A New Investment from a Reader Suggestion

kaptain_lou is a reader on this site, as well as many others and a few years ago he (or she) wrote an article on Seeking Alpha which outlined an investment that I was not familiar with–as usual I had to check it out a bit.  We are not shy about trying new ideas and are always looking for a little diversification.

Some readers may recall that nearly 10 years ago when “peer to peer” lending was just starting we ran a real money test on Prosper–one of the early peer to peer sites.  We deposited $5,000 and made 100 $50 loans.  The 1st few years were a total disaster as Prosper was not vetting the borrowers adequately.  After the company rebuilt their system to minimize huge losses the platform improved–but honestly still leaves a lot to be desired.  After our 10 year experiment we have a total annual gain of 4.56%–not terrible, but less than we had hoped for at the time we initiated the position.  We have been in “run off” mode with Prosper the last couple of years and now are down to only $449 in our account.  The point is that we tried it with minor amounts of money and now we know how bad/good it is.  If the economy is good I think a 5% return is probably attainable – if a recession hits watch out!!

The new investment I am speaking of is brought to you by Amerco (NASDAQ:UHAL)–the parent company of U-Haul, RepWest Insurance Company and Oxford Life Insurance company.  Quite simply the company allows you, the individual investor, to invest in U-Haul equipment.  This could be a truck, a car hauling dolly or even furniture pads.  Maturities range from 2 years to 25 years.

The investments may be done in a cash account or in an IRA.  Of course you have to set up an account on their site which is called the U-Haul Investors Club.

Setting up an account is quite easy, but I spent a full 10 days getting money transferred to my new account-not a really big deal as I was only transferring $1000 from my checking into a new IRA.  This account honestly is to allow me to “trial” the product and see exactly how it works.

Once you have money in your account you are allowed to purchase “U-Notes”, which are secured interests in whatever product you decide to invest in–they usually have 2-5 different investments available with coupons of 3-7.25% depending on the length of the loan you make.

At this link you can observe the current offerings of product.

The company files prospectuses on these offering just like they would do on a common stock offering etc.  The link to these is posted on the page with the individual offering.  Of course they are huge documents – most likely with a bunch of stuff no one ever reads.  We skimmed through it but mostly we went to the financial statements of Amerco.

Amerco is currently a highly profitable company with revenue of over $3 billion.   For the 3rd quarter ending 12/31/2017 the company had revenue of $842 million with earnings from operations of $303 million.  Additionally they had a huge gain on sale of real estate which we look at as a 1 off.  For the 9 months there was revenue of $2.8 billion with earnings from operations of $761 million.  These are phenomenal earnings.  The company has $10 billion in assets on the balance sheet and carries over $3 billion in debt (including the U-Notes we are talking about here).  Virtually all of the assets and debt are related to the U-Haul business as are revenues.  The 2 insurance companies contribute only about 5-6% to the overall revenue stream.

We have reviewed the company financials back to 2009 and they have been profitable each year since 2009, although recent profits dwarf those of 10 years ago.

Below is a chart of the common stock of Amerco.




Now for the WARNINGS.  This investment is NOT liquid–in fact you will receive a principal and interest payment each quarter until you have been repaid for your loan.

Because there is no liquid marketplace for this debt, you will be holding it until maturity.  Hopefully the company stays in good financial condition and full repayment with interest will occur, but it is conceivable that the company could go broke and your investment could be lost.

Additionally no one should consider an investment in these notes with money which may be needed over the life of the loan.

Our plan is to fund our U-Haul Investors Club with the balance of our IRA contributions for 2018 and continue to invest throughout the year.

Additionally we are adding $3,000 worth of investments to the Medium Duration Income Portfolio.  This will keep the investment and progress in front of our eyes.

As always this is not a recommendation for anyone to purchase any of these notes–we have already done so and will write further on our first purchase.

This article is just to further shout out kaptain_lou’s idea and should be viewed as an idea that readers may want to do further due diligence on themselves.

kaptain_lou’s original article on Seeking Alpha can be found here.

