Conservative High Yield Investments

[stuckinpgh]

I am interested to hear opinions on what the best high yield investments are out there. For those of you that don't know me I've been a pro gambler for a little over 5 years, which obviously involves quite a bit of risk. That being said, once the money arrives at the bank I become one of the most conservative people with money. I don't think it's really all that uncommon actually considering I have a wife and two young children, a big house, cars, etc and all of those things require the cash to be there every single month.

Up until this point I've invested a large chunk of my liquid net worth in Real Estate Trust Deeds that are fully secured and pay 12-13% annually. Our LTV's are usually less than 50% so I feel the risk is very minimal even in the worst real estate market. I also have some Fidelity mutual funds that seem to outperform the S&P every year in some IRA's that I've setup. Other than that the rest of the liquid cash is in a money market account getting about 5%.

A friend mentioned to me today that he's involved in some stocks that yield high dividends. PGH is one of the symbols he mentioned, which is a stock that seems like it never moves and has almost a 15% yield.

I guess what I'm asking for here is what else is out there that returns in excess of 10% a year that is safe? I really love the trust deeds because they are simple to get into and involve very little time to maintain, but I want to diversify a bit if possible. I don't mind the grind.. I've been doing it with poker every day for years.

[maxtower]

Anything yielding higher than 5% likely has a risk to principal, possibly a larger risk than you are estimating.

[stuckinpgh]

I should clarify that I accept SOME risk as I'm well aware that anything higher yielding than a bank CD will have to include risk in theory.

[ahnuld]

oxymoron by definition

[spex x]

Well, I was going to suggest buying some RE paper, but since you're already doing that...

You could get into hard money lending. Your experience with RE paper will help a lot. The HMLs that I know generally make about a 20% return on invested funds. Normally you're still getting a strong equity position on the property (i.e., 65% or so LTV).

[stuckinpgh]

What other forms of hard money lending are there that are secured by collateral? The Trust Deeds I do generally involve land development, commercial land improvements, or personal mortgage swing loans.

I've also dabbled in stuff like prosper.com, but from my short experience there lending money unsecured over the internet is a bad idea no matter what the interest rate is. I've actually only had one loan out of nearly 100 default so far but I'm counting on there to be more before the loans are paid off.

The idea of lending money and "being the bank" seems to interest me more than throwing money in the stock market and watching the dice roll on a daily basis though. I have a friend that has almost 3mil invested in trust deeds and is earning an extremely healthy salary at 13%, but even he wonders if he should be involved in other things to diversify.

[geormiet]

I share a lot of the same views as you so I'm interested to see how this thread turns out.

Regarding prosper, I don't think it's a good choice. I've got about 6k in there and thought i was doing great, until I realized that the ROI's prosper advertises and displays aren't really accurate at all. There are sites out there that will show you the real numbers (e.g. prosperlenders.com has a lot of links) and the overall avg return is something like 4%. I myself am averaging under 3% roi.

[DesertCat]

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A friend mentioned to me today that he's involved in some stocks that yield high dividends. PGH is one of the symbols he mentioned, which is a stock that seems like it never moves and has almost a 15% yield.


[/ QUOTE ]

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It has been just over one year since the Canadian federal government announced its proposal to apply a tax at the trust level on distributions where currently they are taxed only at the unitholder level (the “October 31 proposals”). The proposals were passed through the Canadian parliamentary system and are scheduled to commence in January 2011. As part of the proposals, the government also effectively eliminated any future conversions to a trust model and implemented growth guidelines for companies currently structured as a trust.
...
We have been working diligently with external advisors and completing extensive internal analysis of the impacts of the October 31 proposals and the alternative structures available to Pengrowth. These may include options such as:
• Conversion to an exploration and production (E&P) company in part or in full;

• Spin out an exploration company from part of our assets;

• Move part or all of our assets to a U.S. Master Limited Partnership/Limited Liability Company structure; and

• Privatization


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You should go to the SEC site and read PGH's filings (excerpts above), it's about 70 pages but you should gain a much clearer idea of PGH's risks that way.

Without reading it, and off the top of my head, risks probably include
1) Income is linked to energy prices.
2) Dividends are linked to canadian dollar.
3) Energy prices are inversely coorelated to the U.S. dollar.
4) Dividends are affected by canadian & U.S. tax policies.
5) Energy trusts in general have risks of depletion, wells running dry and reducing dividends because of it.

My guess that 15% dividend is saying the market expects the net dividend to decline substantially, either due to tax changes, company structure changes, depletion, energy prices, or all three. If so, the stock will probably decline along with the dividend, at least at first.

[spex x]

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What other forms of hard money lending are there that are secured by collateral? The Trust Deeds I do generally involve land development, commercial land improvements, or personal mortgage swing loans.


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Oh jeez, when you said that you were working in trust deeds, I assumed you were buying discounted paper. I guess that explains the relatively (IMO) lower yield.

One way to expand your trust deed business is to buy discounted paper. Usually you need to find seller-carried notes and buy the cash flow for a reasonable discount. Basically the note holder will sell the note to you at a discount off the face value of the note. So if I sold a property and had a note for $50k paying 8%, $605/month for 120 months, I could sell that note to you for $38,000 cash. Your yield on $50,000 would be 14% in that case. I've found it to be pretty common to get about a 12-14% return on decent discounted paper.

Now, another thing that you could do is hard money lending. HMLs are generally used by people that want to acquire a property, add significant value to that property in a short period, then resell or refinance. Mostly HMLs are used by flippers, but not always. HMLs generally charge between 10-14%+ and up to 5 points up front for invested funds. 4 points and 12% is pretty standard in my experience. Generally the borrower makes no payments during rehab.

Normally HMLs will lend only 65 or 70% of the after repair value of a property. so that is pretty safe, IMO.

[SuperWhale]

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oxymoron by definition

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QFT

Also notice OP's name is "Stuck in PGH" and he mentions PGH stock . . .