Landed: Shared Equity Down Payment Program For Educators

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Home ownership continues to be a goal for many people, but downpayment requirements also keep rising with housing prices. I previously posted about Unison, which offers downpayment assistance in exchange for a percentage of any future upside (or downside) on your home. Their example states a 40% cut, although it will vary with the size of assistance. Unison also charges an origination fee of 2.5% of the downpayment assistance.

Landed offers a similar shared equity down payment program, but restricted to employees of selected school districts, colleges, and universities in high-cost areas. They also offer up to a 10% downpayment assistance (i.e. $50,000 on a $500,000 home), but they only ask for 25% of future upside (or downside). Instead of charging an origination fee, they ask you to use a real estate agent in their network, who have all agreed to pay Landed part of their commission (0.75% of purchase price). You can use your own agent, but you’d still have to pay that 0.75% fee. That’s a clever trick to avoid any upfront fees.

Here’s another important twist: You must agree to stay with your current employer for at least two years after buying your home. I believe that if you don’t, you will need to pay Landed back within 30 days (even if you don’t sell the home). You may also need a certain amount of time employed with the school. The idea is to improve employee retention in these high-cost areas.

Currently, Landed covers K-12 school districts, colleges, and universities in California (San Francisco Bay Area, Los Angeles Metro Area, and San Diego Metro Area), Colorado (Denver and Boulder metro areas), the state of Hawai?i, and Washington (King County Metro Area). Right now, you can get up to $120,000 in down payment support. They plan on expanding to other high-cost areas including the East Coast.

Unison vs. Landed fee comparison. Let’s say you have a $500,000 house. The Unison numbers are based on the stated example on their website. Unison might provide $50,000 assistance (“co-investment”) and you put in $50,000, and that is the 20% downpayment needed. If the house appreciates by $100,000 and is sold for $600,000, then Unison would get $40,000 of that appreciation ( their original $50,000 back) and the homeowner would get $60,000. If over time the house doubles in value to $1,000,000, then Unison would keep $200,000 and ( their original $50,000 back) and the homeowner would keep $300,000 of the gain. The upfront fee would be $1,250 (2.5% of $50,000).

Since Landed only asks for 25% of the upside, the numbers would be $25,000 on a $100,000 gain ($15,000 less than Unison), and $125,000 on a $500,000 gain ($75,000 less than Unison). There is no upfront fee if you use their real estate agent, but Landed will get $3,750 (0.75% of $500,000).

Here’s a separate breakdown example from Landed for a $600,000 home purchase, assuming you sell after 10 years of mortgage payments and either have a $100,000 gain or loss.

I know that some people will scoff at say “who would accept such a bad deal and give up all that home appreciation?”, but for many people the idea of scraping up $50,000 is many times more imaginable than coming up with $100,000. I’m not saying it’s a good idea, but I definitely understand the demand and think these programs will be popular as a result.

It is interesting that both “shared equity” companies have the same basic concept, it’s just the specific implementation that is different. Landed focuses on a group that tends to have stable employment and potentially solid retirement benefits but low base salary. It’s also a group that people want to see living in the neighborhoods that they work in, like firefighters and nurses, and thus can get cheaper funding from non-profit sources. However, this would also mean that if the concept gains traction, there is room for competition to lower the costs for everyone else.

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Refinance Watch: Mortgage Rates May Drop Even Further

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If you have a mortgage rate above 4%, you should keep an eye on mortgage rates during August to see if there is an opportunity to refinance and save money. (Potential buyers should obviously also take notice, but they were probably paying attention already.) In November 2018, the average 30-year mortgage rate was nearly 5%. In July, the average 30-year mortgage rate was only 3.75%. There are a LOT of outstanding mortgages that become good opportunities for a refinance with even small drops from here. See this chart via @lenkeifer:

Today, the 10-year Treasury bond yield went down to 1.74%, the lowest value since November 2016. According to CNBC, the rate drop at this longer maturity was a result of both the recent Fed rate cut and trade war concerns.

Why is this important? The 10-year rate and 30-year fixed mortgage rates tend to move together. The average 30-year mortgage in mid-2016 was closer to 3.5% (chart source).

Even before this most recent rate drop, mortgage originations had already spiked, per the WSJ). A swing from 5% back down to 3.5% will create even more.

Bottom line. If you got a 30-year mortgage between late 2016 and mid-2019, there is a good chance that you may be able to lower your mortgage rate via a refinance. Get an accurate full quote with all the costs involved with a online comparison site like LendingTree (tip: don’t enter a phone number if you don’t want them to call you) or go local and call up your neighborhood broker. You might also try an “instant quote” below that doesn’t require any personal information. If you can save money, lock in the rate as they can pop back up quickly.

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PeerStreet Real Estate-Backed Loan: Near-Foreclosure Example

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I’ve invested in multiple real estate crowdfunding companies, and the one that I’ve put the most money into is PeerStreet. I posted my overall statistics in my PeerStreet review 2019, but here is a specific example of a loan that looked like it was going bad, but was paid off suddenly at the beginning of the foreclosure process. This is the kind of information that I would have liked to see before investing myself, so I wanted to share the real-world details.

Initial investment details.

  • Property: 2 bedroom, 1 bath, 975 sf condo in Salem, MA.
  • Net Investor Rate/Term: 8.50% APR.
  • Amount invested: $1,073.
  • Term: 24 months with extension option.
  • Total loan amount: $123,750 from Peerstreet and $13,250 from loan originator (10% “skin in the game”).
  • Appraised at $199,000 = 62% LTV.
  • Loan secured by the property in first position.
  • Stated goal is buy-to-rent.

Here is the Zillow listing. The buyer appeared to get a condo for a good price ($130k). The unit last sold for $155k in 2016.

Timeline.

