Can you Earn 25% or more with Crowdfunding investments?
Most debt crowdfunding investments have yielded investors 9& to 16% annual returns since the passage of the Jobs act of 2012. First position twelve month real estate notes on sites such as Realty Mogul and Patch of Land yields have been between 10% and 13%. These notes typically pay a monthly interest until maturity and then the principle is returned. This sure beats the ½ % money market rates we earn on idle money. However, how great would it be to earn over 25% on a short term investment?
I have discovered Bolstr, a new Crowdfunding platform for short term business debt, that has a very unusual payout structure. The best performing investments are paying out an effective interest rate of 25%+. Bolstr model is unique in that the total return is fixed, but the payments are a percentage of the company’s sales.
They set up most investments to have a 1.3x payback in about 2 years. In a typical deal a company will payout 2-4% of its monthly sales to investors until they have paid back the principle back plus 30%. If sales are higher than projected, investors will get larger payments and will get paid off sooner. Of course if sales dip, so will the payments.
This structure is a benefit to the borrower because his payments are not fixed and his payment will correlate with cash inflows. The lender will receive both principle and interest each month. The loans have personal guarantees and certain company assets are put up as collateral. Bolstr pre-screens all loans and only a small percentage are approved.
To illustrate how these loans work and how investors are earning 25% and more, I will show you some actual results from one of my Bolstr investments. A brewer bowered $150,000 and agreed to pay investors 1.5% of its monthly sales until they paid out $195,000. Sales averaged $440,000 a month in 2014 and were forecasted to be $800,000 a month in 2015. Sales have averaged over $600,000 a month since the loan was procured.
For a $10,000 investment in this project, the average payment received has been $610 a month. At this rate it will take 21 months to recover the promised $13,000. The effective interest rate of a 21 month loan that pays $610 per month is 28.5%. Its hard to believe, but go to an online amortization schedule and enter a loan amount of $10,000 and a term or 21 months. To earn a payment of $610 your interest rate per year has to be 28.5%! In other words, if you borrowed $10,000 from your local bank at a 28.5% interest rate for a 21 month term, your payment would be $610.
Four loans have been fully paid back and no loans have defaulted to date. Every investment has funded in under 5 days. You can discover, rate, and research Bolsters investments at CrowdDD. CrowdDD provides crowdsourced due diligence, the “Yelp” of the crowdfunding industry.