My Passive Returns: 2019-09 September (3rd Qtr)

My Passive Returns: 2019-09 September 3rd Qtr

Passive Income from M1 Finance, Groundfloor, Peerstreet and Lending Club.

My Returns 

Monthly Numbers 
Lending Club, COC: 0.44%
PeerStreet, COC: 0.66%
Groundfloor, COC: 0.65%
M1 Finance, COC: 0.30%
Total, COC: 0.63%

Quarterly Numbers
Lending Club, COC: 2.31%

PeerStreet, COC: 1.86%

Groundfloor, COC: 1.21%
M1 Finance, COC: 0.48%
Total, COC: 1.61%

Summary:

• Continue to hold a large amount of short term debt, mostly 30 day term increasing the amount of 90 day term.
• In August made a large amount of purchases of loans with balloon payment terms in Groundfloor, should depress future earnings for at least one quarter maybe two but will result in $400 bonus in September.
• Hard to find 8% or higher loan in PeerStreet causing cash to sett in account longer.
• Purchasing less loans in Lending Club, focusing on higher yielding strategies and transferring out cash when when its builds up. 

Goals:

- COC 0.59% total monthly return, 7% annualized (target meet this month 0.63%)

- 25% of portfolio in short term loans 

- At least half of short term loans, 90 term

stuff
Background:
I like to compare my results to my peers unfortunately that can be hard to do.  I also like to compare dissimilar investments like stocks vs crowdfunding.  I have come up with a few ways to compare two different investments in my portfolio and with bloggers and Youtubers I follow, the results have been surprising. Actually it's probably not surprising many people (myself as well) seem to think they are doing better than they are. Why? because they let the site or app tell them what there returns are instead of calculating on their own. Some investors like Peter Renton use XIRR method of calculation but I like COC. COC returns has its drawbacks, it can report a lower than actual return when making deposits in large proportion or if you buying loans with balloon payments. but I find it to be most reliable for my needs. And I rather have my metrix be under reporting than over reporting my returns.

Sign up Referral bonus urls

If your  interested in signing up for any of these great investment sites and want to get a bonus when you do, use one of the links below.

Click to sign up for Groundfloor and get your bonus
Click to sign up for PeerStreet and get your bonus
Click to sign up for LendingClub and get your bonus
Click to sign up for M1 Finance and get your bonus

Definitions:
COC - Cash on Cash returns, I define as "how much cash was returned divided by how much cash I have invested." 

Can Real Estate Crowdfunding be better than Dividend investing?

The answer is no, DIVIDENDS ARE GOD...

Just Kidding, the answer is obviously it depends. It depends on your goals and how you plan to achieve those goals. Although I expect some people will just say dividends are are ways bester, I would say that's not correct so let's think this out.

Let's start with a goal of obtaining good cash flow while preserving the capital. The purpose

of the investment is to make passive money with as little activity as possible (so no day trading). This money will be used to pay our bills, so we can not liquidate it it must stay invested. Luckily that is exactly the goal of my Groundfloor and M1 Finance accounts.

My Groundfloor Portillo
I currently have loans ranging from 4%-19%
The average loan repays in 7 1/2 months. but 4% loans are 30 day notes and require me to login each week and buy new ones (1 minuet of work).   Reviewing LRO's usually takes around 5 minutes a week, but sometime I just use automated investing and do nothing.

My M1 Finance Portfolio
My M1 portfolio tells me I should get an average of around 4.5%. Most of my holdings are dividend growers, but there are RIETs and BOND ETF's that bring the average yield up or hedge against risk. I read about the companies,  there earning reports and news from there sectors. I adjust the portiflo when when needed.

If you want to sign up for either Groundfloor or M1 Finance use the links and get a bonus!

