Alternative assets under management exceeded $10 trillion worldwide. And the bulk of institutional investors reserve a piece of their portfolio for this asset class. Most of us don’t have access to the same investment opportunities they do. However, crowdfunding platforms make it easier. YieldStreet seeks to bring once-exclusive deals to the masses.
If you’re considering adding alternative investments to your portfolio, our YieldStreet review details its investment options, fees, and more.
You may already be exploring additional ways to put your money to work.
Alternative assets like commodities or real estate can further diversify your portfolio while serving as an excellent buffer during market volatility.
YieldStreet offers you a chance to invest in art, marine, legal, consumer finance, and real estate.
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What Is Yield Street?
YieldStreet’s crowdfunding platform joins accredited investors to asset-based alternatives. On the flip side of that coin, they link borrowers to quickly-raised capital through streamlined fundraising efforts.
Founder and CEO Milind Mehere believes a quicker path to financial independence exists without overexposure to the stock market. YieldStreet offers once-exclusive investment products used by institutional investors to accredited individuals.
Like so many others in the fintech space, crowdfunding investment platforms have become common thanks to the JOBS Act.
YieldStreet offers ordinary investors a seat at the table previously reserved for the ultra-wealthy.
The company launched in 2015, is based in New York, and has funded over $1 billion.
|Account Types||Individual Taxable, Self-Directed IRAs, Cash Savings Account, LLCs, Solo 401(k), Trusts|
|Investment Options||Commercial and Residential Real Estate, Art, Litigation, Marine Finance, Consumer and Commercial Finance|
|Fees||1%-2%, other fees apply|
|Investment Length||6 months-5 years|
|Distributions||Monthly or Quarterly|
|Accredited Investors Only||Yes|
Alternative Asset Classes
YieldStreet offers debt-based alternative investments with a low correlation to the stock market. Their originators’ network provide the loans which are backed by collateral from the borrower.
YieldStreet offers five income-generating asset classes you can invest in.
Art Finance connects borrowers (art dealers, collectors, and corporate clients are most common) with investors in the form of debt-based lending using art as collateral. The art must be blue-chip from established artists.
Note: Financing art assets carry a minimum collateral value of $2 million with minimum loan amounts starting at $1 million.
Often times, collectors will put a piece up as collateral, acquiring the loan to buy more art.
Litigation finance lets you invest in litigation outcomes (aka litigation funding, lawsuit funding, and lawsuit loans) by throwing money into either the plaintiff’s or defendant’s legal fund. A few investment options at YieldStreet include:
- Pre-settlement funding
- Law firm financing
- Financing for leveraged buyouts of law firms or portfolios of cases
- Strategic capital for legal advertising
- Post-settlement financing
Marine Finance lets you invest in vessel acquisition, construction, and deconstruction. Seaborne trade is a multi-trillion dollar industry.
An investment opportunity here could be lending money to marine borrowers to finance the acquisition and construction of large cargo ships.
Commercial lets you back business assets like equipment, vehicles, and accounts receivable.
For example, a borrower may use his fleet of cars as collateral to acquire a loan to expand the business. Or, you could invest in the acquisition of a manufacturing plant secured by its assets and cash flow.
Real Estate offerings consist of both commercial and multi-use residential properties. The investments are high-quality, institutional deals with an average offering size of $5 million.
Property Types include:
The majority of YieldStreet’s real estate offerings are located in urban centers while avoiding suburban and rural areas as a method of risk mitigation. These areas have demonstrated greater resiliency in economic downturns.
YieldStreet only works with experienced originators with a knack for negotiating large-scale commercial and residential investment opportunities.
They don’t work with individuals managing single properties or inexperienced lenders.
YieldStreet looks for real estate deals with loan-to-value ratios (LTVs) of 60% or less. Typically, the higher the LTV, the riskier the investment. By tilting towards lower LTVs, YieldStreet reduces risk.
All investments are backed by collateral such as real estate or a vehicle. This guarantees your principal in case the borrower defaults.
For real estate investment opportunities, most are first lien on the property, which adds a layer of protection for investors. Why?
Because if the borrower defaults, the investor can seize ownership and even sell the property to cover the loss.
Having collateral in the form of real estate (or another physical asset) acts as a safety net.
All of the investment options are clearly labeled, and you can see the exact terms of each deal, including why YieldStreet likes the agreement, payment schedule, structure, fees, and expenses.
