If your portfolio is in good shape, you’ve invested in a few index funds or ETFs, and you’re maxing out your tax-advantaged accounts – fantastic! You’re doing great and are ahead of the pack.
Now, if you’re looking for additional ways to put your money to work, you may already be exploring alternative assets like commodities or real estate. These investments aren’t heavily correlated to the stock market.
Alternative assets can be an excellent buffer when the market takes a nosedive. I’m sure you remember the 2008 financial crisis.
If you’re considering adding alternative investments to your portfolio, YieldStreet may be worth a look.
Bird’s Eye View
- Individual Taxable
- Self-Directed IRAs
- Cash Savings Account
- $5,000 (however most are $10,000)
- Real Estate (commercial and multi-use properties)
- Litigation Finance
- Marine Finance
- 1%-4% annual management fee
- Variable flat fee depending on investment type
- 1-3 years
Who’s It For:
- Accredited Investors Only
Inc. named YieldStreet the 14th fastest-growing private company in the United States. YieldStreet also won “Best Alternative Investment Platform” at the 2018 Benzinga Global FinTech Awards.
They’ve been featured in Forbes, The Wall Street Journal, Cheddar, and TechCrunch.
YieldStreet by the Numbers
YieldStreet has over 100 years of combined experience in originating, servicing, investing, and approving originators. They have invested over $824M, carry an expected 12.28% IRR, have made 396,000 payments, and have returned over $398M to investors.
Hedge funds and the ultra-wealthy once dominated the investments found on YieldStreet’s platform, but now they’re available to all accredited investors.
YieldStreet is based in NYC and launched in 2015. Its founder and CEO, Milind Mehere, previously co-founded Yodle, scaling it to $200M in revenue with over 1400 employees. It was later sold to Web.com for $342M.
Michael Weisz is its president and responsible for YieldStreet’s investment strategy, Originator network, and investor acquisition. He was previously vice president of a New York-based credit opportunities hedge fund with $1.2B in assets under management.
His specialty was asset-based loan transactions.
What’s Yield Street?
YieldStreet joins accredited investors to asset-based alternative investments. On the flip side of that coin, they link borrowers to quickly-raised capital through streamlined fundraising efforts.
The YieldStreet Solution:
A first of its kind technology platform that connects accredited investors to asset-based investment opportunities across multiple asset classes, and provides deserving borrowers with affordable capital.
It Started with a Question
Founder and CEO Milind Mehere:
What’s the path to financial independence? Not with overexposure to the stock market. I wanted access to the same investment products used by hedge funds and institutions, but I and many others didn’t have it. We built Yield Street to change that.
Like so many others in the fintech space, crowdfunding investment platforms have become common thanks to the JOBS Act.
I’m sure you’ve heard the expression, “we’re democratizing the investment process.” That’s precisely what YieldStreet is doing through its crowdfunded alternative investment platform.
It does carry perks as it offers ordinary investors a seat at the table previously reserved for the ultra-wealthy.
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What Are You Investing In?
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.
Multiple Asset Classes
YieldStreet offers five asset classes you can invest in:
Art. YieldStreet recently acquired one of the leading lenders to buyers of priceless works of art, Athena Art Finance, to its repertoire of investment options.
Legal (aka Litigation Finance). You can invest in litigation outcomes (aka litigation funding, lawsuit funding, and lawsuit loans) by throwing money into either the plaintiff’s or defendent’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 (aka Marine Finance). Invest in vessel acquisition, construction, and deconstruction. Seaborne trade is a multi-trillion dollar industry.
Commercial lets you back business assets like equipment, vehicles, and accounts receivable. For example, a borrower may use his fleet of cars or farming equipment as collateral. To date, YieldStreet has raised over $129M, carried an average offering size of $5.6M, and made over 12,000 payments.
Real Estate offerings consist of both commercial and multi-use residential properties.
To give you an idea of the types of investments offered on their platform, I’ve included a couple below.
Their current marine offering is a short-term loan on a vessel that’s intended for deconstruction and recycling. It carries a $10,000 minimum investment, a 10.25% target yield, and a five-month maturity date.
A past real estate deal consisted of a Florida Multi-Family Development Preferred Equity investment. The term was 50 months with a 10% target yield and a $60,000 minimum.
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.
This 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.
Since YieldStreet’s inception, its investments have an expected 12.28% IRR.
How Do You Make Your First Investment?
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.
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.”
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.
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.
Debt-Based, Asset-Backed Investment Offerings
All offerings are asset-based and 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 or hedge.
