- Real asset-backed lending as compared to investing in credit card debt such as upstart (stopped taking investments since Dec 2019).
- Debt type investment.
- Not tax-advantageous since the returns are interest-only so they are taxed at highest marginal tax rates. You are issued a 1099-INT form.
- Better to hold these investments in IRA, Roth IRA, Solo 401K, etc. It only makes sense if your self directed retirement account is at least in six figures.
- Traditional IRA custodians like Vanguard, Fidelity, etc will not work. Need to use a self-directed IRA or self-directed 401K account
- Very high fees of self-directed accounts so choose carefully. Only worth it if the account is bigger than 50K.
- Loan to Value (LTVs) range from 45% (less risky) – 85% (more risky)
- Assets include single-family homes, multi-family homes, commercial buildings, etc.
- Online websites I use for Hard Money lending:
- PeerStreet
- Minimums of $1000
- Diversify into different investment across the US
- Annual returns are usually 6% to 12%
- Tip: Be careful about the judicial states and non-judicial states list.
- Judicial states can delay the foreclosure process.
- If a loan goes bad it can easily take 1-2 years.
- Fundrise
- Has both equity and debt type investments
- Multiple funds within Fundrise
- Income fund: It is open for investments a few times and then they close it. Recently in Jan 2020, they have multiple income funds.
- Minimums vary around 1K-5K
- RealtyShares
- Read their blog has good beginner education articles. Some article I like:
- Returns are around 8% -14%
- A higher interest rate is because of more risky LTV ratios like 80% or higher.
- Higher interest rate loans are sometimes the second lien.
- Closed in Dec 2018. IIntoo has taken over.
- Investors got spooked although the service arrangement with other parties have been strict. Some of the companies that took out loans or investors’ money had stopped communicating and have stopped paying – although I think IInntoo is doing a good job of taking all measures to get the investors the money they are supposed to get.
- See this is one of the main risks when investing in crowdfunded investments. I refer to this platform risk.