The above is one example of YieldStreet’s transparency. When you click on Risk, Summary, or Documents on the left side of the screen, you’re taken to a detailed explanation of each category.
The above is the Highlights page where the Yield, Schedule, Expenses, and Deal Structure are displayed.
YieldStreet Investment Options
Yieldstreet lets you hand-pick investments to build a diversified portfolio. You’re able to diversify across any of the above-mentioned asset classes depending on availability. This feature caters to the DIY investor and requires thorough due diligence.
If you’d prefer a fund as opposed to hand-picking individual investments, YieldStreet partnered with BlackRock to create the Prism Fund.
The fund is a mix of YieldStreet’s alternative assets along with investment offerings provided by BlackRock including corporate and sovereign debt, asset-backed securities, and collateralized loan obligations.
The Prism Fund was designed as a fixed-income product. Investors can expect a 7% quarterly distribution until the fund terminates after 48 months.
The minimum investment requirement is $20,000 and carries a 1.75% fee.
YieldStreet Wallet is an interest-earning cash savings account that lets you access investments quicker. Keeping money in this account sidesteps the usual 1-2 business day lag that normally occurs from transferring money from external accounts.
It works like any online bank. All you have to do is link your bank account to your Wallet, and you immediately start earning interest on those funds once they’ve settled.
Check with YieldStreet to find out its current APY.
You can withdraw funds up to six times a month per federal law, but deposits are unlimited. There are no minimum balance requirements to use this account.
YieldStreet Wallet funds are held at Evolve Bank & Trust and FDIC-insured up to $250,000.
Tip: Speed up your investing process and keep money in your Wallet account. You won’t have to wait 1-2 business days for your funds to settle, letting you invest quicker.
You can invest money through a self-directed IRA on YieldStreet in the form of either a Traditional or Roth IRA.
IRA Services is the custodian for YieldStreet IRAs.
Account maintenance fees associated with opening an IRA vary depending on the amount you deposit and range between $299 to $399 annually.
You’re only able to use your Self-Directed IRA for YieldStreet-specific investments found on its platform.
Minimums and Fees
The bulk of their offerings start at $10,000, but there are a few that go as low as $5,000. If you’re considering investing in the platform, expect to pay $10,000 to start.
YieldStreet charges an annual management fee between 1%-2% depending on the investment. All advertised target returns are net of fees.
All of its fees are transparent and are disclosed on the investment’s offering page. You are also responsible for paying an annual flat expense (between $30 and $150). These are paid from your interest distributions.
Using the YieldStreet Platform
Creating Your Account
Head to Yieldstreet’s homepage to create your account. It’s free to set up. Once you’ve completed your investor profile, you’ll have access to their available investment opportunities.
Check the Investment Offerings Page
You can see what’s available on the Investment Offerings page. Once you spot an investment you like, click on the individual offering. Enter your desired investment amount and click “invest.”
Finalize the Offer
Once that’s completed, you’re brought to a page to finalize the offering. You can choose to fund deals through your YieldStreet Wallet, linked bank account, or wire transfer.
Yieldstreet’s Investing Approach
5-Point Investment Philosophy
Originators are thoroughly vetted and must meet five requirements to get a project approved on YieldStreet’s platform. All investments must:
- Be asset-based
- Have low stock market correlation
- Have experienced management (Yieldstreet vets every originator managing the investment to make sure they have an established, proven track record, and expertise in the asset class)
- Be short in duration
- Carry 8-15% target returns
Every borrower must provide collateral in the form of an underlying asset. If all five points aren’t met, the loan isn’t approved.
YieldStreet Due Diligence
Every investment carries risk, even YieldStreet. Here’s a snapshot of what their vetting process looks like:
- They vet the management team of the originator to ensure domain expertise.
- They’re highly selective of who they choose to work with and hire a third-party to investigate the originator’s financials and track record.
- Originators must have many years of experience and are considered an authority in their field.
YieldStreet’s data-driven approach focuses on specific metrics to ensure the quality and safety of the principal for investors, which brings me to my next topic.
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Who Can Invest On YieldStreet?
Since YieldStreet Management LLC is an SEC-registered investment advisor (RIA) and manages funds issuing securities under Rule 506(c) of Regulation D under the Securities Act of 1933, you are required by law to verify your accreditation. How do you prove it?
There are three methods available to you:
- Submit your request to a third party like your CPA, lawyer, or registered investment advisor, and they’ll validate you.