  • May 2017. Loan originated. Maturity is set for June 2018.
  • May 2017 to June 2018. Interest-only payments made as agreed upon. (My portion was taken out July 2017.)
  • June 2018. Borrower requests extension.
  • August 2018. 6-month extension approved and extension fee paid.
  • November 2018. Borrower requests another extension. Additional 4-month extension granted.
  • April 2019. Payments stop coming in. Loan is late. Full balance of loan is due.
  • June 2019. Now 60+ days late. Still no payments. Demand letter sent. Foreclosure process initiated.
  • July 2019. At around 90 days late, the loan was suddenly brought current and paid off. All back interest (including default interest) and fees paid.

If you look at the MLS data, they tried to list it in March 2019 for $288,000 and then reduced to $249,000 in May 2019. The listed was removed, so I’m not sure who paid off the loan, perhaps the borrower or the loan originator somehow refinanced it elsewhere. The price wasn’t unreasonable, as the neighboring unit sold for $268,000 in May 2018 (2 bed/1 bath/1,000 sf). Notice that for this note, the loan originator put up 10% of the loan, so it had “skin in the game”. I don’t know if that made a difference.

Final numbers. I invested $1,073 in July 2019 and got paid $192.27 of interest and $1,073 of principal for a total of $1,265.27 as of July 2019. (This was an automated reinvestment which included whatever cash was in my account, thus the odd numbers.) This works out to a 17.92% total return over two years, which is 8.59% annualized return. The number was a little higher than the stated interest rate due the various penalty fees the borrower paid. These numbers are net of all PeerStreet fees.

I haven’t had a Peerstreet loan go through the entire process of foreclosure yet, but will write another update if/when that happens.

Bottom line. The vast majority of my Peerstreet loans have been paid back in full in a timely manner. Some of them end up with issues like late payments, sporadic payments, and/or repeated loan extensions, like this one. This one ended up as an example of an investment that looked like it was heading for foreclosure at nearly 90 days late with little communication, but bounced back and ended up being paid in full.

If you are interested and are an accredited investor, you can sign up and browse investments at PeerStreet for free before depositing any funds or making any investments.

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Fundrise Starter Portfolio eREIT vs. Vanguard REIT ETF Review – Updated July 2019

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Updated July 2019. This post tracks my experiment comparing a Fundrise eREIT portfolio and the Vanguard REIT ETF. In Fundrise, we have a start-up that bought a concentrated basket of roughly 20 properties chosen from the private market. In Vanguard, we have a one of the largest real estate ETFs in the world that owns a passive slice of 184 public-traded REITs. I invested $1,000 into both in October 2017 and plan to let them run for at least 5 years.

Fundrise Starter Portfolio background. Despite the name, the Fundrise Starter Portfolio (you can see the options below after entering e-mail) is actually a simple 50/50 mix of two eREITs: the Fundrise Income eREIT and the Fundrise Growth eREIT*. This private eREIT works within recent crowdfunding legislation that allows all investors to own a basket of individual real estate properties (not just accredited investors with high net worth). The minimum deposit is $500. You must buy shares directly from Fundrise, and there are liquidity restrictions as this is meant to be a long-term investment. There are also additional options available with higher investments:

Here’s a recent map of locations for the holdings. Most are apartment complexes, condominiums, and hotels.

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* Due to increasing popularity and the limited nature of this product, Fundrise has created the Income REIT II/III funds and Growth REIT II/III funds. My portfolio is invested in the REIT I and REIT II series of funds, but new investors will get the REIT II and REIT III series. Thus, your returns may look somewhat different than mine.

Vanguard REIT ETF background. The Vanguard REIT ETF (VNQ) is one of the largest index funds to invest in publicly-traded real estate investment trusts (REITs). You can purchase it via any brokerage account. You have the liquidity of being to sell on any day the stock market is open. A single share currently costs about $89, not including any trade commission. You are holding a tiny slice of (tens of?) thousands of office buildings, hotels, nursing homes, shopping centers, apartment complexes, and so on. Here are the recent top 10 holdings:

Expenses. The Fundrise Starter Portfolio has an 0.85% annual asset management fee and a 0.15% annual investment advisory fee (1% “all-in” total). The Vanguard REIT ETF has an expense ratio of 0.12%, but each public REIT also has their own internal costs to manage their properties. Due to scale, I would expect the net effect of fees to be significantly higher for the Fundrise assets than for the Vanguard ETF. We will see if Fundrise can provide higher net returns for this concentrated holding. REITs may also use debt to increase their real estate exposure (leverage).

Five-year time horizon. Both Fundrise and VNQ usually announce dividend distributions on a quarterly basis. Vanguard updates the NAV daily, but Fundrise only updates their NAV quarterly. Fundrise NAVs are only estimates as there is no daily market value available (similar to your house). Therefore, I plan on holding onto this investment for 5 years at the minimum. This will allow the investments to “play out” and also avoid any early redemption fees. I will withhold any judgements until both investments are cashed out, but will provide quarterly updates.

Fundrise Portfolio performance updates. Screenshot of my most recent statement:

  • 10/20/17: $1,000 initial investment – 50 shares @ $10.00/share Income eREIT and 48.78 shares @ $10.25/share Growth eREIT.
  • 1/9/18: 2017 Q4 dividends of $17.98 received and reinvested.
  • 4/11/18: 2018 Q1 dividends of $16.13 received and reinvested.
  • 7/11/18: 2018 Q2 dividends of $17.60 received and reinvested.
  • 10/10/18: 2018 Q3 dividends of $19.10 received and reinvested.
  • 1/10/19: 2018 Q4 dividends of $20.08 received and reinvested.
  • 4/10/19: 2018 Q4 dividends of $18.34 received and reinvested.
  • 7/11/19: 2018 Q4 dividends of $17.62 received and reinvested.
  • 7/11/19: Total Fundrise value $1,192 (includes reinvested dividends).

