfolio. Its project evaluation strategy is based on six key points:
- Expertly Vetted – The platform seeks to give considerable concentration on structuring your investment in a way that carrier lowest risk.
- Asset-based with validated collateral – Each investment on this platform is backed by collaterals. It means that each borrower must have tangible assets to give as a guarantee for the loan. The project owners are not eligible to list their projects until they have tangible assets equal to the amount they want to borrow. The collaterals could be a legal case, a real estate property, equipment, and vehicles.
- Low stock market correlation – the company only select those projects and loans that offer low correlation to stock markets and global economic environment. This is significantly important because stock markets have always been volatile and tend to make big swings – which could result in big losses for small startups. Therefore, all offerings on this platform are likely to have a low correlation to the broader stock market.
- Managed by experienced asset managers – The project owner or borrower are very important for YieldStreet when it comes to project selection. They thoroughly check the history and expertise of the originator managing the investment. This helps it in making sure that the asset managers are fully committed to their project as well as they have professional expertise in that field.
- Short in duration – The duration of each loan is significantly important. The shorter duration of investments always permits investors to make the most out of their money by reinvesting it and enjoying the new business opportunities. YieldStreet gives significant importance to the duration of each loan and projects. They like to select projects that have a duration period between 1 to 3 years.
- Target annual returns of 8-15% – After closely reviewing the above factors, the platform also makes sure that investment should offer higher returns to investors. They usually target returns in the range of 8% to 15%. Historically, its investments have generated 11.93% IRR.
What Types Of Investments YieldStreet Offer?
After understanding their investment strategy, it’s also essential to look at the types of investments YieldStreet prefer for investors. It only offers alternative investments that are debt based and backed by collateral. Below are the types of investments they like to offer:
Real Estate is one of the biggest alternative investment classes that most of the platforms are targeting over the years. This is due to the significant growth potential of this sector along with considerable returns. The company offers investment in the following areas of the real estate sector.
- Pre-Development Finance
- Construction Lending
- Bridge Lending
- NPL / REO
Litigation finance is one of the areas that only a few platforms support. However, the returns from this area are higher and it also permits investors to diversify their portfolios outside of traditional asset classes. In the case of YieldStreet, they give significant focus on their area. They offer various types of borrowing and lending opportunities in legal settlement cases. In addition, law firms can also enjoy this opportunity. Below are the types of investment opportunities that YieldStreet offer on this platform:
- Commercial Litigation
- Pre-Settlement Funding
- Post-Settlement Funding
- Law Firm Loan
- Class Action Management
This investment class has also been ignored by other platforms like Envestio, Lending Club and Funding Circle. YieldStreet has introduced Marine Finance to give an opportunity to both lender and borrower to make gains from this high growth industry. Marine Finance focuses on financing vessel acquisitions for the spot market, time charters or bareboat charters, as well as the construction of work boats, and to finance the acquisition of vessels for scrapping. Its offer investment opportunities in the following areas:
- Vessel Acquisition
- Vessel Deconstruction
- Trade Finance
Investment opportunities in the commercial segment are higher. There are various commercial activities that offer strong returns to investors. Below are commercial activities investors can invest through this platform:
- Receivable Financing
- Purchase Order Financing
- SMB Lending
- Merchant Cash Advance
- Equipment Financing
- Medical Receivables
It recently started offering financing and investment opportunities in the Art section. YieldStreet has also acquired Athena Art Finance, which provides loans to art dealers, collectors and museums and galleries to buy fine art and other collectibles. Although Art finance is significantly different from marine and real estate, but YieldStreet staff includes art experts who help evaluate work and the wider art market, as well as those who make risk analysis and structure the loans.
Does YieldStreet Accept Investments from Foreign Investors?
YieldStreet only accepts clients from the United States. You must be a U.S. citizen or permanent resident to invest in this platform. The U.S. citizen can invest on this platform even if the citizen is living abroad; the citizen must meet the requirements as an accredited investor, hold a valid SSN or TIN/EIN, have a US-based address and US-based bank account to be eligible to invest on YieldStreet.
What are YieldStreet’s Fees?
The management is clear about the fee structure and how they will reward investors. The returns that are listed on the website are net of every kind of management fees. Below is the fee that investors and borrower should consider?
- Listing Fees – YieldStreet collect a listing fee from borrower or project owner. They do not charge this fee to investors.
