The U-Haul Investors Club is a peer to business lending program that allows non-accredited investors the opportunity to invest in small dollar notes secured by assets, called U-Notes, for a fixed period in exchange for quarterly interest payments. The program has been around for many years and has attracted more than $138 million in investment so far.
The program is relatively unique in that is it not a peer to peer lending program, the loans are secured (i.e. asset-backed) and it is available to non-accredited investors. Is this program right for you? Read on to find out.
The program lists available loans, typically between four and six different types of loans, every six days. Loans vary by number of years and the rate of interest, with higher interest rates associated to longer term loans. Loans are backed by actual collateral and it is very clear on what collateral is being offered to back the loan. Investors, who pay no fees to join or invest in the program, can invest in any or all of the available loans by purchasing individual U-Notes for as little as $100.
Below is an example of the loans offered at the time this article was published:
A nice feature is the view payment schedule link next to each available investment. This link opens a calculator that tells the investor, given an investment amount, how much he or she will receive in interest and principle for each quarter until the loan matures. It’s important to point out the payment schedule is not like how most bonds or notes work. First, payments are made quarterly as opposed to annually or semi-annually. Second, a portion of the loan principle is paid back each quarter in addition to the interest rate. Most bonds and notes pay back the principle only at the end of maturity. There are advantages and disadvantages to this type of payment schedule but I find it much better and less risky than how a traditional bond or note works.
No fees – Club members do not pay any fees at all to join or participate in the program.
Loans are secured – Loans in the program are all backed by real assets. In the event of a default the asset backing the loan would be given up and sold to repay any outstanding loan amount.
Regular principle payments – The fact that a portion of the principle is received each quarter significantly reduces risk in this investment type. Compared to a traditional bond, the repayment risk is much less since you are receiving quarterly principle payments in addition to the interest payments.
Consistent cash flow – Payments are made quarterly which is more frequent than traditional bonds. An investor could time their U-Note purchases to receive payments each month if desired.
Decent interest rates – I find the interest rates offered on the loans to be very reasonable considering the loans are secured. Some might find them too low but I find them to be just right given the current environment.
No liquidity – There is no secondary market for existing U-Notes and thus no liquidity. Although the sale of a U-Note is permitted it would be extremely difficult to find a buyer and negotiate a transaction. Whereas the lack of liquidity is less of a concern with a short term U-Note, liquidity becomes a serious concern for U-Notes lasting 25 or even 30 years.
No FDIC or SIPC insurance – Like most bonds there is no insurance or protection of loss of capital in the event the company went bankrupt besides the asset backing the capital. I find this risk to be relatively low since the loans are secured by assets.
Some assets appear to have little value – Loans backed by furntiture pads and dollies might have very little value if the loan were to ever default. Granted these assets are generally associated to shorter term U-Notes.
As with any investment make sure you read the prospectus. I read it over and found the following which I thought important to point out. However, I highly encourage you to do your own due diligence.
Each loan is secured debt for U-Haul’s parent company, Amerco, not necessarily U-Haul. I see this as a good thing since Amerco’s financial position is in good standing.
Whereas loans are indeed backed by the assets listed in the terms, the fine print says Amerco can swap the collateral as many times as desired and to any asset desired, as long as the value of the original asset and the swapped asset are similar. To illustrate, an investor could purchase a U-Note backed by a U-Haul building in Michigan. Americo could at any time change the collateral from the U-Haul building to U-Haul trailers, as long as the value of the trailers was equal to or higher than the value of the building.
Overall, I highly recommend the U-Haul Investors Club as the benefits currently outweigh the risks. I particularly like the fact that principle and interest is paid out quarterly and that Amerco is backing the debt since the company’s financial position is very strong. However, the program will have to increase its interest rates to stay competitive of the general market in the face of rising interest rates. So far, the interest rates paid on the U-Notes have not increased since the Federal Reserve started hiking the benchmark rate from 0.25% - 0.5% to 2.25% - 2.5%. With CDs and 2-year treasuries yielding a little less than 3% the program may not be competitive if rates continue to go up in the future.