Vanguard REIT ETF performance updates. I own VNQ and the mutual fund equivalent VGSLX (same underlying holdings) in my retirement portfolio, but will be using Morningstar tools to track the performance of a $1,000 investment bought on the same date of 10/20/17.

  • 10/20/17: $1,000 initial investment – 11.9545 shares at $83.65/share.
  • 12/27/17, VNQ distributed a gain of $0.012 per share, return of capital of $0.37 per share, and a dividend of $0.88 per share.
  • 3/26/18: VNQ dividend of $0.71 per share.
  • 6/18/18: VNQ dividend of $0.73 per share.
  • 9/24/18: VNQ dividend of $1.14 per share.
  • 12/14/18, VNQ distributed return of capital of $0.23 per share, and a dividend of $0.72 per share.
  • 3/29/19: VNQ dividend of $0.62 per share.
  • 6/27/19: VNQ dividend of $0.83 per share.
  • 7/11/19: Total VNQ value $1,157 (includes reinvested dividends).

Every month or so, Fundrise sends me an e-mail with an update on a new property that they have acquired, or a property where they have exited. Both Fundrise and the ETF are completely passive holdings, meaning I have no control over what they buy or sell.

Bottom line. I’m doing a buy-and-hold-and-watch experiment where I compare investing in real estate via Fundrise direct investment and the largest REIT index ETF from Vanguard. I’ll provide quarterly updates, but more important is what happens over 5+ years.

You can learn more about all Fundrise eREIT options here. This is the second time I have invested with Fundrise. Last time I decided to test out a withdrawal in my Fundrise Liquidity and Redemption review.

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Unison: Your Home Has a ~30% Chance of Being Worth Less in 5 Years

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Unison is a “home co-investment” start-up, which means it wants a share of the equity of your home. If your home value goes up, then it wants some of the gain. If your home value drops, then it will absorb some of the loss. In exchange, the benefit to the homeowner is either an increased upfront home downpayment or the ability to cash out your home equity with no monthly payments. Unison is betting that over the long-term, your home value will go up and they will profit when you eventually sell (or when 30 years is up). In addition, they charge a one-time transaction fee at the time of closing (2.5% of proceeds) or at home-equity cash-out (3.9% of proceeds).

That’s the basic idea, although they aren’t technically a co-owner of your home. The arrangement is structured as an options contract with a secured lien on your home, as laid out here (click to enlarge):

In this example, when your home appreciated in value from $500,000 to $600,000, you would only keep 60% of that gain ($60,000), while Unison would take 40% ($40,000). Add in their original $50,000 back, and you get the total of $90,000 back on Unison. This is in addition to the 2.5% upfront ($1,250) you paid as an origination fee.

Unison’s business model depends on home prices going up over time in a reasonably-predictable manner, so they’ve done some research about the reliability of rising home prices. Using their data, Felix Salmon at Axios created this volatility chart that illustrates their conclusion that home price volatility is roughly the same order as S&P 500 volatility:

I don’t know if the average consumer really understands what “20% volatility” means (I don’t), so this statement is much more meaningful:

Any given home has roughly a 30% chance of ending up being worth less in five years’ time than it is today. If you can’t afford that to happen, you probably shouldn’t buy.

That’s an interesting statistic to keep in your head. Of course, it also means that you have a 70% chance of having your home price increase in 5 years, which is probably why many experts recommend that you expect to stay in your house for at least 5-7 years before buying. The odds are in your favor, but not overwhelmingly over a 5-year period.

Bottom line. I predict Unison will become successful, as long as they have patient sources of funding. Customers get a much bigger home downpayment upfront, and the payback is not until later and only taken out of profits (less pain). That’s a pretty brilliant idea in the context of behavioral finance. As a homeowner, you are paying a fee to sell off a piece of future upside (or downside) potential, but anything that makes it possible for people to buy a nicer house now is going to be popular.

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Navy Federal Membership Open to Veterans and Family Members

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Navy Federal Credit Union is the nation’s largest credit union and has recently surpassed $100 billion in assets as reported by DepositAccounts. I can understand their growth, as many of their financial products have very competitive rates, including certificates of deposit specials and mortgage rates. If the recent rate drops have you looking to refinance, I would definitely compare their rates against the major rate quote sites like LendingTree, especially if you are looking for a jumbo loan or other non-standard mortgage type.

You can now join Navy Federal without serving in the military. It is true that until 2017, it was hard to become a member of Navy Federal unless you were active military, Department of Defense worker, or a military retiree. Even honorably discharged veterans couldn’t join! However, the current membership rules are more open. Here is their eligibility tool.

If you have ever served in the military, you are now eligible to join. This includes:

  • Active Duty Army, Marine Corps, Navy, Air Force or Coast Guard
  • Army or Air National Guard
  • Delayed Entry Program
  • Officer Candidate / ROTC
  • Reservist
  • Veteran, Retiree or Annuitant

Beyond that, if one of your immediate family members serves or has EVER served in the military, you are also eligible for membership. Immediate family members include:

  • Parents and grandparents
  • Children and grandchildren
  • Siblings and spouses

This applies even if they are not a NavyFed member themselves. You may need some form of identifying document that shows your family member’s military relationship. Call NavyFed at 1-888-842-6328 and they should be happy to assist you.

This change greatly opens their field of membership, which I am sure has contributed to their impressive growth in assets. We have never served, but we do have both past and current family members in the military.

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Rates Drop Under 4% = Refinance Check! 7 Million People Can Lower Mortgage Rate By 0.75%+

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A mortgage broker once told me that he didn’t care if rates were high or low. He just wanted them to change. As long as interest rates move enough in either direction, more mortgages will be created. He’s probably getting a lot of calls right now, as the average 30-year fixed mortgage has dropped down to 3.82% from nearly 4.5% over the last 3 months (source).