- Management Fees: YieldStreet collects a management fee on all offerings. The fee ranges around 1% to 4% based on the terms of the agreement. These fees are disclosed on the individual offering page and in the Operating Agreement and Investment Memorandum (SPV) or Series Note Supplement (BPDN) for each offering.
- Annual Flat Expense: The platform also collects annual flat expenses from investors on the basis of per investment.
Is YieldStreet Customer Support Good?
YieldStreet does not offer instant chat feature. The live chat feature is missing – which is significantly important when it comes to P2P investing. The platform only permits the user to contact the management through email. They also offer their contact phone number. However, it’s always difficult to reach the team through phone calls unless you have some urgent issue.
Does YieldStreet Offers Buyback and Guaranteed Returns?
Only a few platforms offer buyback of investment and guaranteed returns even if borrower default. In the case of YieldStreet, the investor cannot sell back the investment. Active investments through this platform are not liquid. Indeed, the investors cannot modify its investment or cancel it for the remaining duration. The refunding option is also not available.
What Withdrawal Options YieldStreet Offer?
Your earnings are directly deposited to your YieldStreet Wallet account. The investor can only withdraw funds to a bank account. Other withdrawal options are not acceptable.
Is YieldStreet Safe?
YiledStreet is an SEC-regulated platform. In addition, investment opportunities are asset-based. This means that all investments are safe as they are backed by an underlying asset such as a real estate property, marine vessel or legal settlement. Even if a default occurs, the platform will take necessary legal action to get back the principal and outstanding interest.
The YieldStreet platform is one of the best platforms for accredited investors to access alternative investment opportunities in various sectors. The platform is using a strict investment strategy when it comes to project selection. Indeed, all the loans are backed by tangible assets which reduce the risk of default. In addition, YieldStreet offer wallet with 2.2% annual interest rate. Unfortunately, the platform does not offer buyback of investments. They also don’t offer refund or modification once you funded the project. Higher minimum investment requirement and the only participation of accredited investors is another downside of this platform.
How much an investor can invest on YieldStreet platform?
The minimum investments typically start from $10,000-$15,000. The platform shows both minimum and maximum investment limits with each offering. This strategy permits the platform to accommodate as many investors as possible.
Can an investor invest in YieldStreet using an online brokerage account?
Yes, it’s possible but depends on which brokerage account you are looking to use. It’s compulsory to have ACH compatible brokerage account.
Why investments are showing in pending?
The investments are shown as pending as long as YieldStreet receives and clears your funds. The platform claims to take up to 5 business days to activate your funds.
Can an investor invest in YieldStreet using my IRA?
The investor with Self-Directed IRA or a Checkbook IRA is eligible to invest on the YieldStreet platform. This also depends on the custodian that you are working.
How are earnings on YieldStreet taxed?
The platform uses two legal structures – Special Purpose Vehicle (SPV) offerings or Borrower Payment Dependent Note (BPDN) offerings. Both have different tax document.
How often will investors receive payments?
This depends on the offerings you select for investment. Some of its offerings have specified payment schedules and some are paying based on events.
What is the difference between earned, accrued, and paid interest?
• Earned interest – it is the interest that you have already earned on an investment. • Accrued interest – it is the type of interest that have earned but not received. • Paid interest – it is the interest that you have earned and received in your account.
Do these investments have risk?
Definitely, every investment carries risk. Although YieldStreet take several precautionary measures to reduce risk, but there are risks that investors should consider before investing.
Can the loans be repaid early?
Yes, the borrower is eligible to repay the loan before the maturity date. In most cases, there will not be a penalty for early repayment.
What happens if YieldStreet goes into bankruptcy?
YieldStreet works with asset managers and loan originators who have extensive experience in their field who service the loans. YieldStreet is a manager of the SPV (special purpose vehicle) or issuer of Borrower Payment Dependent Notes which are bankruptcy remote from YieldStreet Inc. The SPV or BPDN issuer is a company created with the sole purpose of keeping your investment secure, regardless of the originator or YieldStreet’s credit risk.
Is there any min/max for YieldStreet Wallet?
No there is no minimum or maximum limit for holding funds in its wallet. All funds that are held in its account will automatically earn the 2.2% annual interest rate.
How often is interest deposited?
The investors can expect interest deposits on monthly and compounds daily at 2.2% APY.
Does investor need to be accredited for YieldStreet Wallet?
Although it is necessary to be accredited when it comes to investing in this platform, but it offers wallet services to both accredited and non-accredited investors.