Review of: YieldStreet
Reviewed by: Ruth Lyons
Last modified: November 11, 2017
YieldStreet is a lending platform that connects investors with asset-based investments. It opens up borrowing and investing options previously available only to the super-wealthy. However, you must still be an accredited investor to use the platform, and the service is not without its risks.
The idea for YieldStreet came to CEO Milind Mehere when he found himself frustrated by the lack of investment opportunities outside the stock market. Having already founded Yodle, an SMB marketing company, Mehere created YieldStreet to give individual investors access to high-yield asset-based alternative investments. Traditionally, these types of investments have been available only to the super-wealthy.
Mehere has assembled an executive team that also includes Co-founder Michael Weisz, a former fund manager in the specialty finance space, and Chairman Dennis Shields, founder of Esquire Bank, with experience in specialty finance, risk management, and compliance.
Together, they hope to make YieldStreet an appealing investment platform for accredited investors looking for alternatives.
|Fees||Averages 2%/year; depends upon deal|
|Investment Length||12 - 36/months|
- Free to Open Account — You can view the opportunities, but you must submit verification of being an accredited investor to invest.
- Due Diligence — YieldStreet reports it rejects over 90% of loans because they don’t meet its investment criteria. On its website, the platform provides a few examples of deals it decided not to fund.
- ROI — Target yields of 8%–20% with one-to-three-year hold periods. Performance can be measured by the timeliness of monthly payments.
- Fees — While YieldStreet Management LLC collects a management fee averaging 2% annually, the target return displayed on the website for each offering is net of all fees. This represents the target return an investor would earn from their investment if the underlying asset fully performs as projected.
- Payout Frequency — The frequency and amount of payout varies by individual investment. Depending on the offering, payments may be interest-only or principal and interest and may be paid out monthly or quarterly. Others, like pre-settlement advances, have event-based payments. With these, investors receive payments as soon as the specific individual cases within a portfolio settle.
- Stock Market Correlation — Because tangible collateral backs the deals, asset-based lending holds low correlation to the stock market, protecting an investor’s portfolio from market volatility.
- Transparency — The crowdfunding platform allows you to view details and compare opportunities. The investment memorandum for each offering shows up at the bottom of each individual offering page. You can view the operating agreement, subscription agreement, terms of service for each offering and other documents.
What Is YieldStreet?
YieldStreet is a platform that connects investors with alternative investments across asset classes such as litigation finance, real estate, commercial finance and consumer finance.
Pre-settlement financing, a form of litigation finance, provides advances to meet the cost-of-living needs of plaintiffs while their cases are litigated. Litigation finance is one of the most overlooked asset classes in alternative investing, and the one most commonly featured on the YieldStreet platform.
You can invest in post-settlement litigation or a diversified group of pre-settlement cases, presented as a portfolio containing a wide range of case types. There are varying case categories, including motor vehicle accidents — such rear-end or pedestrian collisions — assault, police brutality, wrongful imprisonment, sexual abuse, labor law and Jones Act and Federal Employers Liability Act (FELA) cases.
Real estate is the second-largest asset class on the platform. Typically, YieldStreet will invest in portfolios of real estate properties located in urban areas that are more resilient to down cycles and that have low loan–to-value (LTV) ratios. They also often take a senior secured position with a first lien on the associated properties.
On occasion, YieldStreet will also offer unique investing situations. For example, recent offers included an NBA player who wanted an advance on his $2 million contract.
Using YieldStreet’s platform treats individuals who wish to invest $5,000 equally to investors with millions of dollars invested in the same deal. For example, one YieldStreet offering seeking $12 million received 40% of its funding in the $10,000–25,000 range, 58% in the $25,000–1 million range, and one investor who chipped in $4 million, or nearly a third of the deal.
By the way, YieldStreet’s largest single offering to date was $19.8 million and sold out in less than eight hours.
Unlike credit-based fixed-income products — such as debt instruments like Treasuries, corporate bonds and credit card lending — collateral backs all of YieldStreet’s investments.
Pros and Cons
- Low Minimum — With the typical $5,000-per-offering minimum, you can consider investing in several and diversify your holdings.
- Possible Higher Returns — Possible to get much higher returns than other types of income investments.
- Alternative Investments — Borrowers with nontraditional funding needs meet investors who want to invest in high-yield investments they would not otherwise have access to.
- Loans Are Secured by Collateral — All of YieldStreet’s offerings are backed by asset-based collateral.
- Low Correlation — Legal proceedings will proceed regardless of the overall economy, and YieldStreet will typically participate in real estate located only in urban areas.
- Low Cost — Since crowdfunding occurs via an online marketplace, the costs tend to be lower than those involving a traditional bank or financial institution.
- Pre-funded Opportunities — When you invest in a pre-funded offering, you begin to earn interest immediately after your investment is completed.
- Vetted Investments — Less than 10% of opportunities reviewed by YieldStreet are actually approved and accepted on the platform.
- Transparency — The details you need to do your due diligence are instantly available to you.
- Reduced Default Risk — Because all YieldStreet opportunities are asset based, the risk is less than non-collateral-based loans. To date, YieldStreet has had $0 of principal loss.
- Default Risk — Payments are not guaranteed and may be subject to delay or total loss.
- Accredited Investors Only — You must be an accredited investor, and YieldStreet will verify you meet the minimum requirements before allowing you to invest.
- No Secondary Market — Once you invest, your money is tied up for the duration of the specific investment. There is no secondary market to cash out.
- Untested Investments — The crowdfunding component has been in existence for only several years and is untested over the long term.
YieldStreet’s platform provides accredited investors access to alternative investments, including litigation finance, real estate projects, and unique circumstances.
A team with experience in specialty finance, asset management, compliance and risk management vets all of YieldStreet’s investments. That’s important because the success of these types of alternative investments depends in large part on the thoroughness of the due diligence that is done on each opportunity. You also personally need to do your own due diligence.
The biggest downside to YieldStreet is that, right now, investors must be accredited to participate. This means that they have must demonstrate least $200,000 in annual income or a net worth higher than $1 million. Although this is typical for the P2P lending industry, some services such as Fundrise don’t require these criteria.
As of April 2017, they have issued more than $100 million in loans. Management reports zero principal lost so far, and over 65% of investors have made more than one investment on the platform. Of course, past performance is no guarantee of future results. But if you meet the criteria for an accredited investor, YieldStreet offers some interesting investment opportunities.