The result? Nearly 7 million Americans can now refinance and potentially lower their existing rate by at least 0.75% according to mortgage analytics company Black Knight (source):

According to Axios, the average principal and interest payment would be reduced by $268 per month. Your number may differ, but still that’s every month! If you are looking for opportunities with a high return-on-time-invested, this could be a big one.

Bottom line. If you have a mortgage, now is a good time to compare your existing rate with what is available. Get an accurate full quote with all the costs involved with a online comparison site like LendingTree (tip: don’t enter a phone number if you don’t want them to call you) or go local and call up your neighborhood broker. You might also try an “instant quote” below that doesn’t require any personal information. If you can save money, lock in the rate as they can pop back up quickly.

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The Personal Finance Index Card: Book Version Differences

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After rediscovering the young adult versions of fitting personal finance advice on an index card, I decided to go back and read the book The Index Card: Why Personal Finance Doesn’t Have to Be Complicated by Helaine Olen and Harold Pollack. (I was able to find it via library eBook.)

I noticed that the book version of the “index card” was slightly different. The original card had 9 items, but two of them were merged away into each other (401k/IRAs) and (Pay Attention to Fees/Buy Index Funds). I bolded the new additions below. (You can see all chapters on the Amazon page.)

  1. Strive to Save 10 to 20 Percent of Your Income
  2. Pay Your Credit Card Balance in Full Every Month
  3. Max Out Your 401(k) and Other Tax-Advantaged Savings Accounts
  4. Never Buy or Sell Individual Stocks
  5. Buy Inexpensive, Well-Diversified Indexed Mutual Funds and ETFs
  6. Make Your Financial Advisor Commit To a Fiduciary Standard
  7. Buy a Home When You Are Financially Ready
  8. Insurance – Make Sure You’re Protected
  9. Do What You Can To Support the Social Safety Net
  10. Remember The Index Card

Here again is the original:

Here are my notes on the newly-addressed topics of home-buying and insurance.

Home-buying. This will always be a hard topic because it mixes in emotion, personal history, peer pressure, and all that fuzzy stuff. If you want to own a home, you need to make sure the purchase won’t blow up your overall financial picture. Nothing really surprising, but still good advice.

  • Get your debt under control first.
  • Save up as close to a 20% down payment as you can.
  • Stick with a 15 or 30 year fixed-rate mortgage.
  • Prioritize what you really want and need in a home. Stay within your budget.
  • Location, location, location.

Insurance. There are low-probability events that can destroy decades of hard work, and that’s why humans invented insurance to spread the risk. Here are their cut-to-the-chase bullet points:

  • Emergency fund – Maintain one!
  • Life insurance – If you’re young(ish), just buy 30-year level term insurance.
  • Property insurance – Raise your deductible as high as you can handle.
  • Health insurance – Always sure you stay in-network.
  • Liability insurance – Coverage for at least twice your net worth.

I’m glad that this book still retained its “quick-and-dirty” nature. No single rule will cover every scenario, but it’s good to have a clear and concise collection of the big points along with just enough explanation that you understand the basic reasoning behind it.

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PeerStreet Review: Stats and Returns (IRR) After 2.5 Years

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Updated April 2019. I started investing in PeerStreet real-estate backed loans in July 2016. I’ve always like the idea of hard money loans, but I wanted more diversification as opposed to tying all my money up with one single property. For this type of lending, you have to be an accredited investor. Here are my overall numbers so far, with details below:

  • Total invested: $25,000
  • Total interest earned: $3,091
  • 43 loans made and paid off, 8 remaining active loans, and 2 are in foreclosure.
  • Internal rate of return (IRR) of 7.21% as of 4/18/19.

Short-term loans backed by real estate. Real estate equity investors want to take out short-term loans (6 to 24 months) and don’t fit the profile of a traditional mortgage borrower. They are professional investors with multiple properties, need bridge financing, or they are on a tight timeline. As a real-estate-backed loan investor, you lend them money at 6% to 12% and usually backed by a first lien on the property. The borrower stands to lose the equity in their property, so they are incentivized to avoid default. In the worst case, you would foreclose and liquidate the property in order to get your money back. However, this is better than Prosper or LendingClub where it is an unsecured loan and your only recourse is to lower their credit score.

What are PeerStreet strengths? Here are the reasons that I decided to put more a higher amount of money into PeerStreet as compared to other worthwhile real estate marketplace sites:

  • Debt-only focus. Other real estate (RE) sites will offer both equity and debt (and things in between). PeerStreet only focuses on debt, and I also prefer the simplicity of debt. There is limited upside but also less downside. Traditionally, this might be called “hard money lending”.
  • Lower $1,000 investment minimum. Many RE investment sites have minimums of $10,000 or $25,000. At PeerStreet, $25,000 will get me slices of loans from 25 different real estate properties. You can even reinvest your earnings with as little as $100.
  • Greater availability of investments. Amongst all the RE websites that I have joined, PeerStreet has the highest and most steady volume of loans that I’ve seen. I dislike having idle cash just sit there, waiting and not earning interest. They apparently have a unique process where they have a network of lenders that bring in loans for them. They don’t originate loans themselves, they basically buy loans from these partners if they fit their criteria. This steady volume allows the lower $1,000 minimums and more diversification, as well as easy reinvestment of matured loans.
  • Automated investing. The above two characteristics allow PeerStreet to run an automated investment program. You give them say $5,000 and they will invest it automatically amongst five $1,000 loans. You can set certain criteria (LTV ratio, term length, interest rate). When a loan matures, the software can automatically reinvest your available cash. I don’t even have to log in.
  • Consistent underwriting. You should perform your own due diligence in this area, as you can only feel comfortable with automated investing if you think every loan is underwritten fairly. The riskier loans get higher interest rates. The less-risky loans get lower interest rates. The shady borrowers are turned away. I want to just sit back and let them choose for me.
  • Strong venture capital backing. PeerStreet just closed a $30 million Series B round in April 2018. Andreessen Horowitz did a $15 million Series A round in November 2016. Michael Burry was an early seed investor, using $6.1 million of his own money according to TechCrunch. You may recognize this name from The Big Short.

