YieldStreet Review: Earn High Yield Returns With Alternative Investments

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What is Yieldstreet?

Personally, I first heard about Yieldstreet through an ad while perusing my Mint account. Upon visiting their website, we find that Yieldstreet is the “leading platform for private market investing.” What does that mean, exactly? Well, it basically means that anything that can be considered investable is up for grabs. For Yieldstreet, real estate makes up over half of their investable asset classes. However, they have tons of other assets to choose from, including venture capital, crypto, exotic cars, artwork, supply chain financing, private credit, etc. They advertise that some of these investments are typically reserved for the top 1% of net worth individuals, but that through their platform, you too can now partake in such investments that the rich enjoy. You can expect to get 3-15% annualized dividends paid out on a monthly basis.

The founder and CEO of Yieldstreet, Milind Mehere, founded the company in 2014 and believes that alpha is disappearing from the stock market due to index funds and robo-investment platforms. He believes that there should be an eventual shift to private markets in one’s portfolio, and set out to build Yieldstreet to allow investors to do so.

One thing to note is that Yieldstreet is what one would classify as an alternative investment platform. Investors should only be investing in such assets once and only once they’ve maximized their tax-advantaged accounts. Investing on Yieldstreet should only be done with extra money that you can afford to lose, as it tends to be a much riskier proposition than your typical stock, bond, or real estate investments.

How does Yieldstreet work?

Where a real estate crowdfunding site might allow multiple investors to purchase a part of a commercial property, earning profit from rent and the eventual sale of the building they partially own, Yieldstreet goes at it the other way around: crowdfunding the debt taken in order to finance an investment—whatever it may be.

They work to connect investors with organizers directly, working to streamline the whole process of funding a project and helping everyone involved to more quickly reach their goals. Their platform is built on the idea of mutual support—many like-minded individuals working together in order to mutually benefit and progress. While these investment opportunities were previously only accessible to the ultra-wealthy, by allowing them to be covered through crowdfunding, more individuals in more diverse financial circumstances are able to grow their wealth, reaching their goals more quickly than they could have on their own.

 

Pros of Yieldstreet

By now we’ve established that Yieldstreet is taking crowdfunded investments to a whole new level, bringing a group of investors into an asset arena they previously couldn’t have participated in. But is Yieldstreet safe?

Let’s dive into the specific benefits and drawbacks of this platform in order to help you more clearly understand whether or not Yieldstreet is a good investment for you. Here are the highlights:

• With Yieldstreet investors in every income bracket are able to access and participate in high-ticket investments, like those in the real estate, legal, art, marine, and commercial asset classes.
• Yieldstreet offers a selection of investment options, including their prism fund, professionally managed portfolios, as well as short-term notes, and individual offerings. Each of these has a different minimum investment.
• The prism fund is relatively accessible at $2,500 and is available to investors regardless of their accreditation status and net worth. Regardless of investment opportunities listed on the site, the prism fund is always open to new Yieldstreet users, or for existing users to buy more shares.
• Since investments on this platform are backed by assets, investors have a layer of additional protection in the event of default.
• The average annual return on Yieldstreet is 9.71% after taxes and fees, though each type of investment option yields a different amount. Short-term notes yield the lowest at 2.6%, prism funds average 8% and individual offerings can be as high as 20%.
• Yieldstreet offers investors both traditional and Roth IRAs.
• The platform does include annual management fees, but they’re relatively low compared to other online investment platforms. Depending on your investment, management fees will vary somewhere between 0% and 2.5%, and others may apply as well—read the fine print on individual investments before proceeding.
• Because of the structure of Yieldstreet, individual investors have the rare opportunity to invest in privately structured credit deals.

Cons of Yieldstreet

While that pros list is robust, there are still some less-desirable aspects of the platform to cover before you’ll be able to make a well-thought-out determination on whether or not this platform is a good fit for you. Here are some potential dealbreakers for you to weigh:

• Investments made on Yieldstreet are highly illiquid—once you put money in, it’s locked up in the investment until it reached its designated completion date. Moreover, Yieldstreet notes in their fine print that investments have the potential to go past their “target durations,” meaning you may be stuck in the investment even longer than you originally agreed to be.
• While the platform touts itself as being accessible regardless of the income of accreditation, the majority of investment opportunities on the site are only available to accredited investors, meaning you’ll need at least $1 million in net worth and proof of a minimum annual income of $200,000 ($300,000 if shared with a spouse) for the last two years in order to participate.
• Although some things, like shares to the prism fund, are available to all investors at all times, there are limited individual offerings listed at any given moment, and some say new listings are not added frequently enough.

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

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.

Marine Finance

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.

Other Opportunities

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.

 

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.

Defaults

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.

Yield Risk

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.

YieldStree Fees: How Much Does it 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.

 

Is Yieldstreet right for me?

While Yieldstreet is a great way to get access to different kinds of assets, especially if you’re not able to break into a given asset class through more traditional channels, it’s not the right platform for everyone. Who benefits most from using Yieldstreet? Here are some prime characteristics for investors on this platform:

• Investors looking to diversify their portfolio from any income bracket, especially if they’re accredited.
• Investors who can afford to have larger chunks of their wealth locked up in illiquid investments, since it’s possible investments may go longer than advertised and there’s no opportunity to sell them in a secondary market.
• Those looking to increase their income significantly—there are many investment opportunities on Yieldstreet that produce serious returns.

Explore the full potential of your investment funds

Although this isn’t the perfect platform for all investors, it’s a highly rated investment tool that has the potential to deliver some serious returns for your effort. To know whether or not this is the tool for you, however, you’ll need to carefully consider all the above-mentioned points in this Yieldstreet review.

What are you able to put forward for a minimum investment? How long can you do without a payout? What investment opportunities will best diversify your existing portfolio, and does Yieldstreet provide them? If the outlined cons are not a deterrent for you, you’ll likely have a great experience with this platform.