Click to sign up for Groundfloor and get your $10 bonus

Click to sign up for M1 Finance and get your $10 bonus

Let's set up some benchmarks:

• My 2018 Groundfloor returns 
• A tax free Muni Fund
• My M1 Finance Dividend portfolio
• My M1 Finance Dividend portfolio (Aged 10 years)
• NOBL a S&P 500 Dividend Aristocrats ETF 
• NOBL a S&P 500 Dividend Aristocrats ETF (Aged 10 years)

Name	Tax Type	Rate of Return	Invested	Gain	Long Term Cap Gains	Ordinary income	Long term taxes	After tax gain	After Tax return
Groundfloor (My returns)	Ordinary income	10.23%	100	10.23		2.46	2.46	7.77	7.77%
Tax free Muni Bond Fund	None	2.57%	100	2.57			0.00	2.57	2.57%
Dividend Portfolio	Capital Gains	4.50%	100	4.5	0.68		0.68	3.83	3.83%
Dividend Portfolio (Aged 10 years, @ 7% 10 yr CAGR)	Capital Gains	8.90%	100	8.9	1.34		1.34	7.57	7.57%
NOBL	Capital Gains	1.96%	100	1.96	0.29		0.29	1.67	1.67%
NOBL (Aged 10 years, @ 7% 10 yr CAGR)	Capital Gains	3.90%	100	3.9	0.59		0.59	3.32	3.32%

As you can tell from reading the table I make more passive income in crowdfunding than in dividends right now, but in about 10 years they will have similar after tax returns and each year after that should my dividends will do so much better. So "Dividend Yield" is greater in an aged portiflo.

Stock value appreciation 

The only way to unlock my stock appreciation is to sell, but if we sell we won't be able to pay our bills.  As the dividend increases there will come a time where we can get the return we need while owning less stock, and at that point we could sell but that time will be very far out in the future. So "Stock Value" works in favor of a aged portiflo.

Taxes

Most people don't think about taxes, "do you want to pay more in taxes or less?" you probably said "less".  Paying less in taxes is not a good goal by itself. What if I said "if you paid more in taxes you would make a better return". Isn't it then ok to pay more in taxes? if you make a higher after tax income!
From the table above you can see, I pay more in taxes on my Groundfloor portfolio but I make better returns than my M1 portfolio. After tax return: Groundfloor 6.96% vs 3.41% M1 portfolio.
10 years from now assuming 7% dividend growth rate I get: After tax return: Groundfloor (still) 6.96% vs 6.74% M1 Finance. Groundfloor is still returning more, but my M1 portfolio is about to hit the tipping point, each year after that my M1 portfolio will always have better returns than Groundfloor.
If I move to Nevada, my after tax dividend return would go 0.42% because I wouldn't have to pay California taxes on dividends. and believe me that extra 0.42% with compounding ends up being hundreds of thousands of dollars over 30 years.
But if I moved to Nevada my Groundfloor after tax return would go up 0.81% (Mind blown) I love taxes...

For me it's obvious that dividend tax treatment is no magic bullet (maybe a bullet on a slow timmer). If you want better cash flow now crowdfunding wins. I don't mind paying more taxes so long as I make more money. So if your goal is to make money while paying as little taxes as possible "Stock Dividends" win, but I wouldn't call it a win, I rather have more after tax income.

Risk

Stocks are risky, don't underestimate it! Most people do.
Real Estate Crowdfunding, we don't know how risky it is over a long term. All we can do is make comparisons and assumptions. Private Money lending is the analog to this. we do have an asset to back these loans, some will have defaults, these are known risks. I have had loans default in Groundfloor, of those defaults 3 resulted in a loss of principle. Total of  $274.87 losses of $726,770 in loans repaid, So 0.04% loss in principal over all repaid loans, it will likely go up over time or during a recession but I have over 2 1/2 years experience to judge this risk moving forward. I would say "Dividend Stocks" win this by default but over specific time periods long and short it could go either way.

Summary

I purposely invested in crowdfunding first to get my passive income up so I can have freedom in my life. Now that I have more freedom, I don't put new money into crowdfunding, let it grow from its own returns.   I'm in the process of building a dividend portfolio to fund my retirement. So if you pick a specific goal or metric you can see how beneficial Real Estate Crowdfunding can be over the short and long term.

