Every equity deal I like has a five year lockup. I might need the money in two.

On the collateral question, first position on a half finished renovation is worth whatever someone will pay for a half finished house minus the cost of finishing it and minus the legal cost of getting there. In some states that process takes a couple of months and in others it can run past a year, and the timeline differs by state, so ask the platform which state the collateral is in and what their average resolution time has been on defaulted loans there.

Ask for their default history too. Number of loans originated, number that went past maturity, number that went to foreclosure, and recovery as a percentage of principal on those. A platform that's been through a full cycle will have those numbers. One that won't share them is telling you they'd rather you didn't see them.

Staggering maturities is sensible. Just remember a borrower extension means your ladder isn't a ladder.

Wait, the borrower gets to decide to extend? I assumed extensions had to be agreed by whoever lent the money. That seems backwards.

@rigging, extension options are negotiated in the loan documents before investors ever see the offering. If the option belongs to the borrower, they can exercise it on the stated conditions, usually a fee and being current on payments, and the lender's consent isn't required. That's a term you check per deal, and it's often in the loan summary rather than the marketing page.

@lantern, the trade you're making on the debt side is straightforward. You take a fixed coupon and give up the upside, and in exchange you sit ahead of the equity in the payment order and you have collateral. What you don't get is a guaranteed return of principal. First lien position determines where you stand in line, and what you actually recover depends on the value of the collateral at the time of default and how long enforcement takes in that state.

The assumption to test is your 40% probability of needing the money. If that's real, a 24 month stated term with a borrower extension option isn't a two year instrument, it's potentially a three year one, and a default makes it longer still. Underwrite the worst case timeline, not the stated one.

On the coupon, 9 to 11% on short term construction lending is compensation for construction risk. Ask what percentage of the renovation budget is already funded into escrow, what the loan to as-completed value is, and whether draws are inspected before release. Unfunded future draws with no inspection process is how a first lien on a project turns into a first lien on a demolished kitchen. Get the answers in writing from the platform.

I went through this same thinking last year and ended up splitting it. Half in a savings account, half into short term debt deals, on the logic that if the equipment need shows up I can cover a chunk immediately and stretch on the rest.

It wasn't elegant, but it stopped me from making the choice on a coin flip. The 40% number is doing a lot of work in your post and I'd try to firm it up before you allocate anything. Is there a date the equipment decision gets made?

Five years into running a service business, and let me say something about that 40%. Equipment needs don't arrive on schedule, they arrive when something breaks or when a job comes in that you can't take without the machine. Both of those are unpredictable and both are urgent.

I'd keep the money liquid and put a smaller number to work, maybe 5k, so you learn the mechanics without the timeline pressure. The lesson costs the same at 5k as at 15k.

Also, @cairn's point about default history is the single best question in this thread. I've asked it of two platforms. One sent a spreadsheet. The other sent a paragraph of marketing and I closed the tab.