 

 

26 thoughts on “A New Investment from a Reader Suggestion”

  1. Interesting, Tim. I have a very similar story to your, except my P2P lending ‘partner’ was LendingClub. Opened an account about 2 years ago. They were supposed to be better than Prosper, however, the level of defaults on $25 loans is just plain silly. There’s really no contact from the company. They don’t reach out to see how you’re doing, no newsletters or concern that your account is essentially being withdrawn, dollar by dollar. Just no care in the world from these people…

    I’ve also been in ‘run off’ mode as well, deducting every penny that does actually get repaid. My supposed return was between 4 and 5%. I’ll never look to get back in to this type of situation.

    Hope the U-Haul opportunity works out much better for you.

    1. Thanks for your comment GW. I think I am not made for peer to peer. One of the last loans I made was to someone with 100k in income, an “A” rating and they made 3 payments (out of 36) before defaulting and filing BK–I know people have problems from time to time, but they don’t go from A to BK in 3 months.

      1. I have corresponded with Lou often and he is a quality guy… Funny story, he told me about this and I was wanting to invest some money in it. The frustrating event then blocked me. Somehow for some reason my email refuses to allow their security test code to be sent to my email. I could not get issue resolved, so I had to let it pass. UHaul did send the test pennies into my account but I could never get the code. So they gave me 75 cents a few months back and never asked for it back, lol…
        The disease hit again…I cant let it go… I bought 400 shares of PCG-G at $19.70. If they reinstated divi for next payment (it wont) the effective yield of this would be higher than any utility issued preferred since the early 1990s. I will not be a wimp and will hold these long term and let it play out.

      2. Yep, same type of thing here with Lending Club. The highest rates of default were to the most qualified lenders with the highest credit scores. Made me begin to think that they were ‘possibly’, obtaining credit on behalf of someone else who took the money and then bolted.

        I like that the U-haul opportunity has ‘assets’ backing your play, so to speak. To me, that’s much better than just going off of someone’s promise to repay. At least you can sell the tangible good and have some shot of getting money back if things go South.

        Great articles by kaptain_lou. Thanks for writing about this, Tim.

  2. Ya, we are on the peer to peer camp as well. I opened accounts with both lending and prosper. They were generating 8% for a while , but then dropped to 4-5. Too risky for that return.

    We are also draining our accounts over the last year, and moving it all to peerstreet.com for that portion of our account. The advantage of peerstreet is that the loans are back real estate, by the first lien. And the LTV is typically low that the in the event of a default you will most likely be safe, unless the whole housing market collapsed. We started with them 2 years ago, there have been no defaults and we are earning a solid 7+% on the account. Like anything we diversify, and just loan the min $1k per loan over large number of loans. They also offer new 30 days notes at a rate of 3% for those that need to keep money liquid but want more than cash typically earns.

    1. Speaking of the housing market. I for one am looking forward to the next crises. Tim spoke earlier of the lower and lower down payments that Fannie Mae is requiring. Did we not learn the lessons of the last housing crises ? I would love to pick up a retirement home in the southwest but not at today’s prices. Like all things that require investment of funds, I am waiting till that crises happens. Just like most investments (except my G Fund), what goes up eventually goes down.

      Lending co-ops or clubs are definitely not in my strike zone. Good look to those who venture into that space.

    2. Thanks for the new tip on peerstreet Ray. Likely will look into that but not act now as I get up on UHaul. Maybe the next trial will be there.

  3. When looking for more security than that provided by LC and Prosper, I found a site called Funding Circle which had been active in the UK for quite a while and started up in this country.. They make loans to small businesses and the loans are secured by the business assets and a “personal guarantee.” That may not sound like much, but it’s supposed to carry some weight in the event of a default. Well, same story: Too many defaults and too few collections. In addition, their accreditation verification process is a major PITA and they insist on renewing it at least once per year. Last year I started pulling cash out instead of reinvesting which has reduced my IRR, which stands at 3.8%. Considering I never picked the lower quality loans, this is pretty poor IMO.

    I’m intrigued by this U-Haul Investors Club deal and will look into it, but there has to be some real security provided. I don’t have too much playing around money now that I’m retired.

    1. Thanks Bruceski44 for sharing your experience. Sounds like all of the peer to peer are about the same with 3-5% returns. I think the Uhaul thing is different as your investment is backed by a pretty large, highly profitable company.