- Upload your W2 of the two most recent tax years. Your earned annual income must be $200,000 or higher for individuals (>$300,000 jointly)
- Qualify based on your net worth, which means it must exceed $1M (excludes your primary residence). In this situation, you’ll upload your bank or brokerage statements along with a credit report to show any liabilities.
If you’re not accredited, you’ll still have access to their cash savings account, YieldStreet Wallet.
Funding Your Investment
The easiest way to do this is to fund your YieldStreet Wallet account. Your wallet grants your funds instant access to existing investments. It’s the quicker option as opposed to waiting for your settlement of funds.
You can also have funds pulled electronically by linking your bank account or by wire transfer.
Once you’ve gotten an interest payment or distribution from your investment, you’ll be notified via email, and the amount will deposit into your Wallet or your linked bank account.
Distributions have predefined payment schedules but most occur either monthly or quarterly. Your offering page outlines payment administration.
YieldStreet Deal Structure
It depends on the type of investment it is. The two primary formats are a Special Purpose Vehicle (SPV) and a Borrower Payment Dependent Note (BPDN).
Special Purpose Vehicles
SPVs are subsidiaries of YieldStreet and structured as an independent LLC. All reporting and record-keeping are done separately from the rest of YieldStreet’s offerings.
In an SPV, you enter into a membership interest of the LLC supporting your investment. The amount you earn is proportional to the amount you invest.
For example, if you invest $10,000 of a $500,000 deal, you’d receive a 2% ownership interest along with 2% of any applicable interest payments for that particular investment.
Borrower Payment Dependent Notes
BPDNs are debt obligations of YieldStreet and linked to the loan’s performance. YieldStreet explains this offering as a way to pool larger groups of investors, citing its efficiency and lowered minimums.
For each BPDN offering, a new SPV is created as a subsidiary of the BPDN issuer. This new SPV either handles all funding and loan origination itself or enters into an agreement with another originator.
What If YieldStreet Goes Bankrupt?
YieldStreet is a manager of the SPV or issuer of the BPDN and is bankruptcy remote from YieldStreet. This tactic was employed to keep your investments and money independent should YieldStreet go out of business.
Using YieldStreet’s example of an SPV, if anything were to happen, a new manager would be appointed to the SPV and assume all managerial duties, collect fees, and continue to hold the investment.
Is YieldStreet Safe?
All of your personal information is encrypted and stored by their third party site SynapseFI. YieldStreet doesn’t store or see your banking info. Your login is a direct connection to your bank, and you have the option to enable two-factor authentication.
Is YieldStreet a Good Investment?
What’s to Like
- Asset-backed investments: All investments are backed by a form of collateral ranging from real estate, equipment, vehicles, and cash flow.
- Alternative asset classes: Apart from real estate, investment offerings include art, marine, legal, and commercial financing.
- Deal structure ensures bankruptcy remoteness: Investments and money are held independently of YieldStreet Inc in either Special Purpose Vehicles or Borrower Payment Dependent Notes.
- Higher yields: YieldStreet’s investment philosophy adheres to core components focused on low stock market correlation, short durations, loans originated by experienced asset managers, and yields targeting at least 8%.
What’s Not to Like
- Accredited investors only: Despite providing easier access to investments once reserved for large institutions, the high net-worth and income requirements make it challenging to invest if you fall beneath this threshold.
- Higher minimums and fees: While the opportunities found on its platform carry lower costs and provide easier access to high-profile deals, most investments require a $10,000 minimum to get started while fees extend upwards of 1%.
- Limited available investments: Expect to see only five deals per month on their website and they tend to fill quickly.
- Illiquid investments: You can’t modify or cancel investments once your order is complete. It’s considered locked up for the term duration.
YieldStreet offers investors access to alternative assets they may not have otherwise been able to secure. If you’re looking to further diversify your portfolio, YieldStreet might make sense.
Investments are all asset-backed and provide you with marine, legal, art, real estate, and consumer financing opportunities.
YieldStreet has some very unique offerings in the form of participating in a loan to an NBA player using his contract as collateral. Their Quest Livery leasing was backed by 29 pre-leased cars and returned 13% to investors.
The downside to their platform is you must be accredited. I’d like to see them open up their platform to non-accredited investors. If you qualify and are looking for some genuinely unique alternatives, YieldStreet might be for you.