Borrowing against graded cards

Rhotchkiss · #1 01-28-2019, 07:02 PM

This is PWCC’s intended model, and personally, I think it’s brilliant theoretically but fails in reality. Some have expressed concern over licenses, interstate activity, usury laws, etc. Thats a huge deal. But assuming the legal stuff is worked out, I think it’s a great business at its core - you are fully secured (collateral will not likely drop 50% in value), you are physically holding the collateral, and you can liquidate with ease considering you have a large auction house. Borrow from investors at 5-6%, lend at 8%+ and keep the spread. The only question (aside from legal) is whether there is enough volume to make going into this lending business worthwhile - 200bps on $1mm is only $20k, and I would think one would have/want to clear $500k/year to make this business worthwhile, and the lender would need to generate $25mm of loans to gross $500k (of course, these economic terms are purely hypothetical). However, I do believe neither the investors nor the volume will be there.

First, Assuming we are using accredited investors (which we must), i doubt investors would be content with anything less than 6%, and many would require more, especially with no tax shelter on the income (e.g., depreciation, pass through expenses, etc). Second, I don’t know that you could drum up the lending volume to make it worthwhile, unless you are dealing in tons of lower-value cards, which is like death by paper cut. I imagine that (unless cards have been owned for many years), collectors owning high-value cards would not borrow at 8%; if borrowing was necessary, they would more likely resort to lower-interest, tax deductible HELOCs or business loans. Thus, I imagine most of your borrowers would be lower net worth individuals, borrowing against 3 and 4-figure cards; and remember that 50% on $1000 is only a $500 loan, at 8%, is only $40/year in interest, which means you need to make 12,500 of these loans to gross $500k in interest (you still owe your investors their 6%)- death by paper cut.

Great idea in theory. However, I have my doubts that it works in real life, due mostly to a lack of volume. If it did, I’d be an investor.

sphere and ash · #2 01-28-2019, 07:04 PM

Quote:

Originally Posted by Rhotchkiss

This is PWCC�s intended model, and personally, I think it�s brilliant theoretically but fails in reality. Some have expressed concern over licenses, interstate activity, usury laws, etc. Thats a huge deal. But assuming the legal stuff is worked out, I think it�s a great business at its core - you are fully secured (collateral will not likely drop 50% in value), you are physically holding the collateral, and you can liquidate with ease considering you have a large auction house. Borrow from investors at 5-6%, lend at 8%+ and keep the spread. The only question (aside from legal) is whether there is enough volume to make going into this lending business worthwhile - 200bps on $1mm is only $20k, and I would think one would have/want to clear $500k/year to make this business worthwhile, and the lender would need to generate $25mm of loans to gross $500k (of course, these economic terms are purely hypothetical). However, I do believe neither the investors nor the volume will be there.

First, Assuming we are using accredited investors (which we must), i doubt investors would be content with anything less than 6%, and many would require more, especially with no tax shelter on the income (e.g., depreciation, pass through expenses, etc). Second, I don�t know that you could drum up the lending volume to make it worthwhile, unless you are dealing in tons of lower-value cards, which is like death by paper cut. I imagine that (unless cards have been owned for many years), collectors owning high-value cards would not borrow at 8%; if borrowing was necessary, they would more likely resort to lower-interest, tax deductible HELOCs or business loans. Thus, I imagine most of your borrowers would be lower net worth individuals, borrowing against 3 and 4-figure cards; and remember that 50% on $1000 is only a $500 loan, at 8%, is only $40/year in interest, which means you need to make 12,500 of these loans to gross $500k in interest - death by paper cut.

Great idea in theory. However, I have my doubts that it works in real life, due mostly to a lack of volume. If it did, I�d be an investor.

I�m with you.

Peter_Spaeth · #3 01-28-2019, 07:09 PM

Quote:

Originally Posted by Rhotchkiss

This is PWCC�s intended model, and personally, I think it�s brilliant theoretically but fails in reality. Some have expressed concern over licenses, interstate activity, usury laws, etc. Thats a huge deal. But assuming the legal stuff is worked out, I think it�s a great business at its core - you are fully secured (collateral will not likely drop 50% in value), you are physically holding the collateral, and you can liquidate with ease considering you have a large auction house. Borrow from investors at 5-6%, lend at 8%+ and keep the spread. The only question (aside from legal) is whether there is enough volume to make going into this lending business worthwhile - 200bps on $1mm is only $20k, and I would think one would have/want to clear $500k/year to make this business worthwhile, and the lender would need to generate $25mm of loans to gross $500k (of course, these economic terms are purely hypothetical). However, I do believe neither the investors nor the volume will be there.

