Crowdfunded investments filling in minutes

[The White Coat Investor]

So apparently crowdfunded hard money loan investments are getting pretty popular. So popular that it is now becoming tough for average joe to get the good ones, kind of like happened with peer to peer loans.

I got an email about one from Fund that Flip. It filled in less than 20 minutes. I had one earlier this morning from RealtyShares that was filled long before I got up. It used to be days or even weeks. It'll get worse as time goes on. Looks like the only way to do this asset class is probably going to be doing it yourself locally alone/with a group or via a fund. I'll likely end up doing the latter for the 5% of my portfolio I'm doing this with.

And this all assumes that adequate due diligence was done by Fund that Flip, because none of the investors are doing any in those 15 minutes. If their due diligence isn't adequate, this could build into a significant house of cards.

 

[actuaryonfire]

What happened with P2P was a load of hedge funds got setup and developed the IT to sniper the loans as soon as they appeared on the platform. They were responsible for sucking out a lot of the liquidity. I'm seeing the same on PeerStreet where loans are not around long enough to do any sensible due diligence.

I'm not familiar with Fund That Flip but would be cautious about due diligence claimed by the platform owner. I just don't believe they are that incentivized to do a great job. Or at least the incentives for cramming the platform with new loans far outweighs the hassle of proper due diligence. That's why I like PeerStreet since at least the loan is secured against the property. (But there you are investing in debt, and so if you are looking for equity investments it won't work.)

 

 

[The White Coat Investor]

Same with Fund that Flip. It's like Peer Street. Secured by the property and often a personal guarantee in addition.

There's one company AlphaFlow that has some IT to get you into loans...for a fee.

Might be better to just pay the fee to a big fund and remove the hassle from your plate eh?

[actuaryonfire]

The White Coat Investor wrote:

Might be better to just pay the fee to a big fund and remove the hassle from your plate eh?

Click to expand...

I would be interested. It's just become too much hassle.

[hightower]

I just briefly looked at the sites mentioned here.  I just don't feel comfortable throwing money towards those sort of endeavors at this point.  Seems risky and I don't have the extra resources to risk nor do I have the know-how to judge these investments appropriately.  As WCI pointed out, if I only have 15 minutes to decide if a particular investment is appropriate and worthwhile, I'd be putting all my trust in the company to do that work for me.  For those with cash and experience in this stuff it seems like a decent money maker though.

[gaspasser]

Still trying to process these options as my effective tax rate is 33% and the last dollars are about 51%.

Anything < 1yr duration (FundThatFlip, PeerStreet, other hard money loans) is taxed at top rate. The best ones are about 10% return, divded by 2 for me = 5%.

The longterm equity deals I hear about on CrowdDD/506 Investor Group are all 6-7% return, and then you get everything back plus 20-30% in year 5-7,  when a (not guaranteed!) sale occurs to a REIT or other investor. These are usually 25k -100k shares in large developments or portfolios of investments.

The latter make more sense from a tax efficiency standpoint - but ties up equity for 5-7 years. So hard to get revved up for that...

[VagabondMD]

You can auto invest with Peer Street to lock in some of the deals, with the option of opting out within 24 hours, but that seems like a risk and hassle, too.

I am concerned that the extreme popularity of these sites is an indicator of too much froth in the speculative real estate space. I have a less than 1% position split between Realty Shares and Peer Street, and I am going to just let these positions ride and cash out.

[G]

actuaryonfire wrote:

What happened with P2P was a load of hedge funds got setup and developed the IT to sniper the loans as soon as they appeared on the platform. They were responsible for sucking out a lot of the liquidity. I’m seeing the same on PeerStreet where loans are not around long enough to do any sensible due diligence.

 

 

Click to expand...

I've been complaining about this for a year--I think the "good ol days" of P2P are over for the individual investor.  The hedgies and GS et al snap up the good stuff, leaving the dregs for the rest of us.  This doesn't mean that great opportunities don't exist, I just don't feel they're going to be on a website.

[Donnie]

What actualy happens on P2P is that asset managers have agreements with the platforms to buy volume that fit into certain criteria. They don't IT snipe it, it's a wired transaction from the outset and consumers don't see the majority of those loans. For obvious reasons, platforms can't leave their volume purely up to the appetite of consumers. Whatever is left is the leftovers after the platforms fills its obligations to asset managers or whatever the platform feels like it needs to offer to consumers to keep up the P2P charade.

P2P is a huge misnomer. It's still institutions lending to consumers.

[Brett]

Have you looked at Automated Investing? One way to think about it is that you get a spot in an investment, then you have 24 hours to diligence it and can back out if you don't like what you've gotten into. That way it removes the speed pressure you face if you are actively picking investments.

[Jim]

A lot of the best deals on Realtyshares do seem to fill up pretty quickly.  You may want to try & develop a relationship with one of their "wealth counselors" or whatever they call their salespeople, who can notify you of new deals immediately when they're posted.

[White.Beard.Doc]

The extreme popularity of all of these real estate investment platforms is a very bad sign.  The party goes great until the music stops, and then everyone gets crushed.

When the next downturn comes, the underlying equity in the properties that back these loans will not be adequate to pay them back, and the creditworthiness of the personal guarantors will have tanked because the property developers are heavily exposed to real estate market risk.

High interest rates on these hard money loans equals high risk.  No one can predict exactly when the music will stop, but we know that at some point it will.

[White.Beard.Doc]

Crixus wrote:

This is what happens when the YC has been crushed by CBs for nearly a decade.

Click to expand...

Crixus, you love those acronyms, don't you.  Are you a physician?  I feel like I am trying to decipher a note in the chart that was written by a specialist in another field and I have no idea what their favorite acronyms stand for.

YC = yield curve???

CBs = central banks???

pm = precious metal???

[Hatton]

White.Beard.Doc wrote:

Crixus wrote:

This is what happens when the YC has been crushed by CBs for nearly a decade.

Click to expand…

Crixus, you love those acronyms, don’t you.  Are you a physician?  I feel like I am trying to decipher a note in the chart that was written by a specialist in another field and I have no idea what their favorite acronyms stand for.

YC = yield curve???

CBs = central banks???

pm = precious metal???

Click to expand...

I think 1/10 Crixus  comments make any sense.

[Kamban]

White.Beard.Doc wrote:

The extreme popularity of all of these real estate investment platforms is a very bad sign. The party goes great until the music stops, and then everyone gets crushed.

Click to expand...

It looks that people are getting in blindly because they feel that if they cannot get in the first few seconds, some one else will. Almost like getting into Ticketmaster site to grab a seat, any seat, for the hot concert before it gets sold out in 1 minute.

This is a bubble waiting to burst.