Here’s a screenshot of the automated investing customizer tool:

peerstreet4

What are PeerStreet drawbacks? In my opinion, the main drawback is lower yields. This is just my limited understanding and I may be wrong, but PeerStreet has a network of lenders bringing in these deals and they also need to paid some sort of “finders fee”, so the net yield to the investor feels lower than other sites. You could argue that this is also their secret sauce that brings in the high loan volume (and ideally the ability to be more selective), but at some point the rate is too low to justify the risks being taken.

As of mid-2018, it is also my opinion that too many crowdfunding sites are chasing too few loans, which has been driving down the interest rates offered. I started out being able to find a lot of loans in the 8% to 9% range, but now the more conservative notes are in the 7%-7.5% range. In the current yield environment, my target is an 8% return while also maintaining a loan-to-value ratio of 70% or less.

Here’s the 1-minute video pitch from PeerStreet:

How does PeerStreet make money? As with other real estate marketplace lenders, they charge a servicing fee. PeerStreet charges between 0.25% and 1%, taken out from the interest payments. This way, PeerStreet only gets paid when you get paid. When you invest, you see the fee and net interest rate that you’ll earn. In exchange, they help source the investments, set up all the required legal structures, service the loans, and coordinate the foreclosure process in case of default. In some cases, the originating lenders retains a partial interest in the loan (“skin in the game”). Here’s a partial screenshot:

peerstreet_fee

What if PeerStreet goes bankrupt? This is the same question posed to LendingClub and Prosper, and their solution is also the same. The loans are held in a bankruptcy-remote entity and will continue to be serviced by a third-party even in a bankruptcy event. From their FAQ:

PeerStreet also holds loans in a bankruptcy-remote entity that is separate from our primary corporate entity. In the event PeerStreet no longer remains in business, a third-party “special member” will step in to manage loan investments and ensure that investors continue to receive interest and principal payments. Additionally, investor funds are held in an Investors Trust Account with City National Bank and FDIC insured up to $250,000.

Tax forms? For tax year 2018, I received both a 1099-INT and a 1099-OID. Basically, both include your gains that will be taxed at ordinary income rates (like bank account interest). Here’s what PeerStreet says:

PeerStreet investors will be issued a consolidated Form 1099 for the income distributed from their investment positions. Investors may receive one or more of the following types of 1099 form:

1099-OID for notes with terms longer than one year (at the time of issue)
1099-INT for notes with terms less than one year (at the time of issue)
1099-MISC for incentives, late fees or other income, if more than $600.

My personal performance. I started with a $10,000 investment in 2016 and then added another $15,000 in 2017 for a total of $25,000. This way, each of my loans was less than 5% of the total portfolio. Everything was set for automatic reinvestment whenever a loan in paid back or the interest adds up to $1,000. Starting in June 2018, I stopped reinvesting my proceeds as I felt that the rates being offered were starting to become too low when considering the gap between other bond alternatives. (For example, I think a 7% rate at a 75% LTV is not good enough.) If the rate premium improves, I will deposit more money back into the account.

Here is a screenshot of my account:

As of this writing 4/18/2019, my internal rate of return (IRR) is 7.21% annualized net of all fees and taking into account the short periods where my cash was idle. However, 2 out of my 51 total loans (works out to about 4%) are in some phase of the foreclosure process. These loans are all less than 70% LTV, but I don’t know what the final recovery amount will be. I expect my final IRR to be in the 6% to 7% range. In my experience, this is a critical difference with private real estate loans. You can’t make a few clicks and get your money back. I may have to wait a year or longer if the loan requires a property takeover and sale. This is why it’s a good idea to diversify across many $1,000 loans.

Bottom line. PeerStreet offers high-yield, short-term loans backed by private real estate. As compared to traditional “hard money lending”, accredited investors can diversify with $1,000 minimum investment per property, automated reinvestment, and steady nationwide loan volume. In exchange, PeerStreet charges a servicing fee between 0.25% and 1%, taken out of the interest charged to the borrower. The returns you see in the listing are net of their fees.

If you are interested and are an accredited investor, you can sign up and browse investments at PeerStreet for free before depositing any funds or making any investments.

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eccad.info has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. Eccad.info is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Big List of Free Consumer Data Reports (2/2): See Your Confidential Rental History, Insurance, Retail, & Employment Data

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magLinks checked and new agencies added for 2019. Here is the second part of my big list of free consumer reports from over 50 different reporting agencies. The first part included your credit, banking, and subprime lending-related information. This part includes your housing, insurance, and employment history. Request a free copy every 12 months of what these databases have stored about you and are telling prospective landlords, insurers, or employers.

Again, you may not need to check all of these, and many may not even have a file on you anyway. But for example if you are a renter then you’d want to make sure your rental history is clean and correct, because if I was a landlord I’d avoid anyone with previous blemishes on their record.

Rental History

Realpage Consumer Report. Provides tenant screening through their LeasingDesk product, including “the industry’s largest rental payment history database.”

  • RealPage.com report request page
  • 866-934-1124

CoreLogic SafeRent. SafeRent provides both tenant and employment screening data, including information regarding landlord tenant and criminal public court records. One free report every 12 months.

  • CoreLogic.com report request form
  • 888-333-2413

Experian RentBureau Rental History Report. “Every 24 hours, Experian RentBureau receives updated rental payment history data from property owners/managers, electronic rent payment services and collection companies and makes that information available immediately to the multifamily industry through our resident screening partners.”

