The alternative investment space has grown to exponential heights in recent years, with much of this driven by the peer-to-peer phenomenon. As such, no longer are high-yield investment products reserved just for financial institutions.
Instead, retail investors can now buy and sell a range of alternative investment classes from the comfort of their own home – some of which allow you to get started with really small amounts.
One such platform that is looking to stamp its authority in this ever-growing marketplace is YieldStreet.
However, unlike its industry counterparts, YieldStreet focuses entirely on accredited investors. This means that you will need to have a net worth of at least $1 million, or have been earning an annual salary of $200,000 or more for the past two years.
If you do meet this criterion, YieldStreet offers a range of alternative investment plans that target yields of between 8% and 20% per year. This includes investments in litigation finance, hard money loans, and property bridge loans. Although the platform permits a minimum investment amount of $5,000 – many of the investors registered at YieldStreet will inject six or seven-figures into a single opportunity.
If you think that YieldStreet is something that is conducive for your long-term investment goals, then be sure to read our comprehensive review.
Within it, we’ll cover everything you need to know – such as how YieldStreet works, what investments it facilitates, how much you can earn, what risks you need to consider, and more.
YieldStreet at a Glance
- 1 YieldStreet at a Glance
- 2 What is YieldStreet?
- 3 Am I Eligible to Invest With YieldStreet?
- 4 What Investments Does YieldStreet Offer?
- 5 How Does the Investment Process Work?
- 6 Risks – Is my Money Safe at YieldStreet?
- 7 Fees: How Much Does YieldStreet Cost?
- 8 The Verdict?
- 9 YieldStreet
- 10 Pros
- 11 Cons
|YieldStreet - Visit|
|Product Type||Alternative Investments|
|Potential Return||8% - 20%|
|Fees||Averages around 2% Per Year|
|Investment Types||Litigation Finance, Sports Star Loans, |
Accounts Receivable Financing, Marine Finance,
Ridesharing Fleet Leasing, Hard Money Loans,
Multi-Family Property Bridge Loans, High-Value Fine Art & More.
What is YieldStreet?
YieldStreet is a crowdfunding platform that specializes in asset-backed investments. Unlike other crowdfunding sites operating in the space, YieldStreet is tailored exclusively for accredited investors. The types of investments facilitated by the platform are somewhat sophisticated. Although we’ll cover this in more detail later, this includes a range of cash flow-generating vehicles from the litigation finance, real estate, fine art, vessel fleet, and consumer debt sectors.
On the one hand, such vehicles come with highly attractive annual yields. This can pay anywhere from 8% at YieldStreet, with some investments yielding as much as 20%.
The types of investment opportunities hosted by YieldStreet are also somewhat difficult for non-institutional clients to gain exposure to, albeit, the crowdfunding nature of the platform removes these barriers.
On the flip-side, these asset classes are often much riskier than traditional investments, so we’ll also explore this in more detail further down. Furthermore, as YieldStreet does not offer a secondary marketplace, you will need to wait until your investments mature before you can liquidate your holdings.
While we are on the subject of investment terms, this can range from just one month, up to a few years. The good news is that most investments at YieldStreet are cash-flow generating, meaning you’ll have the opportunity to reinvest your gains as and when they are paid.
In terms of the fundamentals, YieldStreet was launched in 2015 and has its headquarters in New York. Its parent company – YieldStreet Management LLC, is regulated by the Securities and Exchange Commission (SEC). Any cash balances that you have at YieldStreet are held at Evolve Bank & Trust, who is a member of the Federal Deposit Insurance Corporation (FDIC). However, the FDIC protection won’t cover you in the event that your YieldStreet investments go wrong.
So now that you know who YieldStreet is, in the next section we’ll take a look at eligibility.
Am I Eligible to Invest With YieldStreet?
First and foremost, as the platform is authorized by the SEC as a registered investment adviser (RIA), YieldStreet can only accept account applications from accredited investors. The platform notes that it is will be looking to open its doors to non-accredited in the near future, although it remains to be seen when this will happen.
Nevertheless, to be classed as an accredited investor in the US you will need to meet one of the following requirements.
- You earn an annual salary of $200,000 or more, and have done for the past two years.
- If opting for a joint account, you and your partner will need to have declared a collective annual salary of $300,000 or more, also for the past two years.
- You will also qualify as an accredited investor if you have a net worth of $1 million or more. This cannot include the value of your primary property.
