This series was formerly known as my Peer-to-Peer Lending Performance Update, and focused on the returns of my experiment with Prosper.com, but I think it’s time to expand it to include my other “alternative” investments as well.
- The original Prosper experiment
- An eREIT portfolio through Fundrise
- Real estate crowdfunding through PeerStreet
- Business lending through Kickfurther
- My first cryptocurrency speculation (can’t really call it investing)
For the sake of disclosure, I have affiliate or referral relationships with several of these platforms, but I haven’t fudged the numbers to make them look any more or less impressive.
And of course this is just a snapshot into my experience, not investing advice or a solicitation to invest.
Let’s dive in and see what happened.
Prosper.com Peer-to-Peer Lending
This is where my experiments with alternative investments started and I’m sad to report it was a rough year for my Prosper portfolio.
With Prosper, you buy fractional ownership in dozens or hundreds of personal loans, often for things like home models, weddings, or debt consolidation.
My goal is passive cash flow and my portfolio of (admittedly very risky) notes returned just $10 a month on average, good for an annualized return of less than 1%.
Compared to 2013-2015, where the account spun off at least $200 a month and earned 8-10%, lately Prosper has been awful. Here’s what my current allocation looks like and the historical performance by loan grade:
It could be my “strategy” of buying up the highest risk, highest return notes is finally coming back to bite me, or it could be the platform as a whole is seeing worse performance.
In any case, as the notes mature, I’m actively withdrawing the funds for greener pastures, including a couple of the options below.
I still have a few years before all the terms on my notes are up, so hopefully I see a reversal of this ugly trend. Though more than 10% of my currently-held notes are behind on their payments, so that’s not a good sign.
Pros of Prosper:
- Over 7 years, my account is still profitable (8.35% annualized, according to their calculation).
- You can invest as little as $25 a loan.
- You can build a diversified portfolio with theoretically much lower risk than mine.
Cons of Prosper:
- There’s no collateral to these notes.
- Your money is tied up for 3-5 years.
- Weak performance (at least for me) over the last 15 months.
I started investing in Fundrise in 2015, and have slowly ramped up my investment since then as I’ve been happy with the cash flow performance.
Fundrise specializes in “eREITs” — online only, direct-to-consumer real estate investment trusts. It allows you to buy into a semi-diversified bundle of commercial real estate projects. (I say “semi” because I’m usually talking about tens of projects and not hundreds or thousands.)
My primary goals with Fundrise were to build a passive cash flow stream and increase the percentage of real estate in my portfolio.
For 2017, Fundrise returned a 9.5% yield, which I thought was awesome. (The projected rates on their site now are lower; not sure exactly why.)
My allocation was entirely between the Growth and Income eREITs, and I just added a little bit into their location-specific funds.
Pros of Fundrise:
- Just a $500 minimum to get started.
- Open to non-accredited investors.
- Strong track record of paying dividends every quarter.
Cons of Fundrise:
- Not as diversified as a broader REIT like Vanguard’s VNQ for example, which I also own.
- Limited liquidity — slower to cash out your principal.
- Yield seems to be slipping as the platform grows.
PeerStreet Real Estate Crowdfunding
On PeerStreet, you’re playing the role of private lender, mostly for short-term real estate rehab projects. These projects have a 25%+ equity cushion to protect investors from a downturn or other unforeseen hiccups.
As of October 2017, the company had facilitated over 1000 loans totaling more than $500,000,000 — with zero losses to investors.
Loans typically yield 6-12%, and I’ve been targeting deals using the Auto-Invest tool that have at least an 8% return.
Because of the popularity of the platform though, it took more than 6 months to deploy all of my initial investment, which put a kink in the annual returns. In hindsight, it probably would have been better to accept some 7% or 7.5% deals instead of having the cash sit idle.
Still, my small portfolio of loans is spinning off interest every month, and I recently added some more funds to the account.
Relative to Prosper, the PeerStreet platform offers similar returns, shorter loan terms, and the debt has the property as collateral — but you do need to be an accredited investor and be able to stomach a $1000 minimum per loan.
Pros of PeerStreet:
- Shorter loan terms, typically 9-24 months.
- Backed by real property.
Cons of PeerStreet:
- Open to accredited investors only.
- $1000 minimum per loan.
Kickfurther Business Lending
Kickfurther is an interesting platform where you can help growing small businesses by lending them money on their next inventory order.
The company calls these “co-ops” and they pay anywhere from 5-12% profit margin back to investors with projected payoff timelines of 2-8 months (as high as 25% annualized).
But my experiment with Kickfurther has been a flop. Starting in 2016, I bought into 8 different co-ops with 9-15% profit margins and only half have been paid off so far. The others have all made some re-payments but in some cases are over 12 months late in paying back the full loan amount.
One important note is that since I made my investments, Kickfurther changed their rules to only accept “purchase order-backed” co-ops, which should theoretically reduce investor risk.
Thankfully I didn’t dump a ton of cash into this, but I’m definitely still in the red about $270, or roughly a negative 14%. The silver lining was I was able to use a credit card to fund the initial investments, so I at least earned a sign-up bonus out of the deal. I’m not sure if that’s still allowed.
The other frustrating thing about Kickfurther is they charge you a 1.5% withdrawal fee to get your cash off the platform. No other platform I’ve tested has that insult-to-injury fee tacked on.
I probably won’t be back.
Pros of Kickfurther:
- Help small businesses.
- Low minimums and attractive interest rates.
Cons of Kickfurther:
- Poor loan performance, at least in my case.
- Confusing user dashboard; annoying withdrawal fee.
Of course the hottest “alternative” investment (if you could call it that) of the year has been cryptocurrency.
Depending who you talk to, Bitcoin and other alt coins are either the future of money or a giant scam. I think the real answer is probably somewhere in between, and dipped my toe into the digital currency waters this fall, after my chat with Certified Bitcoin Professional Ravinder Deol.
Sometimes it’s better to be lucky than good, and I think that was the case with my Bitcoin buy. As it climbed, I slowly sold off the gains until I’d made back my initial $500 “investment” and then some. Now I can let it ride with the house’s money.
I just wish I’d had the guts to buy more! That’s why I’m a horrible gambler…
But as I mentioned above, my primary investing goal is to build passive cash flow, and unless crypto continues to appreciate it doesn’t check that box for me.
Pros of Cryptocurrency:
- Futuristic, potentially disruptive tech.
- The idea of a borderless global currency is cool to me.
Cons of Cryptocurrency:
- Extremely volatile.
- You’re responsible for your own security (hardware wallets), which some see as a good thing.
My other investments probably aren’t as interesting, but what I’m most into these days is building a portfolio of dividend paying assets. To me, that’s an exciting way to get paid over and over again from work I do once, and buying for cash flow has helped me get over my fear of buying at the peak of the market.
(Zoomed out over 100 years, it’s always the peak.)
What do you think? Have you tried any of these platforms?
Another other alternative investments that are performing well for you lately?