  • Experian.com/RentBureau report request page (see bottom right; PDF form)
  • 877-704-4519

First Advantage Resident History Report. Tenant and employment background checks. One free report every 12 months.

  • FAdv.com report request page
  • 800-845-6004

Contemporary Information Corp. CIC provides background checks on prospective tenants and/or employees and contractors for landlords and management companies. Keep records of any rental evictions.

  • CICReports.com report request page
  • 800-288-4757

Tenant Data. Provides tenant history reports, including any reported damages, unpaid balances, evictions, lease violations, noise complaints, or unauthorized pets.

  • TenantData.com Tenant History report request page
  • 800-228-1837

Screening Reports, Inc. A national provider of background screening service to the multi-family housing industry.

  • Screeningreports.com page (see bottom)
  • 866-389-4042

TransUnion Rental Screening Solutions SmartMove provides tenant credit, eviction, and background checks.

  • MySmartMove.com FAQ page
  • SmartMove will disclose the contents of a criminal and/or credit report retained by SmartMove to an individual who requests a copy of their report. To verify your identity and obtain a copy of your report(s) or dispute any information within that report, please customer service at 866-775-0961.

LeasingDesk (Real Page, Inc.) Tenant screening.

  • Realpage.com report request page
  • 866-934-1124

Auto and Property Insurance

C.L.U.E. Personal Property Report. A division of LexisNexis, CLUE stands for Comprehensive Loss Underwriting Exchange, which collects information that is used to calculate your insurance premiums. This report provides a seven year history of losses associated with an individual and his/her personal property. Includes date of loss, loss type, and amount paid along with general information such as policy number, claim number and insurance company name. This also means you can find out about previous claims on the house you are currently renting or recently bought, even if they weren’t made by you.

  • LexisNexis.com CLUE report request page
  • 866-312-8076

C.L.U.E. Auto Report. This report provides a seven year history of automobile insurance losses associated with an individual. Includes date of loss, loss type, and amount paid along with general information such as policy number, claim number and insurance company name.

  • LexisNexis.com CLUE report request page
  • 866-312-8076

A-PLUS Loss History Reports, subsidiary of Verisk. ISO stands for Insurance Services Office, A-PLUS stands for Automated Property Loss Underwriting System. Auto and property loss claim history.

  • Verisk.com report request page
  • 800-627-3487

Insurance Information Exchange (IIX), subsidiary of Verisk. Provide reports including your motor vehicle records and driver history, including any traffic violations or related criminal history. May require proof of adverse action to obtain free report.

  • IIX / Verisk.com report request page
  • 866-560-7015

Utilities

National Consumer Telecom and Utilities Exchange. NCTUE tracks when people don’t pay their phone, cable, or utility bills. One free report every 12 months.

  • NCTUE.com report request page
  • 866-349-5185

Retail

The Retail Equation. Tracks product return and exchange abuse at retail merchants.

Gaming

VIP Preferred. Tracks consumer data regarding check-cashing at casinos.

  • VIPPreferred.com request page
  • 800-638-4600 x140

Medical History

MIB (previously known as Medical Information Bureau). Run by 470 insurance companies with a “primary mission of detecting and deterring fraud that may occur in the course of obtaining life, health, disability income, critical illness, and long-term care insurance.” They record information of “underwriting significance” like medical conditions or hazardous activities. If you have not applied for individually underwritten life, health, or disability income insurance during the preceding seven year period, then you probably don’t have a record.

  • MIB.com report request page (see bottom)
  • 866-692-6901

Milliman IntelliScript. Tracks your prescription drug purchase history. “Milliman IntelliScript will have prescription information about you only if you authorized the release of your medical records to an insurance company and that company requested that we gather a report on you.”

  • RXHistories.com report request page (see bottom)
  • 877-211-4816

Employment History

The following companies all offer background screening services for employers. Most will not have any information about you unless you authorized a potential employer to run a background check on you (probably during the application process). Some will not provide you information unless there was adverse action. Otherwise, you can get one free copy every 12 months.

The Work Number (division of Equifax). They also keep historical income records.

  • TheWorkNumber.com report request page
  • 866-604-6570

Accurate Background, Inc.

  • AccurateBackground.com (scroll down to “How do I request a copy of my background check?”
  • 800-216-8024

American Databank, LLC.

  • AmericanDatabank.com report request page
  • 800-200-0853

Backgroundchecks.com.

  • Backgroundchecks.com report request page
  • 866-265-6602

Checkr

  • Checkr applicant portal (access report here).
  • 844-524-3275

First Advantage Background Check. Tenant and employment background checks. One free report every 12 months.

  • FAdv.com report request page
  • 800-845-6004

General Information Services.

  • GenInfo.com report request page
  • 866-265-4917

HireRight

  • HireRight.com report request page
  • 800-381-0645

Info Cubic.

  • InfoCubic.com report request page (PDF form)
  • 877-360-4636

IntelliCorp

  • IntelliCorp.com report request page
  • 866-202-1436

OPENonline

  • OPENonline.com report request page
  • 888-381-5656

Pre-employ

  • Pre-employ.com report request page
  • 800-300-1821 (ext 199)

Professional Screening & Information, Inc.

  • PSIBackgroundCheck.com report request page
  • 877-235-7574

Sterling Talent Solutions (acquired EmployeeScreenIQ)

  • SterlinkBackCheck.com report request page
  • 888-889-5248

PeopleFacts

  • PeopleFacts.com report request page
  • 800-600-8999

Reminder: Also see Part 1: Big List of Free Consumer Reports with Your Credit, Banking, and Payday Lending Data.