Take note, your status as an accredited investor will not only need to be verified during the application process, but this will need to be updated each and every year. If your status is based on income, this will be requested in April. If your status is based on net worth, you’ll need to resubmit supporting documentation one year from the date your account is opened.
What Investments Does YieldStreet Offer?
YieldStreet focuses on alternative investment products that would otherwise be difficult for non-institutional clients to access. These come from a range of asset classes, so we’ll break down the specifics in the below sections.
We’ve also provided some handy examples of previous deals that YieldStreet has netted for its members.
Litigation finance is an investment niche that gets little attention in the retail asset space. The main concept is based on plaintiffs that require funding in a case where financial settlement is being sought. More specifically, these are cases where the likelihood is that the plaintiff will be successful in their claim. This could anything from wrongful imprisonment, labor law, police brutality, or road accidents.
Those seeking damages will, of course, need to pay for a legal firm to take on the case. If they are unable to meet these costs, this is where YieldStreet comes in to play. In a nutshell, the platform hosts a number of litigation opportunities where investor funds are pooled together to help finance a particular case.
The main risk associated with litigation finance loans at YieldStreet is if the claim is not successful. However, this has yet to occur at the platform, albeit, this isn’t to say that it won’t at some point.
Sports Star Loans
One of the most interesting financing options available at YieldStreet is that of the loans it provides to sports stars. More specifically, these are made to NBA players that have already secured a multi-million dollar contract.
The sports star in question will then repay the loan over a fixed period. These loans are typically viewed as low-risk because of the underlying contract in place. In other words, there is no doubt about the affordability of the loan, not least because the player will be in possession of a long-term seven-figure salary.
One such example of this is the $200,000 loan made to an NBA player via YieldStreet in 2015. The player has secured a $2 million contract with his respective team, with Yildstreet investors earning an annual yield of 10% over 25 months. The loan was repaid in full, subsequently netting an all-in profit of $21,767.
Accounts Receivable Financing
Also referred to as invoice factoring, accounts receivable financing is provided to businesses that need to fund a particular purchase order. For example, if a business received a $1 million order, but they didn’t have the required funds to manufacture the goods, account receivable financing provides the company with the required cash upfront.
The institution responsible for financing the deal would have the security of the order itself, insofar that unless the customer defaulted on payment, it knows it shouldn’t have any issues recovering the loan.
YieldStreet facilitated a $3.1 million receivable finance loan in 2016 for a large business in New York. The loan was a short-term two-month agreement, with YieldStreet investors making a rather juicy 20.4% annual yield. The loan was successfully repaid in full across one payment.
Once again a somewhat unknown investment vehicle, marine finance centers on providing loans for those involved in the industrial vessel space. This could be a loan to cover the purchase of a large-scale ship, or funds to pay for construction.
Marine finance can also help vessel owners with the costs of deconstruction, so that high-value parts can be sold at auction. Crucially, such loans are backed by the vessel itself, so an element of protection is offered to those that inject capital.
A recent example of a marine finance deal facilitated by Yieldsteet was that of a $12.65 million loan obtained by Global Marine Transport Capital. The funds represented 74.4% of the expected value of the vessel parts the company seeks to auction post-deconstruction. The loan agreement is still ongoing, with YieldStreet investors earning an annual yield of 10.25%.
Ridesharing Fleet Leasing
YieldStreet is also involved in the ridesharing fleet space. For those unaware, taxi app companies such as Uber, Via, and Lyft often lease vehicles to their drivers. With such a large number of vehicles required, large-scale funding is often sought. This is where firms such as YieldStreet come in.
The crowdfunding platform will loan money to established leasing firms, who subsequently lease the vehicles directly to ridesharing entities. Once again, such financing agreements are backed by the underlying assets itself, which in this case, are the cars.
YieldStreet recently closed a $904k offering for a ridesharing fleet expansion, which is currently yielding 13% annually for investors. The loan is 26 payments in, with $286,539 having been repaid thus far.
Hard Money Loans
In its most basic form, a hard money loan is a financing agreement that is backed by property. Although such loans come in a range of shapes and sizes, a common avenue is to help fund ‘flipping’ deals. For example, let’s say that a real estate investor wishes to purchase a foreclosed home at $40,000.