My Goal is to have multiple passive income streams so I will never have to worry about income in the future.  Right now I have Rentals, Crowdfunding, Stocks, and Bonds. I hope to have more in the future, hit the comments you have a suggestion!

I think Alfred Weinstein said "On the Nintendo to unlock God mode try: up, up, down, down, left, right, left, right, B, A, Start.  But to unlock God mode in Dividends just start in your early 20's"

PS

One last thing I put NOBL & NOBL aged 10 yrs up there because lots of people like it, I like it too. But you can see after aging it 10 years at 7% CAGR it returns less than half of my Groundfloor portillo.

New Video "1% Special Groundfloor Offer, Offer ends November 2nd, 2019"

I look at the 11 loans offered and invest in ones that meet my criteria. I got an email about a new type of bonus, Groundfloor is adding 1% to 11 select loans if you invest before November 2nd. Not sure how long it will take to fully subscribe or if they will add more loans once they do so I'm jumping on this now.

Transcript:

17.5% return I just found three loans

that are gonna return me 17.5% keep

watching to find out how for any of you

don't know what real estate crowdfunding

is it's basically peer-to-peer lending

where the underlying project is a house

you lend say hundred dollars and enough

people lend a hundred dollars each

eventually the loan is fully subscribed

to and that borrower gets their loan

that loan is secured against that asset

so if they default you can repossess the

asset to get your money back the returns

are much higher than with places like

prosper and you get the security of

knowing that there's an asset backing

your loan what I like about real estate

crowdfunding is that I can get really

high returns but I still have the safety

of knowing my money is secured against

an asset ground-floor has consistently

giving me my highest returns and it

doesn't require you to put twenty five

thousand or ten thousand dollars per

investment it has a $10 minimum per loan

so you can get started with these three

loans and start making money right away

and if you want to get a ten dollar

bonus there's a sign-up link below and

we'll both get ten dollars ok something

really interesting on ground floor

happened I logged in to check my account

and I found 3d grade loans in the system

it's unusual to see e grade loans and to

see three of them all at once I thought

this was pretty special so let's go

ahead and take a look at them automated

investing already went and purchased a

hundred dollars of each of them for me

so I already own these loans I'm going

to see if I want to keep them and

potentially if I want to invest more

money first one

2:09 Clay Street 19% loan

purchase and renovate first liens second

payment position right air view on the

I've showed up till now has always been

firstly in first position I believe so

you can see here the first loan was for

380 and the second one's for 100 and

second payment position means they're

gonna pay these guys first and then we

would get paid so that would only result

in like

foreclosure they weren't repaying their

loans so let's go ahead and jump down

look at the borrowers experience and the

miscellaneous clauses okay a couple of

standard clauses and then we have there

will be two loans on this project each

representing subsequent draws the this

represents the first loan 388 the second

loan is subordinate to the first loan

for $100,000 the financial overview

represents the Agora agreement of all

loans secured by this property giving a

complete financial picture of the

project in the event of default one

ground-floor note secured by this

property will trigger a default on all

ground-floor notes on this property

however the lor holders investing lor

corresponds to notes secured by the

property have different priorities in

recovery yeah so during recovery were

number two so they have some experience

but let's go back up to the loan so we

can see this we got did the math and

eighty thousand into 615 is 13% cushion

so they have a 13% cushion and they have

around a 7% skin in the game this is

super interesting I don't see he grade

loans it's nice to see one once in a

while I probably already invested in

let's take a look at the second loan and

here we got 1715 water crust this one is

first position first lien second payment

position 45,000 cushion 300 ERV so 15%

cushion and roughly 8 or 9% skin in the

game bar experience of 4 let's check the

miscellaneous

similar clauses but not exactly the same

there will be two loans on this project

each represented something draws well

each draw to a loan approved will solve

the corresponding costs of every two

months to the date of the advance the

first draw later in the event of a