Sources: ConsumerFinance.gov, FTC.gov, Wikipedia

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eccad.info has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. Eccad.info is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Big List of Free Consumer Data Reports (1/2): See Your Confidential Credit, Banking, and Payday Lending Data

eccad.info has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. Thank you for your support.

magAll info double-checked and updated for 2019. Since these are available every 12 months, it is a good idea to check these near or around the same time each year. A lot of companies make their money by collecting and selling data – your personal data. In the past, it was often difficult if not impossible to see what they were telling prospective lenders, landlords, even employers about you. Under the FCRA and/or FACT Acts, many consumer reporting agencies (CRAs) are now legally required to send you a free copy of your report every 12 months, as well as provide a way to dispute incorrect information.

Some have an online request form, but some require snail mail with proof of identity. (Some are shady and really try to hide this option.) You probably won’t want to bother checking all of them, but if you’ve experienced any sort of rejection or adverse reaction in these areas the cause might be found inside one of these databases. Keep in mind that you may not have a file with all of these places. Requesting a copy of your own consumer reports does not hurt your credit score.

Credit-Related

Experian, Equifax, and TransUnion. The three major credit bureaus track your credit accounts, payment history, and other related information like bankrupts and liens. Free copy of each once every 12 months.

  • AnnualCreditReport.com
  • 877-322-8228

You can also now freeze your credit reports for free, but you must each bureau separately. For the info, please see Big List of Ways To Protect Your Identity: Free Credit Monitoring, Free Credit Locks, and Free Credit Freezes

CoreLogic Credco. One of the largest credit-related CRAs and often used by mortgage lenders, your CoreLogic Credco Consumer File can contain: previous homeownership and mortgage info, rental payment history, any reported delinquencies, and other debt obligations like child support. Free copy once every 12 months.

  • Credco.com request page
  • 877-532-8778

LexisNexis. One of the largest personal information databases that includes public records, real estate transaction and ownership data, lien, judgment, and bankruptcy records, professional license information, and historical addresses on file. Free copy, must mail in form.

  • LexisNexis.com request page
  • 866-897-8126

Innovis. A supplementary credit report and identity verification provider. Free copy once every 12 months.

  • Innovis.com request page
  • 800-540-2505

SageStream, LLC (formerly ID Analytics) Per their site, they are a “a credit reporting agency that produces credit reports and scores from our repository of consumer information contributed by a wide array of companies including leading financial services organizations, wireless providers, utilities, retailers, auto lenders and many others” Free copy, must fax or mail in a written form.

  • SagestreamLLC.com request page
  • 888-395-0277

Banking-Related

Chexsystems. A consumer information database used by an estimated 80-90% of all banks to help determine the risk of opening new accounts. Think of it as the banks’ version of a credit bureau. If a person commits check fraud or overdraws their account, it will be listed here. In addition, the simple act of opening or closing a bank account may be recorded in their database. Having a negative ChexSystems record can leave you blacklisted from opening bank accounts at most major banks. Free copy once every 12 months. You can now request your report online.

  • ChexSystems request page
  • 800-428-9623

CrossCheck, Inc. Provides check verification services for various industries, including automotive sales and repair, building supply, home improvement, retail, medical, dental, and veterinarian industries.

  • Cross-check.com request page
  • 800-843-0760

Global Payments Check Services, Inc. Provides check verification services for various industries.

  • Globalpaymentsinc.com.com request page
  • 800-638-4600 x410

TeleCheck. Per their site, they provide “industry-leading check acceptance, check processing and risk analytics services to merchants and financial institutions.” One of the major companies that protect businesses and banks from bad checks. Must order by phone or mail.

  • TeleCheck request page
  • 800-366-2425

Certegy Check Services. Per their site, a “check risk management company that provides verification, guarantee and risk analytics to thousands of businesses that choose to accept checks as a form of payment for goods or services.” Clients include check-cashing stores and casinos. Free copy once every 12 months. Must order by phone or mail.

  • AskCertegy.com request page
  • 800-237-3826

Early Warning Services. A collaboration between a group of big banks including Bank of America, BB&T, Capital One, JPMorgan Chase and Wells Fargo. Provides fraud prevention and risk management in relation to bank accounts and payment transactions. Must order by phone.

  • EarlyWarning.com request page
  • 800-325-7775

Subprime-Related (Payday Lending)

The following companies focus on subprime customers with clients including payday lenders, title loan lenders, rent-to-own stores, and subprime auto loan providers.

Teletrack (affiliated with CoreLogic).

  • Teletrack report request form
  • 877-309-5226

FactorTrust. Free copy once every 12 months. Owned by TransUnion.

  • FactorTrust.com request page
  • 844-773-3321

Clarity Services, Inc.

  • ClarityServices.com request page
  • 866-390-3118

DataX Ltd.

  • DataXLtd.com request page
  • 800-295-4790

Microbilt and subsidiary Payment Reporting Builds Credit (PRBC). Microbilt is a provider of credit data for the “approximately 110 million underserved and underbanked consumers in the United States.” Free copy once every 12 months.

  • Microbilt.com request page
  • 888-222-7621

Next up, I will double-check and update Part 2: Rental History, Insurance, & Employment Data.

Sources: ConsumerFinance.gov, FTC.gov, Wikipedia

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eccad.info has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. Eccad.info is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Real Estate Crowdfunding: Realtyshares Foreclosure Process Example 2018

eccad.info has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. Thank you for your support.

Final update. I’ve invested in multiple real estate crowdfunding websites, including $2,000 into a single debt investment at RealtyShares. Unfortunately, this loan backed by a multifamily unit went into foreclosure and I outline what happened. There are risks in every investment, and my loss is your learning opportunity!

rs_okeefe1

Initial investment details.

  • Property: 6-unit, 6,490 sf multifamily in Milwaukee, Wisconsin.
  • Interest rate: 9% APR.
  • Amount invested: $2,000.
  • Term: 12 months with 6-month extension option.
  • Total loan amount $168,000. Purchase price $220,000 (LTC 76%). Estimated after-repair value $260,000. Broker Opinion of Value $238,000.
  • Loan secured by the property in first position. Personal guarantee from borrower.
  • Stated goal to rehab, stabilize, and then either sell or refinance.