A 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’s team looks for opportunities with a low correlation to the stock market. These alternative assets offer you insulation in the event of market swings.
Risk Management: An Exercise in Due Diligence
Every investment carries risk, even YieldStreet. Here’s a snapshot of what their vetting process looks like to protect you.
- 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 accredited investors, which brings me to my next topic.
Who Can Invest: Accredited Investors Only
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 (pause to take a breath), 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.
The silver lining is that YieldStreet makes it easy to upload your documents to verify your status.
Along with being an accredited investor, you must also:
- Have a Social Security Number, TIN, or, EIN
- Have a U.S.-based address and bank account
If you’re not accredited, you’ll still have access to YieldStreet Wallet – a cash account currently offering 1.70% interest. But let’s be real, you’re not on YieldStreet’s platform for their high-interest savings account.
Investing With Your IRA
You can invest your IRA through YieldStreet, but there’s a caveat…
Your custodian needs to be compatible with YieldStreet’s platform.
Qualifying custodians must:
- Accept electronic signatures
- Commit to sending wire transfers
- Process paperwork within five business days
- Accept ACH distributions back into your self-directed IRA
Possible Custodians include:
- Alto IRA/Empire Trust
- Millennium Trust
- IRA Services
- Strata Trust Company
- Broad Financial
They also work with WealthFlex and Madison Trust, who set up your account like a checkbook IRA and lets you connect it to your bank account.
The only disappointing feature with this is that YieldStreet doesn’t work with IRAs custodied at Fidelity, Vanguard, Charles Schwab, and TD Ameritrade – some of the industry’s biggest brokerage firms.
If you’re IRA is held at any of the firms mentioned above, you might want to look elsewhere.
YieldStreet charges an annual management fee between 1%-4% depending on the investment. All advertised target returns are net of any fees.
All 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.
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.
YieldStreet Wallet: A High-Yield Cash Savings Account
YieldStreet Wallet lets you upgrade your cash into a 1.70% APY savings account. 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.
You can withdraw funds up to six times a month per federal law, but deposits are unlimited. Hold as little or as much as you’d like in this account. Why?
Because there’s no minimum balance requirement.
All of your Wallet funds are held at Evolve Bank & Trust and FDIC-insured up to $250,000.
Tip: Speed up your investing process and keep your funds in your Wallet account. You won’t have to wait 1-2 business days for your funds to settle.
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.
How Are Deals Structured?
It depends on the type of investment it is. The two primary formats are a Special Purpose Vehicle (SPV) or a Borrower Payment Dependent Note (BPDN).
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.
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.
SPV offerings carry a first-year expense of $150 and then $70 for all remaining years. BPDN offerings have a $100 first-year cost and $30 per year after that.
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.
A Word On YieldStreet’s Real Estate Offerings
Because I know how much everyone loves real estate (especially our LMM readers), I’d be remiss if I didn’t mention it in greater detail.
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.
The majority of their offerings are senior secured, which means “first money out.” Should the borrower default, these investors are paid first.
Loan-to-Value (LTV) and Debt Service Coverage Ratio (DSCR)
YieldStreet looks for loans with LTVs of 60% or less. Typically, the higher the LTV, the riskier the investment. By tilting towards lower LTVs, YieldStreet reduces the risk for investors.
DSCR measures a borrower’s ability to repay a loan based on their current assets. Do you generate enough to cover your liabilities? That’s what the DSCR will tell you. The way to determine this number is to divide your annual net operating income by your annual debt payments.
YieldStreet looks for DSCR scores at around 1.
YieldStreet tends to invest in highly populated areas because they believe they’ll withstand an economic downturn as opposed to suburban and rural locations.
Densely populated areas with access to public transportation and other amenities tend to fare better.
YieldStreet offerings are often a part of more substantial, high-quality investments. In their eyes, the more parties involved, the less chance of default. It also helps ensure everyone’s interests align and makes all parties more invested in the outcome.
Since its inception, YieldStreet offerings have an expected 12.28% IRR.
Is It For You?
- Asset-backed investments
- Good cash flows with 8%-20% target returns
- Independent LLCs ensure bankruptcy remoteness
- Easily upload documents for verification
- Accredited investors only
- Higher minimums and management fees
- Limited available investments
- Illiquid investments and minimums may change
YieldStreet offers investors access to alternative assets they may not have otherwise been able to secure. Because their platform provides you an added layer of diversification, it might make sense if you’re already contributing to a standard portfolio of mutual funds, stocks, and bonds.
Investments are all asset-backed and provide you with more than just real estate or simple commodities like gold.
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.
Unique indeed! 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.