The internet has revolutionized what we can invest in and how we can invest our money. These days it’s actually easier to make a list of things you can’t invest in, rather than those you can. There are now hundreds if not thousands of investment platforms popping up all over the internet. The internet has democratized and demonetized the barriers to investment, at least those that were once only open to the rich or institutional investors.
Just as I am writing this post from the comfort of my home so to can you invest across any asset class imaginable. Unfortunately, there are still some investments that require you to be an accredited investor, like Wunder Capital, the investment platform I am going to review today.
Wunder Capital is an investment platform that connects accredited investors with commercial solar energy projects that need funding through their three main investment funds; (1) Wunder Capital 5, (2) Wunder Term Fund (no longer available), and (3) Wunder Income Fund.
The Securities and Exchange Commission defines an accredited investor as someone with:
- An income of $200,000 in each of the past two years (or $300,000 with a spouse) and a reasonable expectation of the same level of income or greater in the current year; or
- A net worth of at least $1 million, excluding the value of their primary residence.
Don’t be bummed out so quickly if you don’t meet this requirement now because Wunder Capital is working diligently to take investments from non-accredited investors, which could happen in early 2018. There are more regulatory hurdles and expense associated with doing this, which is why it’s taking a bit longer. And while you wait for that to happen, you can still look into investing in Solar for your own residence, like I did back in 2015 for a projected 23% IRR.
How Does It Work?
Wunder Capital has created an investment platform to provide financing for commercial solar projects. From a financing perspective, it’s my understanding that this is a segment of the market that is lagging, due to the lack of financing options. The company has partnered with more than 100 commercial solar developers and installers in 27 states to provide the financing that these companies have had trouble providing their customers through commercial banks.
The loans are funded through the following investment funds:
Wunder Capital develops and manages solar investment funds by leveraging its national partnership network, tested processes, proprietary underwriting framework, and best-in-class online investment portal.
Wunder actively manages everything:
- The sourcing of commercial solar opportunities
- The construction of each project.
Once a system is live, Wunder manages the ongoing operation and maintenance of the array, bills the energy customer, and distributes proceeds to investors.
We have also developed proprietary software and automation measures that allow us to complete financings in days instead of the industry-standard weeks. This gives us the edge when competing with other financiers for great projects, and it ensures that our underwriting process is efficient, effective, and consistent. From electronic signatures and digital document handling, to automating data collection for potential investment opportunities, to electronic billing and distribution, Wunder’s veteran engineering team is pulling cost and time out of the solar financing equation. Not only does this allow Wunder to finance solar projects more quickly and efficiently, but also more accurately, as our software-enabled approach allows us to collect vastly more project data than a manual process would.
Currently, to gain access to these investments you must first pass the accredited investor requirement, but then you can invest as small as $1,000 to test the waters.
The Nuts & Bolts
- Must be an accredited investor (for now…)
- The investment term ranges from 60-120 months
- The projected returns are 6% to 7.5% (not guaranteed)
- Distributions are made monthly
- The minimum investment is $1,000
- Loans are backed by the Solar Assets
- There is currently no secondary market and thus no liquidity if you had to exit early
- There is a service fee built into the loan at origination, but Wunder does not disclose what that fee is
- Non-correlated to stock market
This is not an exhaustive list, but it covers the 3 most important questions, at least to me.
What if Wunder goes out of business?
I have noticed that most of these platforms have a backup plan in place that would just hands over the portfolio for debt servicing and fund management. Below is directly from the FAQ section of Wunder’s website:
If the Wunder Company were to shut down during the term of your investment, responsibility for administration of the fund would be handed over to a firm specializing in debt service and fund management. An industry-standard services fee is built into each of the loans that the fund issues, and this fee exists specifically to cover the costs associated with the ongoing administration of the fund. This services fee is currently paid to a subsidiary of the Wunder Company, but per the fund’s Operating Agreement, this fee would be re-allocated to a new servicer if that were to become necessary.
What if a borrower defaults?
Another answer pulled directly from the FAQ section:
Our underwriting process includes extensive due diligence of loan customers to mitigate default risk. However, in the event that a borrower misses a payment, our in-house team will contact the customer to resolve the issue. If the issue persists, we will work with a collection agency to recoup the credit and, if necessary, charge-off the loan to a debt buyer. Should a customer become insolvent and vacate the property, in certain cases the Fund may be able to recoup revenue by selling electricity to subsequent occupants.
What are the tax implications?
Investment returns will typically be taxed as ordinary income. There is an option to invest through a Self-Directed IRA.
I think this is an investment worthy of consideration in a diversified portfolio. It’s not often that you get to make money while also doing something that is good for the environment. Although solar has experienced incredible growth over the past decade, I believe it is still in the first inning. The technology not only continues to improve, but the cost has dropped dramatically. This trend is only likely to continue into the future.
I actually think the risks are minimal, although I would be doing you a disservice if I said there was no risk. All investments come with risk and only you can access the risk you can stomach in your own portfolio. The way I look at this is that commercial businesses need energy and one of the main incentives for going solar is to reduce your energy costs, while simultaneously locking in fixed rates.
Should the borrower go out of business, the next tenant would likely be willing to buy energy at a reduced rate vs. what the electric company is offering, why wouldn’t they. It’s like offering someone the identical product for two different prices. Assume I am in the market for an iPhone 8, and I am being offered the same exact (brand new, never used) phone for $600 or $400, which option do you think I am going to choose? Exactly, the $400 option all day long.
For more information on this investment opportunity please check out the Wunder Capital website.
– Gen Y Finance Guy