Brief recap.

  • January 2016. Funds committed. Loan closed.
  • July 2016 to May 2017. Sporadic payment history for over a year. They would be on-time for a while, then there’d be a late payment, then things would brought back current, etc.
  • May 2017. Borrower stated that the property was under contract for $225,000 with final walk-through completed and expected close within 30 days.
  • June 2017. Borrower stopped paying. I guess the sale fell through (or they lied). Foreclosure process initiated by RealtyShares.
  • September 2017. Judgment granted in Wisconsin court. By law, there will be a 3-month redemption period where the borrower can still keep the house if they pay foreclosure judgment interest, taxes, and costs.
  • January 2018. The foreclosure sale was held and property ownership was reverted to RealtyShares. A judge still needs to confirm the sale.
  • February 2018. The judge confirmed the foreclosure sale, and RealtyShares is officially the owner of the property. Property can now be assessed and fixed up before sale.
  • April 2018. Property listed for $134,500 as per new BPO (Broker Opinion of Value).
  • June 2018. Property is under contract for sale. Exact price unknown.
  • July 2018. Property sold. Final disbursement of $1,133.73 received.

Final numbers. I invested $2,000 and got paid $210.84 of interest and $1,133.73 of principal for a total of $1,344.57. This means I only got back 67% of my money after more than 2 years. On the other hand, I have made over 50 different real estate-backed loans now, and it was only a matter of time before I got a full default. This was my first investment that finished foreclosure, but it won’t be my last.

The question is how often that happens and the size of those losses. When it came to Prosper or LendingClub, the interest rates might be higher but when a loan was 60 days late you were pretty much done. As an unsecured loan, you had nothing to fall back on if the borrower broke their promise (besides hurting their credit score). Sending it to collections typically only got you pennies on the dollar. In this case, I got back 57 cents on the dollar when you exclude interest.

Beforehand, RealtyShares told me that the foreclosure process in Wisconsin typically took about 12 months. That turned out to be a good estimate, as it was 12 months between foreclosure initiation and the property being under contract for sale.

Lessons. First, don’t put too much weight on a BPO (broker opinions of value). A broker thought this property was worth $238,000 in January 2016. Another broker thought the same property was worth only $134,500 in April 2018. The final sale price was probably closer to $100,000. That is a big gap.

Second, you should consider the local economic situation. This area is hurting, and if you do some digging you’ll see foreclosures all over the place. I didn’t know this at the time, but the low-income rental market in Milwaukee, Wisconsin was profiled in the NYT Bestselling book Evicted: Poverty and Profit in the American City (my review). Many of the properties mentioned in this book were literally down the street from this unit.

Third, you need to diversify. If this was my only investment, I might have an overly negative opinion of the asset class. If my successful Patch of Land loan was my only investment, I might have a overly positive opinion. Instead, this is one of 50+ investments for me (mostly at PeerStreet) and while I maintain a positive return higher than cash across my investments, there is the occasional foreclosure like this. Basically, when you read about my experience or someone else’s, you must take into account sample size.

Finally, I believe that some marketplace/crowdfunding sites may be better at sourcing and underwriting loans than others. As of November 2018, Realtyshares has stopped accepting new investments (they will continue to service existing investments). Even before that, they abruptly stopped doing residential loans to “focus” on commercial properties. I knew their specialty was more commercial real estate, but I didn’t want to commit $25k to a single commercial investment, so I went with this smaller residential loan. Since then, I have shifted my residential debt investing to PeerStreet as they allow me to split my investments into $1,000 minimums and they also have a slightly different model.

Communications quality. I would grade the online updates from RealtyShares as acceptable/good. They are relatively detailed and consistent, providing me a look inside the foreclosure process. Here are some sample updates:

October 9, 2017 We have identified a real estate broker to sell the property. The broker spoke with the previous property manager who was at the property a couple of weeks ago and who may be available for property preservation. The broker is going to take a contractor to the property to try and get an accurate cost estimate to complete the renovation.

September 21, 2017 Judgment was granted at the hearing. We expect the filed judgment from the court in approximately one week and will process it upon receipt. We should be able to schedule the sale in late October and it will be held after the redemption period expires—sometime in December. As soon as we receive the filed judgment order from the court we will have the exact 3 month redemption date. Sale cannot be held until the redemption period has expired.

September 8, 2017 The partner has declined to go forward with the purchase of the property. On the foreclosure front, the judgement hearing is scheduled for September 18th. If the judgement is successful, there is a 6-month right of redemption period during which the property can not be sold. During this period we will identify a property preservation firm and a commercial broker to sell the property.

August 25, 2017 A minority partner has stepped forward and has asked for a week to visit the property with the idea of making a paydown in exchange for an extension. We have agreed to speak next week after his inspection.

August 22, 2017 Service has been completed on the foreclosure. The defendants were personally served with the summons and complaint on August 2, 2017. The statutory answering time will expire on August 22, 2017. The judgment hearing will be scheduled at that time.

June 29, 2017 Due to the borrower’s inability to stay current, we have decided to start the foreclosure process for payment default. The foreclosure will run parallel with the sales process, meaning if the sponsor can sell the property and pay us off before the foreclosure is complete we will stop the process, if not we will take over the property. Typically, foreclosures in Wisconsin take up to 12 months.

Bottom line. Investing in real-estate backed loans means that if the borrower doesn’t pay up, you can foreclose and take over the property. But what is that really like? The purpose of this post is to provide real-world dates and numbers for a completed foreclosure on a marketplace real-estate investment site. I haven’t seen any other similar resources.

My current active investments are at PeerStreet ($1,000 minimums, accredited-only, debt-only) and Fundrise eREIT ($500 minimum, open to everyone, equity and debt).

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eccad.info has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. Eccad.info is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.