default on one ground-floor property and

the last one is 3481 Charlamagne drive

so three divided into two thirty

eighteen percent it's interesting it's

actually got a pretty decent cushion for

what I thought it would be for each of

these loans this one is the only one out

of the three that's not a first position

this is actually a second lien not a

second not a first lien but a second

lien so let's check out the conditions

here and see if they're any different

okay the borrower is receiving a skin in

the game score for the remaining fifty

five thousand there will be two loans on

this project you were each representing

so draws interesting so this one's just

structured a little bit different but

both of these are ground-floor loans

well a hundred dollars each loan is

statistically relevant to how much would

be in my portfolio I want to go ahead

and pump these up and substantially even

if these do fail out it's really not

going to hurt me and I've been wanting

to add a little more risk and by the e

well any DS and E's or even higher rated

loans

to get those higher returns I mean 19%

70% 16.5 I'm willing to take the hit if

they they don't pay off so let's see it

some it would be a good amount to add

let's just add 300 bucks to each one I

put my commitment to four hundred for

each loan

okay let's go check the summary see how

much of my portfolio is added allocated

towards e loans yeah so 0.8 percent of

my entire lor commitments are in Ygritte

loans

don't forget to Like subscribe and put

your questions in the comments if you

want to sign up for ground floor Pierce

Street m1 finance or Lending Club

I've got signup links below that'll

allow you to get bonuses thanks everyone

New video "Groundfloor Special 1% Bonus on Select loans"

I just found 3 E grade loans on Groundfloor, this is rare, I have only ever invested in two E grade loans in the past 2 1/2 years. Jump on this if you get the chance!

My Stock market Investment strategy

Here is how I Invest! Diversify, Periodic purchases, Circle of competence, Dividend Growth and
Carpet bombing.

1) Diversify

By order of Importance, Diversify By: Time, Company, Sector, Risk
Time: Never buy or sell at one time, spread them out over time. Use "Periodic Purchases" almost exclusively when investing. Don't wait for the perfect price to sell, plan it and break it out over time.
Company: Never let one company be more than 5% of your total portfolio. Also having one company in a sector is too risky so if you don't or can't find enough stocks (that your really understand) to invest in, "don't invest in that Company" or invest just 5% in the company and the rest in ETFs that will spread out your company exposure.
Sector: Limit the amount invested in each sector, If you don't have enough sectors in your "Circle of competence" invest in ETFs that will spread out your sector exposure.
Risk: Don't pick a single risk allocation for all investments. People say be risky when your young and be conservative when your retired. That's not required, and not advisable. People who tell you to be risk when your young will also tell you to buy a little bonds just incase. In short alway be conservative and risky, but understand where your risk is and limit it as needed.

2) Periodic Purchases

Don't buy a stock all at one time. Instead invest your money over time, have short and long term schedules for investing. I decide how much I want to Invest in a year, for example right now I have $2,000 to invest, so divided by 52 Mondays in a year and we get $40. So I buy $40 every Monday. Currently we are near the end of a bull run so my long term plan is to wait for then next recession and then rotate at least 25% of my Crowdfunding portfolio into the my existing stock market positions. When I start the rotation we will be in a recession, and some might call that catching a falling knife but that rotation will be spread out over a long enough period of time it won't matter.  I call it "Carpet bombing". Until then If the market goes up I will invest, if the market goes down I will invest, if the market stays the same I will invest. when we are record highs I will invest, when we are in a recession I will invest.

3) Circle of competence

Invest in what you already know, if you don't know about energy don't buy it, If you don't know about Target dont buy it. I love Target, I shop at Target, my wife shops at Target, we shop at Targets competitors and I understand the sector. I don't own Philip Morris, Walmart, Disney, etc. I might if I looked into them, but I don't have time. Evenly I will learn more and increase my circle of competence and probably invest in a little Disney, but right now it would be dumb money and I don't want dub money. I do own REIT's like SPG, CCI, LAND, NRZ, MAIN, GOLD, T,  and other things I understand and read about regularly. 

