As a diversification tool, I decided to invest in RE debt crowdfunding (peerstreet, groundfloor). $10k each to see how that performed. This is a small sample, but after one year you can see some trends and patterns already.
Peerstreet is considered in the industry in the top 5, Groundfloor in the middle of the pack.
Peerstreet: Underwriting is not bad. Loans are not too risky, however expected return is low - in the 7-10% range. You can invest $1k at a time, not much choice.
Groundfloor underwriting is a joke. Pretty much, flippers are buying a shack (you would not believe the pictures on some of there houses on Groundfloor) for $100k, with $25k money down, then ask for a $150k loan (getting back the $75k they invested + $75k for the rehab). Expected return is around 10-17% though. Groundfloor does not tell you it is a 150% LTV. No, they tell you that the value after rehab is worth $300k, so that's a 50% ARV (After Rehab Value). But that's a completely different metric, not reliable at all. Heh, the flipper could even keep the $150k for themselves, and not care about the house. Groundfloor would supposedly foreclose the house so you can get your money back. They probably would discover that the house was not worth $100k, but $80k, sold for $75k. And you, as an investor, you would take a 50% loss. This is an extreme example, but it shows how someone could play the system (someone always will), and that ARV is not a healthy metric to use, compared to LTV. In any case, a lot of care is needed when selecting the investments on Groundfloor. At least you can invest $100 at a time (or is it $25?). They used to have a lot of available loans, but no loan anymore. They got into trouble?
So, one year later:
Peerstreet: 10% of my loans are in default. Groundfloor: 15% of my loans are in default.
They are supposedly trying to get the money back, extending the loan, foreclosing, etc. Some of the flippers went in bankruptcy to stop the foreclosure proceeding (their words).
It looks like I will have a 5-10% loss after asset recovery, accounting for the interests I got from the performing loans. And this is happening when the market is booming, RE is going up-up-up, lowest unemployement, etc... I can't imagine if market is slow or going down. Oh, and if somehow I make a profit, I will have to pay 40% income tax.
BTW this is a similar trend with LendingClub - I am divesting completely. Return are flat for the past year, even when things should go perfectly well. People borrowing from these platforms are probably desperate, unsophisticated, want to abuse the system or not very good at what they are doing. And the investors are the ones paying for it.
0/7 - Will not do this again. HTH a fellow redditor.
Submitted November 04, 2017 at 03:32PM by _WhatchaDoin_ http://ift.tt/2A85KOP