The house requires around $30,000 in renovation costs, albeit, the property has an expected After Repaired Value (ARV) of $130,000. If the projections are valid, this would represent a $60,000 profit once the property is flipped post-renovation. However, as the investor does not have the required funds upfront, they subsequently seek financing in the form of a hard money loan.
Multi-Family Property Bridge Loans
While the hard money loans facilitated by YieldStreet are often for much smaller amounts, the platform also invests in large bridge loans. The underlying borrower will own multi-family properties across the US. Such loans are somewhat lower-risk for two key reasons.
Firstly, the bridge loan will be backed by the multi-family unit itself. Secondly, YieldStreet will focus on properties that already have a high occupancy rate of tenants. This ensures that the borrower has consistent operating cash flows and thus, can comfortably meet their repayments.
One such example of a bridge loan facilitated by YieldStreet was on a multi-family property based in Houston. The loan amounted to $10 million, and netted YieldStreet members an annual yield of 8%. With a term of just 6 months, the loan has since been repaid in full.
High-Value Fine Art
YieldStreet recently entered the fine art loan space, which is yet another alternative investment space that would otherwise be difficult to reach. The platform will facilitate collateralized loans that are fully backed by high-value fine art pieces.
For example, YieldStreet recently completed a $10.65 million loan that was fully backed by a series of Post War and Contemporary Artworks. The collection itself carried an aggregate value of $62.7 million, which represented an LTV of 56.9%.
The 9-month loan will eventually net YieldStreet investors an annual yield of 10.25% once it is repaid in full.
The above examples that we have discussed represent just a portion of what YieldStreet allows you to invest in. Moreover, the platform is constantly exploring new alternative investment streams.
The crucial point of consideration is that most of the loans are backed by secured assets. As such, were a borrower to default, investors should be covered once the recovery process takes place.
How Does the Investment Process Work?
So now that you know the types of opportunities that YieldStreet facilities, we are now going to explore how the investment process actually works.
Current Investment Offerings
First and foremost, YieldStreet is unlike other crowdfunding platforms in the space, insofar that it is extremely limited in the investment opportunities its seeks to offer. For example, at the time of writing, the platform does not actually have any offerings listed, only an upcoming offering and examples of past offerings.
We really like this, as it illustrates that the platform likes to take a slow and steady approach in the investments it facilitates. The team at YieldStreet will perform enhanced due diligence on the borrower seeking financing. This not only includes the financial standing of the company or individual themselves, but the underlying collateral that the borrower puts up against the loan.
Once an investment offering is listed at the platform, YieldStreet will provide heaps of information about the opportunity. As such, you will first need to evaluate the financials surrounding the investment.
You should pay particular attention to the following:
- Financing Amount: This is the amount of money that you and your fellow YieldStreet investors will be lending out. This can vary quite considerably depending on the structure. For example, while YieldStreet facilitated a $200,000 loan to an NBA player, it has also funded a $16 million vessel refinancing deal. You will also be able to view the LTV that is attached to the loan in relation to the underlying collateral.
- Loan Term: The term of the loan is also important, as this will dictate how long it will take for you to receive your money back in full. This will vary depending on the size of the loan, and the type of financing required. Loans start from just one month, up to a few years. Don’t forget, there is no secondary marketplace at YieldStreet, so you will need to wait until the agreement matures.
- Yield: Each investment opportunity that YieldStreet lists will come with a project annual yield. This is the case even if the loan is for less than a year. In most cases, the yield should remain constant, as the interest charged to borrowers is fixed. This allows you to know exactly how much you will get back, albeit, this is on the proviso that a default does not occur. Yields can sit anything between 8% and 20%.
- Collateral: As the vast majority of loans issued by YieldStreet are backed by real-world assets, you’ll be able to view the details when you evaluate a particular opportunity. The values attached to a security are based on projections, as there is never any guarantee that the asset will reach its market value at auction.
- Financial Standing: You will also be presented with an overview of the borrower’s financial standing. This includes key financial information linked to the affordability and creditworthiness of the borrower.
- Minimum Investment: YieldStreet has a blanket policy in place on minimum investments, insofar that opportunities start at $5,000 per investor. However, large deals will often require a larger minimum investment. For example, the $16 million vessel refinancing opportunity we mentioned earlier came with a minimum investment of $10,000.
Funding the Investment
Once you have found an investment that you wish to back, you will need to ensure that you have the required balance to fund the deal. The opportunity will then remain on the YieldStreet platform until it is funded in full.
