PeerStreet offers accredited investors the opportunity to use the power of crowdfunding to invest in real estate loans. Much like a peer-to-peer lending platform, PeerStreet provides access to loans backed by real estate assets.
PeerStreet, launched in 2014, has funded over 8,800 loans worth more than $4 billion since their inception.
As of February 2020, PeerStreet had paid out $2.2 billion in principal and $175 million in interest to investors.
PeerStreet is the first two-sided marketplace that allows investors to make money on real estate debt. Loans are sourced from a network of private brokers and lenders. The platform also services, manages, and aggregates loans for investors.
What is PeerStreet?
PeerStreet facilitates crowdfunding that connects borrowers who want short-term real estate loans with lenders. The lenders here are investors that pool their money to lend in the hopes of receiving their principal plus interest back in the future.
PeerStreet allows investors to generate truly passive income in the real estate space while protecting principal investments by linking them to tangible property. There are risks associated with equity investments and debt that are also present with unsecured loans. For many investors, real estate that secures a loan provides an additional measure of security.
With PeerStreet, borrowers are professional investors who purchase a property, fix it, and sell it quickly at a higher price. These real estate equity investors agree that if they fail to meet the terms of the agreement, the loan may default, and PeerStreet can seek legal remedies to protect the investor’s stake in the deal. Investors have a first-lien position, which means they are first to get paid back if the borrower defaults.
At the close of 2020, PeerStreet paid off 96.32% of its loans without foreclosure.
According to their FAQ page regarding investor returns, PeerStreet’s high quality, moderate LTV, short-term loans have provided investors with annual returns ranging from 6 – 9%, depending on a number of asset characteristics.
PeerStreet Returns VS Competitors
Keep in mind, these online platforms primarily provide passive real estate investment products.
|2014||12.25%||NR||NR||6 – 9%|
|2015||12.42%||NR||NR||6 – 9%|
|2016||8.75%||NR||NR||6 – 9%|
|2017||11.44%||NR||18%||6 – 9%|
|2018||9.11%||NR||17.3%||6 – 9%|
|2019||9.47%||NR||NR||6 – 9%|
|2020||7.42%||17.7%||NR||6 – 9%|
Not all investment platforms are alike and many don’t require you to be an accredited investor. You can compare each option in depth in our rundown of the best online real estate investment platforms.
PeerStreet Pros and Cons
✅ PeerStreet Pros:
- 📊 Numerous investment choices: Each day, new investments are posted to PeerStreet around noon Pacific time. Over the years, the company has increased the number of new investments featured daily.
- 🤖 Automated investing: PeerStreet investors can set up their investment criteria allowing PeerStreet to automatically allocate any invested capital into loans that line up with those preferences. Up to 24 hours before any automated investment goes live, the investors can opt out of the investment.
- 📖 Transparency: PeerStreet is transparent about its fees and the loan portfolio’s performance.
- 💲 Earn interest on uninvested funds: PeerStreet Pocket allows investors to earn interest on the cash in their account while deciding what investment to choose next.
- 🏡 Positive impact on communities: The Evolving Neighborhood Uplift Fund supports entrepreneurs who want to improve real estate and are from underserved communities.
- 📈 Track Record: PeerStreet has a good track record of performance including a high success rate when it needs to recoup capital from defaulted loans.
❌ PeerStreet Cons:
- 💰 Accredited investors: PeerStreet requires all investors to be accredited, which excludes the majority of people who may want to invest in real estate.
- 💰 High minimum investment amount for more potentially stable and lucrative investment options: Accredited investors must provide a minimum $100,000 investment to get the advantages of the diversified fund.
- 💰 Debt investment only: PeerStreet only provides debt investments, which may work well for investors that want a steady income but aren’t so concerned about growing the principal. This platform does not provide equity crowdfunding deals.
How Does Investing With PeerStreet Work?
PeerStreet provides more transparency and flexibility than many other real estate investment options. Here’s what to expect:
Loans are short-term and span six to 24 months. When you open a PeerStreet account, you can set criteria to help investments meet your diversification preferences. Choose maturity dates, investment risk, property type, and geographic location.
Investors can automate settings, so if the loan that meets pre-set requirements isn’t yet available, they’ll be placed on a waiting list. When the loan is available, investors on the list can have their funds automatically invested when the balance in their cash account is at least $1,000.
Choose from a self-directed IRA or taxable account. A self-directed IRA acts as a retirement account, and investors can transfer funds from any other compatible retirement account to fund the PeerStreet investment account. Taxable accounts are also available.
PeerStreet recently integrated with Wealthfront and Betterment so investors can see all of their investments in one location to easily view their asset mix.
All PeerStreet accounts are FDIC insured up to $250,000.
If a loan defaults, PeerStreet works for the investors to maximize return on the investment. The platform also ensures that if it goes out of business, a third party will take over to manage any remaining loan investments.
What You Should Know About PeerStreet Before Investing
PeerStreet sources investments from a network of private lenders who each handle vetting and due diligence. Loans are listed on the PeerStreet platform, and investors can choose to fund those loans. Investors with PeerStreet act as mortgage lenders, while PeerStreet handles the financials and performs all independent underwriting and valuation of loans.
Loans on the PeerStreet platform generally have a loan-to-value (LTV) ratio of 75% or lower and are secured by first liens on the associated real estate. A first lien gives PeerStreet investors senior claim on the real estate that secures their investments. So, if the borrower defaults, PeerStreet investors have a better chance of recouping their funds.
Unlike more traditional real estate loans, PeerStreet real estate investments are short-term. Expect to see bridge loans of six to 24 months. Many loans on the PeerStreet platform are hard money loans for real estate that will undergo a fix-and-flip by experienced real estate professionals.