  4. In a similar vein, for illiquid higher yield investments, you might take a look at these guys. NOT an endorsement, but they pay pretty high rates.

    https://www.yieldstreet.com

    Of course after paying themselves 1-2%, you figure the underlying loans must be pretty risky but you can’t see that in an illiquid investment until the bad news shows up. They have real estate, various asset backed loans, and similar.

    1. Thanks xerty–we like to look at all possibililies–good and bad. Everyone has to decide for themselves and their situation the correct risk/reward investments.

  5. Interesting for sure…after 2008-9 my risk tolerance was adjusted to liquidity and safety so not for me personally.. how refreshing to read about something new other than bitcoin and pot stocks, FAANG, Tesla, KIM, O..et al!

    back in the day (talking 40 + yrs ago or so) you could purchase certificates directly from TIAA-CREF that paid way above market rates (not insured of course) . You sent them a check or money order and they sent these official looking things to you. I think they paid 2-3% more than savings a/cs.. then I assume they lent the funds to teachers for car/home loans.. I forget all the particulars but I used them a lot to build my college fund along with my Merrill Lynch Sharebuilder a/c.. TIAA put little ads in our local paper back in the high interest rate days of the 70’s-80’s…now they are a behemoth and don’t need these little deposits, owning Nuveen etc!

    oh the world of finance huh.. Bea

    1. Bea–we are able to deposit with one of our life insurance companies and receive an uninsured 4.50%–we actually have 6 figures there–are limited to a deposit of 10,000 annually. They paid the 4.5% all through the last number of years–an attractive rate compared to CD’s.

  6. Tim, thanks for mentioning my article. As I am always looking to diversify my portfolio with fixed income investments, I thought the U-Haul Investors Club was a good place to park some funds. Overall, the company is in great financial shape and you do get a first lien on the properties when you invest in the real estate. It has worked exceptionally well for me the past two years. I looked at Lending Club and Prosper, but passed on both.

    The downside of the investment, as you mention, is that your funds are locked up for the term of the loan – which can be up to 25 years. However, many investors have funds locked up for long periods of time – Social Security is a great example. Plus, a family member of mine is a teacher and she has her funds locked up for years as well. I’d prefer to have my funds with an investment grade company, as compared to a governmental organization that does not know how to balance a budget!

    At least for me, I was comfortable placing about 10% of my total assets with U-Haul. I consider it an “annuity” without paying all of the fees that are typically associated with that kind of investment. Plus, the principal is paid down on a quarterly basis, so in time it will be much less than 10% of my portfolio.

    1. kaptain_lou—I am excited to start investing with them. I don’t think I will transfer currently invested money, but I have 13,000/annually (2 IRA–wife and I) that may be earmarked for them. I will probably stay shorter term–2 to 5 years.

      I had not seen your article at time of publication–just came across it a couple weeks ago.

  7. Just an additional note on peerstreet: the terms are 6-24 months. So it is all shorter term stuff.
    (No, I am not getting a kickback, and my brother does not work there. I am just familiar with them. )

    1. Ray – I have a small investment account with PeerStreet as well too. At least for now, no losses and decent returns. However, U-Haul is a more secure investment.

  8. First time poster. Love this service/site you are providing Tim. I’ve purchased many of your Durable Fund securities. Thanks!

    Like others I have dipped my toes into Lending Club with similar results. Most of my loans were C & D grade at between 12-14%. Over time I ended up at about 3.5%, meh. No complaints, was a good education and kind of fun. Bleeding them off now. Will look into U-Haul.

    1. Thanks for stopping by and sharing your experiences Michael–glad to have you.

  9. Hi Tim;
    I have had a good sized account with Lending Club since 2009. In the very beginning they were quite responsive to investors. The past few years have been a different story. However, over the years I have fine tuned my filters in investing in their offering of notes. I currently have a return on investment of 8.57% for the 9 year old account and am quite happy with that return. In addition, I have withdrawn all of my original dollars invested, so am now only dealing with reinvesting income. I have given their platform considerable thought and have made the system work for me.

    1. Hi Gary–I am glad to hear at least you have had a good experience–maybe it is the ability to filter–I haven’t checked out Lending Club, but maybe will. With prosper info is limited and even investing in what they consider a 9 credit (on a 1-11 scale) I experienced higher than I would have thought should be expected.

  10. I see Ichan has moved into the AFSI saga.. thot that company sounded familiar, remember reading about it here! Bea

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