It is to our knowledge that each and every opportunity at YieldStreet has always been funded 100%, which is extremely promising.
The payment process at YieldStreet works largely the same as any other crowdfunding platform, insofar that the funds will be placed into your account as and when they are received. Each financing opportunity comes with a different repayment plan. While some are based on monthly repayments, others are quarterly.
It is important to note that some deals are based on performance, meaning that you will not be paid until the investment has matured. This includes a mitigation finance arrangement, whereby you will only receive your investment back if and when the case has been settled.
Risks – Is my Money Safe at YieldStreet?
It can be overly tempting to jump straight into a crowdfunding platform like YieldStreet that offers annualized returns of between 8% and 20%. After all, this is significantly higher than what the traditional investment space offers. However, you need to be made fully aware of the underlying risks, especially when investing in alternative asset classes such as those facilitated by YieldStreet.
Before we breakdown the main risks, YieldStreet is yet to experience a default on any of its financing agreements. On the flip-side, the platform has only been operational for five years, so don’t make the mistake of assuming your investments are risk-free.
The obvious starting point is with respect to defaults. In a nutshell, if the underlying borrower defaults on the loan agreement, then this could leave you out of pocket. We say “could” because the overarching concept of YieldStreet is that most loans are backed by a security.
If a default did occur, then YieldStreet would have the legal remit to begin the recovery process against the borrower. It is then hoped that this would cover at least the principal amount, although there is never any guarantee that this will be the case.
Although most YieldStreet projections have thus far come to fruition, there might come a time where you get back less than what you had anticipated. For example, if the end borrower decides to repay the loan back early, then this will have a direct impact on the projected yield.
Some YieldStreet investments are not backed by hard assets. This mainly centers on litigation financing, which is based on the assumption that a claimant will have a case settled in their favor. However, there is never any guarantee that this will actually be the case, so there is a risk that the investment might go against you.
Similarly, sports star loans also come with their risks. In the case of loaning funds to an NBA Player that has already secured a lucrative multi-million dollar contract, the guarantee of repayment is never set in stone. For example, if the NBA player was sacked for gross misconduct, the contract would likely be canceled with immediate effect. This could result in a loss of funds for you as the investor.
Although you will know the loan term that you are entering into prior to parting with your money, you need to remember that your cash will be locked-up until the agreement matures. There is no secondary marketplace available at the platform, so you won’t be able to exit your investment early. This could be an issue if you have an immediate need to raise capital.
Due to the lucrative nature of the opportunities sourced by YieldStreet, it would be surprising if this wasn’t something that the platform reconsidered in the very near future.
Although most loans are backed by collateral, there is never any guarantee that the projected market value of the asset will be realized at auction. Moreover, there are no certainties that the asset will be sold within a reasonable timeframe.
Both of these risks could have a detrimental impact on your investment in the event that YieldStreet is required to engage in an asset recovery process.
Fees: How Much Does YieldStreet Cost?
YieldStreet is in the business of making money and thus, you will be charged to use the platform. The specific fees charged will vary from offering-to-offering. In most cases, you will pay a percentage fee based on the amount that you invest. This averages 1-4%.
This is actually subtracted from the gross yield realized by YieldStreet, meaning that the advertised yield remains constant. For example, if YieldStreet makes 17% on an offering, and it requires a 2% fee, you will essentially receive a net yield of 15%.
YieldStreet sometimes charges an origination fee, but this is paid by the borrower, not the investors.
In summary, there really isn’t much not to like about what YieldStreet offers.
Essentially, the platform gives you access to alternative investment products that would otherwise be super difficult to reach. Whether it’s litigation finance, NBA player loans, hard money loans, ridesharing fleet financing, or vessel loans – these opportunities have typically been reserved for institutional clients. On the contrary, YieldStreet allows you to get started with an investment of just $5,000.
With projected yields of between 8% and 20%, the gains on offer are also super lucrative.
We also like the fact that most loans are backed by hard assets that are attached to the financing agreement as collateralized security. However, the main drawback is that the platform is still only available to those with an accredited status. As such, if you’re not earning at least $200,000 per year or your net worth doesn’t exceed $1 million, you won’t get a look in.
On the flip-side, YieldStreet does note that it is looking to expand its platform to include non-accredited investors in the near future, so hopefully, this happens sooner rather than later.