Alternative asset investing is can be exciting 🙂

I found YieldStreet in November of 2017. It was founded in just 2015. The platform brings alternative investment opportunities to everyone. Random things they say were previously only available to the ultra wealthy and well-connected! There’s an assortment of things on the site, but real estate is the easiest to understand.

The site allows investing in REITs, or going direct into deals. For us, I wanted something a little more personal and understandable. So we went direct. Not through a REIT or an index but directly investing into a “deal”. Our first deal was in an apartment complex “flip” in Texas. It was fun. I was able to research the principles myself. Read all the numbers and the planning. See their track record of success, and ultimately invest directly with the operators with YieldStreet taking a cut. We held that investment from 2018 to 2020, when they sold the complex after remodeling all of the over 100 units in the complex in a series of rotating remodels of each unit. I felt like I learned about a working business model from professionals by proxy through watching and reading the updates, which I think came about quarterly. We almost doubled our money on the deal (put in $30,000 and got out around $55,000). Fantastic.

We were excited about this deal, and so we went looking for more opportunities. There was this class of investment that I had seen over years of logging into the site… something about boat deconstruction? There was a splashy item on the home page that the Vessel Deconstruction V was going to launch soon, and double-clicking in I learned that they were prioritizing investors that had not had the opportunity to participate in funds I – IV. Here’s a screenshot of the text inside the email I received, this was in 2019:

The investments had gone so well, they said, that they tend to fill up immediately when they go live via money that had already invested previously and experienced the upside. Having confidence in myself, I dove in! I read all of the results from the previous funds. Here are the highlights:

1. You invest in a company that takes ownership of huge boats for short periods of time. They are essentially middlemen and transport. They buy a huge end-of-life ship, take possession at port 1, and transport it to Greece where the global ship deconstruction market exists. In that place, they sell the ship to a company that then deconstructs it for salvage value.
2. They’ve been in the business for decades, it was 40 years or thereabout if I remember right.
3. I worried about loss of the ship, and specifically looked up their insurance. They claimed that the ships were insured over the water and that 80% of the value could be recovered in the rare event of an unforeseen loss. That seemed reasonable to me because I wasn’t investing in a single ship, so I had diversity of risk there, and any single loss wouldn’t be catastrophic because the majority of the value could be recovered!
4. They were raising $50M.
5. They were paying back over 2 years at 10.5% (I believe that is right, it was around there). We would get a deposit every month for interest only, and a balloon payment at the end to repay the principal.

This seemed so great, I told my wife about. They had a track record over years through 4 other funds of the same type that had all returned without a hitch. My wife loves cash flow, so although I wanted to put in $90,000, she wanted to go to $250,000! I convinced her that was a bit much for our first time on this type of investment, and she agreed to back down to the $90K. So that’s what we did, we invested $90,000 in the Greek ship deconstruction fund. Here’s the email I got:

For around 5-6 months everything was great. Our deposit hit like clockwork with principal and interest going into our account.

I loved these emails!

Until 1 day… we got the notification. I scoured my email, but I don’t see it, it must have just been inside their portal where they could alter access to the information in the future. But basically, we learned the company was now BANKRUPT, and we were to expect a 100% loss of capital!

I was completely shocked.

Then I was really angry!

How was this possible?? I had done my research and 100% loss was not even supposed to remotely be a possibility. Over the next few weeks it started to come out that this entire thing was a huge fraud.

By April 2020, these articles were hitting WSJ and Bloomberg.

I was contacted by an Attorney that told me they were getting investors together to sue Yieldstreet. As the broker, they completely failed in their due diligence process to vet this company, and misrepresented the risks grossly. I told the Attorney I was happy to join in.

I didn’t hear much else for quite some time. In my personal accounting I wrote off the entire amount. I took it was a tough lesson that middle managers can’t always be relied upon, and definitely may lie or misrepresent opportunities (big surprise, eh). It actually gave me solace that the fraud was quite large and I wasn’t the only “sucker” for this. Not much, but a little. I guess being stupid with everyone else feels better that being stupid by oneself… but the money is gone either way.

Until one day it wasn’t. In April, August and November of 2020 YieldStreet paid back pieces of the principal. Then in March 2021, I got a huge deposit for $67,000, and I was made completely whole! I wasn’t really expecting it, so it felt really great!

As you might imagine, I haven’t used Yieldstreet again… but on one hand, they did come through in the end.

Would you look on Yieldstreet again for investment opportunities given my experience? Interested!

And be careful out there.