At this time, PeerStreet investments are only open to accredited investors, per SEC regulations. This may change in the future, but as of right now, unless you can prove your status as an accredited investor, you must look elsewhere for real estate investment opportunities.
The minimum investment on the PeerStreet platform is $1,000 for an initial investment plus $100 for reinvestments, so it’s possible to get started with only a small amount of money.
How To Sell PeerStreet Investments
PeerStreet loans are illiquid, so there’s no quick and easy way to get cash out once the investment has closed. There’s no secondary marketplace for loans, so investors can’t usually get a hold of their money during the loan term.
However, while many crowdfunding platforms target a four to ten-year timeframe, PeerStreet loans are typically just six to 24 months long.
PeerStreet vs. REITs
While both real estate investment trusts (REITs) and PeerStreet investments allow investors to lean on real estate professionals for due diligence, some REITs are less diverse.
With PeerStreet, investors can customize a portfolio that matches their diversity goals by choosing properties across many geographical areas. Investors can choose loans with different targeted return rates, LTVs, terms, and lenders, as well.
In general, PeerStreet is more flexible and transparent than many REITs. Investors can select individual loans from carefully vetted opportunities. Information about each property, loan maturities, and other details of the loan are readily available to help investors choose a loan that may help them reach their financial goals.
REITs have received some negative press about high visible and hidden fees. PeerStreet’s fee structure is designed to allow investors to capture higher investment yields than they may experience with many REITs. To date, PeerStreet has zero losses due to their quick action where late payments and defaults are concerned.
Many PeerStreet investors prefer the platform over REITs. While REITs can be lucrative, they are often less efficient than PeerStreet, which means fees may eat into investors’ returns.
PeerStreet makes money by charging service fees on individual loans of 0.25% to 1.00%. Investors don’t pay fees directly. PeerStreet may offer a loan to a real estate developer for a project with an 8% interest rate. Investors may get 7.5% interest if they choose to participate. PeerStreet keeps 0.05% to cover their fees.
PeerStreet also charges loan origination fees but most of their revenue comes from servicing fees.
Is PeerStreet Risky?
Of course, there is a level of risk associated with any investment, and a borrower with PeerStreet occasionally fails to make on-time payments or defaults on the loan. Fortunately, PeerStreet investments are backed by underlying real estate. When a default occurs, PeerStreet pursues legal remedies on behalf of its investors.
PeerStreet handles the recovery of outstanding defaulted loans. The company has regulatory experts on staff to help enforce legal remedies. They work to make sure that investors don’t lose capital. While the process may take time, PeerStreet has a track record of helping borrowers avoid default with the intent of minimizing the negative impact on investors. More than 95% of loans through PeerStreet have avoided foreclosure and have paid off.
PeerStreet investors typically earn returns close to expectations. With a solid track record of good performance, PeerStreet may be a good choice for accredited investors who want to diversify while creating passive income secured by real estate.
PeerStreet Customer Reviews
While customer reviews generally help new investors decide whether a platform may be a good fit that ultimately generates good returns, few reviews are available about PeerStreet. Trustpilot shows zero reviews, the BBB has a thin file on the company, and Reddit investors are outspoken, but there’s no real volume of information there, either.
The lack of reviews could be due to the high bar that platforms catering to only institutional investors set. Since the general public can’t use PeerStreet, there are fewer investors who are able to give a first-hand account of their experiences.
PeerStreet on the BBB Website
PeerStreet Investment, Inc has only six customer reviews on the Better Business Bureau (BBB) website with an average one out of five star rating. The BBB file was opened January 22, 2018 and says that PeerStreet is not accredited by the BBB.
The BBB indicates that PeerStreet’s headquarters are in El Segundo, California.
PeerStreet on Reddit
Investors who participate in Reddit are not generally fans of PeerStreet, but seem to think that it’s important to understand the risks associated with real estate investing before you decide whether to participate in the platform.
“It’s a pretty terrible platform. I luckily dabbled with only enough for one loan at a time. The first two were fast and paid off well ahead of time.
My current loan, established in 2019, has not been paid for 21 months and they are finally just now getting around to some type of “discounted” resolution according to their truly ambiguous cut and past updates. For example, they have now engaged in a foreclosure attempt 3 times (2019, 2020, and now 2021), recorded 3 notices of sale, and each time simply said “the process is very complicated” when I have emailed customer service for clarity. Apparently they will now only do meaningful updates, but it’s now been two weeks since the discounted offer went to their legal desk with nothing further. At this point I expect a substantial tax write-off of the original amount.”
-Mustang_over20, October, 2021
“It was only within the last year that I had any single investment default, foreclose, AND I lost money. But that’s bound to happen sometimes. In all other cases, due to favorable LTV that held or improved over time, I’ve always recovered my principal in addition to at least some interest.
The key, as with any investing, is to diversify. At any one time I have 10-15 active investments on PeerStreet, so that 1 which went into default and resulted in a foreclosure sale that recouped less than the original loan amount was but a minor blip in an otherwise well-performing portfolio.”
-bleedsixcolors, August, 2021
Is PeerStreet Worth it?
PeerStreet won’t work for investors until they are accredited, which automatically excludes most everyday investors. The platform specializes in unique real estate loans. While PeerStreet may be a good fit for high asset investors with tolerance for risk, it takes a great deal of knowledge about this type of real estate lending to confidently participate in the deals offered by PeerStreet.
Even advanced investors may find that the lack of liquidity may be an issue with PeerStreet investments. Although the term of many loans on the platform is fewer than 24 months, there’s not an easy way to get a hold of money wrapped up in a PeerStreet loan before the loan reaches maturity.
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