First, Assuming we are using accredited investors (which we must), i doubt investors would be content with anything less than 6%, and many would require more, especially with no tax shelter on the income (e.g., depreciation, pass through expenses, etc). Second, I don�t know that you could drum up the lending volume to make it worthwhile, unless you are dealing in tons of lower-value cards, which is like death by paper cut. I imagine that (unless cards have been owned for many years), collectors owning high-value cards would not borrow at 8%; if borrowing was necessary, they would more likely resort to lower-interest, tax deductible HELOCs or business loans. Thus, I imagine most of your borrowers would be lower net worth individuals, borrowing against 3 and 4-figure cards; and remember that 50% on $1000 is only a $500 loan, at 8%, is only $40/year in interest, which means you need to make 12,500 of these loans to gross $500k in interest - death by paper cut.

Great idea in theory. However, I have my doubts that it works in real life, due mostly to a lack of volume. If it did, I�d be an investor.

Maybe not enough to change the math, but some percentage of borrowers are going to default, no?

Rhotchkiss · #4 01-28-2019, 07:14 PM

Sure Peter, there will be defaults, but in PWCC�s case it�s no big deal and could actually be a windfall - they hold the collateral, which is only leveraged at 50%, and they have the vehicle to immediately monetize the collateral (their auction) and make up the debt l, plus costs. And here is the best part - they make 8%-12% of the sale at their auction (�cost�). So a default could actually be good for the �lender� not bad...

I really like the post by the guy in the securities market - I never considered the market effect of defaults, calling of loans, etc. It could rock the industry, but that�s a whole different matter (but one well worth considering as well)

Peter_Spaeth · #5 01-28-2019, 07:45 PM

Quote:

Originally Posted by Rhotchkiss

Sure Peter, there will be defaults, but in PWCC’s case it’s no big deal and could actually be a windfall - they hold the collateral, which is only leveraged at 50%, and they have the vehicle to immediately monetize the collateral (their auction) and make up the debt l, plus costs. And here is the best part - they make 8%-12% of the sale at their auction (“cost”). So a default could actually be good for the “lender” not bad...

I really like the post by the guy in the securities market - I never considered the market effect of defaults, calling of loans, etc. It could rock the industry, but that’s a whole different matter (but one well worth considering as well)

That was my point, albeit not stated very well, you are understating the math from PWCC's point of view a little. They don't have to do quite as much volume as you say because they profit on some collateral.

vthobby · #6 01-28-2019, 07:53 PM

"The Vault" is not just for leveraging capital. I have no intention of getting a loan off the value of my submissions.

My interest is solely a VERY secure Compound that is FULLY insured with instant access to my digital collection online 24/7. I will have the ability to click a button and list any of my items with PWCC or lets say I sell one of my cards to someone on here......I simply click a button, enter the address, and PWCC ships the card for me. Think COMC only HIGH end.

It is with a company that I have dealt with for 4 years now and NEVER had an issue. EVER!

My plan is to send them a sampling of cards to test the Vault out this summer and if I like the process then I will send more cards. I am embarrassed to tell you that my collection is NOT insured but it is in safety deposit boxes. Even these though are not infallible and I constantly worry about water breaks at the bank, theft, or fire. PWCC will FULLY insure my cards. Of course I will pay a fee for this but why not? it is a valuable service as far as I can tell. Only time will tell but I am excited to send them some goodies.

Just my humble opinion.

Peace, Mike

Peter_Spaeth · #7 01-28-2019, 07:56 PM

Man, why collect at all if you will never see the cards? Or are you a pure investor? Pre-War Safe Deposit Box, a division of PWCC. Whatever works, just hard for me to fathom.

vthobby · #8 01-28-2019, 08:26 PM

Quote:

Originally Posted by Peter_Spaeth

Man, why collect at all if you will never see the cards? Or are you a pure investor? Pre-War Safe Deposit Box, a division of PWCC. Whatever works, just hard for me to fathom.

