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.
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.