4) Dividend Growth

Invest in stocks that have a proven track record of raising dividends and that have the ability to continue to raise dividends in the future. Companies that have track records of returning greater and greater dividends are expertly managed, they can still have issues or fall on hard times but in general require a better control and management than a stock that just IPO'd. If AT&T cuts it dividend I will stop investing in it and I will sell off my position, if the position is large I will do it with periodic sells. 

Requiring dividend Growth shouldn't be applied to some investments like ETF or  REIT's. For example a REIT is required to pay out a specific amount of income to be a REIT, this prevents the REIT from investing, keeping the cash or scheduling out measured regular increase to the dividends. An ETF or a REIT having a long proven growth record is not as important as ability to execute there stated objective. As an example the SPHD "seeks to measure the performance of the 30 least volatile high-dividend-yielding stocks", this may cause the yield to be more or less depending on what stocks come in and out of the index at any given time, but it's still a good way to diversify as protect against volatility. 

5) Carpet bombing

This might be is the only concept that is mine (however i'm sure I didn't invest it). If the market goes down, I like to double my investment. So for example right now I'm investing $40 a week, this Monday I invested $40.  Let's say that on Tuesday the market goes down 5%. On wednesday I will invest another $40. If the market is still down 5% on the following Monday, I will buy $80 instead of $40 that week, and I will keep buying $80 until the market starts appreciating measurably. Now if the Market goes down another 5%, so it's down a total of 10%. I will buy an extra $40 for a total of $120 a week. and so we get this...
Normal market 1x $40 per week
Market -5%: 2x $80 per week
Market -10%: 3x $120 per week
Market -15%: 4x $160 per week
Market -20%: 5x $200 per week
Market -25%: 6x $240 per week
Market -30%: 7x $280 per week
Market -35%: 8x $320 per week

Using carpet bombing will lower your future cost basis on stock your making periodic purchases on and plan to hold for long periods of time.
The average Correction is 71 days and will be -13% in market value, so just using those numbers 10 weeks at 3x would be $800 more than I would have normally invested. It will actually be less because it wont drop -13% day one and go up 13% on day 71.
The average recession lasts 13 months and on average will be -30% in market value, so again using those numbers at 7x I would invest an extra $13k once again it won't actually be those numbers because it will go down gradually and come up gradually. In both examples it wildly over estimates the amount added to the base investment but you can also see these over estimated numbers are relatively small additions to the portfolio when you look at it over even a 2-5 year period.
If we are unlucky enough to see the market go down -35% I'm ready and have a planned rotation that can supply the money needed to make it work in the long run.  I used this strategy last recession and the result was I was able to buy my first house while others were complaining about there market loses. It was the single biggest swing in my income and Net worth I have ever experienced.  I stopped telling people about my success because people would say I was lucky and some people were (still are) rude to me. I remember as the market was falling I was putting half my paycheck in the stock market each month, I mean I had people calling me stupid. There was even a period of time when I was investing twice what I earned each month stocks and funds. I had a great job during the recession that guaranteed me I wouldn't be laid off (they laid me off a couple weeks later).  But it wasn't lucky, being jobless at the beginning of a recession and buying a house about a year later. I spend years planning my investments, it took years to execute, and I spent years with a living standard way below my peers.  That hardly seems like luck to me. It reminds of what that said to me 2005-6, I was always talking about saving up to buy a house, and going to open houses and complaining about how I couldn't afford anything. My boss told me he had lots of friends who couldn't afford to buy a house used a "bank" and lied about what they made and just got a "loan", he basically put me down in front of my peers (something he seemed to enjoy). I told him I'm not buying something I can't afford, even if a "bank" gives me the money.  Well he felt I was dumb for not taking the opportunity. If I had I probably would have lost my house when he laid me off and had the single biggest swing in my income and Net worth I have ever experienced in the wrong direction.