If you knew how many times I go to my local safety deposit boxes to look at my cards, I would blush. Are you serious? I have collected since 1976. It is in my blood. If I lost my cards in my home to theft, fire, water, I'd be devastated.

The fact that they are in safety deposit boxes is due to my fear of keeping them "viewable". It is unfortunate but when a card or collectible reaches a certain value then I think it needs some type of protection.

I have thousands of collectibles in my reach that are not considered valuable enough to lose.

We all collect because we LOVE it I hope. Once things get valuable there is an obvious choice we all need to make. Keep it under the bed or get it to a bank or get it to the Vault (in the future). I'm not happy that I can't view my cards every day but I am at peace knowing where they are for viewing once a week!

Peace, Mike

PS And in 6 months, I'll be at peace knowing that some of my cards will be in the Vault out west and INSURED and viewable 24/7 on my computer. I like to diversify. I will not send all mty cards there but I love the notion.

Rhotchkiss · #9 01-28-2019, 08:01 PM

Peter, gotcha. I dig. I still think the lending business, even with the chance to make money off sales of defaults, is too thin to be a succes as a stand-alone business.

Mike, I make no comment either way on the vault. Seems like a good enough place to store and display cards as any; although I like having mine close and taking them out and looking at them. Perhaps the lending is just a concomitant to the vault, and is all part of an integrated platform.

End of the day, Brent has done one heck of a job with pwcc. It’s hard to bet against that success (although I am dubious about the lending biz, as a stand-alone enterprise).

Peter_Spaeth · #10 01-28-2019, 08:09 PM

Quote:

Originally Posted by Rhotchkiss

Peter, gotcha. I dig. I still think the lending business, even with the chance to make money off sales of defaults, is too thin to be a succes as a stand-alone business.

Mike, I make no comment either way on the vault. Seems like a good enough place to store and display cards as any; although I like having mine close and taking them out and looking at them. Perhaps the lending is just a concomitant to the vault, and is all part of an integrated platform.

End of the day, Brent has done one heck of a job with pwcc. It’s hard to bet against that success (although I am dubious about the lending biz, as a stand-alone enterprise).

Why is "the Vault" any more secure than a bank? Is it in some bunker ten feet deep under Oregon with ten levels of security clearance?

Dpeck100 · #11 01-28-2019, 08:04 PM

Not sure if this item will post with how much more complicated it has become to post EBAY links so the item number is 401648000866.

https://www.ebay.com/itm/1986-Fleer-...p2047675.l2557

This PSA 9 Jordan went for $6,800 with the PWCC PQ sticker on it. What makes this situation even more difficult is how do you determine the value of the card that is being used as collateral. The range on EBAY for the Jordan PSA 9 is $3,350 all the way up to the one I posted above at $6,800. From peak to trough that is a 50.7% decline and from the bottom to the top a 103% increase just in the same grade. With so much focus on eye appeal these days and cards selling for such a variance in the same grade and in some cases more in lower grades how do you reasonably value the collateral? A bank would probably use the low number as they would want the risk to be as little as possible. How do you tell the guy that just ponied up over two times the lowest price for the PWCC PQ that he can only get $1,675 of margin or 24.6% of his purchase price and keep him happy? There are so many fake sales on EBAY so how do you determine what is real or fake? Just the other day a card was posted on CU of an Aaron Judge Heritage red auto that sold for nearly three times the prior sale and from a very questionable dealer. There is so much room for fraud and mismanagement with this issue. Think back to when the Mantle 8 went for $660,000 and then a sale at the all star game went for $282,000. Does this trigger a margin call with a decline of 57.2%? This is a situation that really needs a lot of thought and caution.

bnorth · #12 01-28-2019, 07:15 PM

Quote:

Originally Posted by Peter_Spaeth

Maybe not enough to change the math, but some percentage of borrowers are going to default, no?

You also have to figure that most "lenders" would charge whatever the max interest rate is in their state. Then the added fees associated with the "paper work" to make up for the low interest rates. I would think most places would operate like the pay day loan companies to maximize profits.

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