Real estate investing is a lucrative way to earn extra income. But for the average investor, this type of investing is largely out of the realm of possibility.
You need significant upfront cash or the ability to qualify for real estate loans. That’s why real estate investments are mostly opportunities for high-net-worth individuals.
Real estate crowdfunding platforms like PeerStreet have made real estate investing more possible. So, in this PeerStreet review, we’ll dig into this investment platform so you can make the final call on whether it’s the right fit for you.
Ready to learn more? Let’s get started with this in-depth PeerStreet review!
What is PeerStreet?
The real estate crowdfunding platform, PeerStreet allows investors to pool their money to get a real estate loan. People tend to like crowdfunding with peer-to-peer lending.
However, PeerStreet doesn’t directly lend to borrowers. It acts as a secondary market for real estate loans. PeerStreet buys these loans from private lenders when the deal has already been made.
The majority of the loan on PeerStreet is for commercial real estate improvements or development loans.
Real estate loans on PeerStreet typically mature in one year. The portfolio of loans on PeerStreet has generated a return of between 7-12% annually. This amount is after the investment fees, which are up to 1%.
PeerStreet Company History
PeerStreet was launched in 2014. Over 8,800 real estate loans have been funded since its inception. That’s over $4 billion on its marketplace.
Over $175 million in interest payments and $2.2. billion in principal have been paid to PeerStreet investors through February 2020.
All the investments on PeerStreet’s platform are backed by a First Lien position. What that means is that real estate projects that can’t be completed will become a Peerstreet asset.
The company will liquidate these real estate assets to pay back some of the money to investors. It is unclear how much an investor loses when a loan defaults. At least this allows some protection to investors for these debt investments.
Brew Johnson, Brett Crosby, and Alex Perelman are the co-founders of PeerStreet. They all remain in the company in executive roles (CEO, COO, and CTO positions).
Johnson witnessed some of the problems that happened due to the 2008 mortgage crisis. His aim was two create transparency in the market.
Employees of PeerStreet receive restricted stock units in the company that is vested over time. This means that employees build ownership in the company and will share in its success.
PeerStreet Real Estate Investing
It’s important to understand that investing on PeerStreet’s platform is different from a real estate investment trust (REIT). PeerStreet investors get to decide the loans they wish to invest in.
With REITs, your investment is a percentage interest of the overall real estate portfolio that the trust holds. PeerStreet gives investors more flexibility and transparency in this way.
There are many different portfolios of real estate loans that you can choose from. PeerStreet loans are constructed based on geographic locations, loan maturity dates, property types, and other factors.
PeerStreet also claims to have less expensive fee structures than what’s found with a traditional REIT. Your servicing fee is between 0.25% and 1.00% for each loan on the platform you invest in.
How does PeerStreet Work?
PeerStreet works differently from other debt platforms that make loans to borrowers, reselling them on the marketplace. The company doesn’t originate any loans.
Instead, PeerStreet buys real estate debt from private lenders. These loans are then placed on its marketplace.
Investors who wish to invest in real estate can then buy a piece of these loans. They will share in the profit or loss from the real estate debt.
The actual borrower is typically an investor themselves. They wish to make a profit by flipping residential properties.
By purchasing these real estate loans from third parties, PeerStreet avoids the possibility of conflict of interest. PeerStreet acts as the middleman of these investment opportunities. As a result, they charge a servicing fee to make it worth their while. That means the crowdfunding platform is more expensive.
Generally, the fee that PeerStreet collects is around 1%. This could range from 0.25% to 1%, however. The rate details will provide clear information on exactly how much a specific investment will cost.
PeerStreet will also include details like who the real estate loan is through. Some other fees are also charged occasionally. For example, you will pay an originator more for a loan that’s older. The idea because charging more for these real estate investments is that there’s a lower risk of default.
If a borrower stops paying on a loan, PeerStreet will try to negotiate a payment. The loan will go foreclosure if that effort fails. Foreclosures can take several months to years to complete. They are also very expensive. After the foreclosure process is complete, PeerStreet will rehab and sell the property.
Investors will get back their principal and interest that’s owed if the net proceeds are more than what’s owed. Otherwise, the investor will take a loss.
Investors don’t directly own the notes. Conversely, they are indirectly secured. Each note is held in a separate LLC. The investor is pledged as a co-owner of the note by the LLC. By having this indirect structure, PeerStreet can avoid some of the legal structural issues of these types of deals.
You must qualify as an accredited investor to join PeerStreet’s platform. Accredited investors are defined by the SEC as investors that earn at least $200,000 or $300,000 if filing jointly with a spouse.
Accredited investors that don’t meet these income requirements can still qualify if they have a net worth of over $1 million. This amount must be on an individual basis and must not include the equity in your primary residence.
How to Invest with PeerStreet
Part of having a good investment strategy is accumulating a diverse portfolio. With PeerStreet, there are several ways you can use its real estate crowdfunding. Let’s talk about its investing options.
Real Estate debt investments
Investors can buy fractional private real estate loan investments on PeerStreet’s platform. You must have at least $1,000 to take advantage of these investment opportunities.
Accredited investors have the option of purchasing whole loans.
PeerStreet is different from platforms like Concreit or Fundrise that allow you to invest in REITs. Its investment platform allows you to invest in loans backed by commercial, residential, or multi-family properties. Choose between picking the loans on your own, automated investing, or a combination of the two.
The loan term can be as short as one month. The loans offered on the platform typically will have a range between six and 24 months.
Your return could range from 6% to 9% Some investors have had returns as high as 15%
If you want to get into real estate lending with PeerStreet, here is how it works:
- The borrower or real estate investor takes out a loan from private money lenders to fund their project.
- Real estate professionals that are part of PeerStreet’s network of private lenders will fund the loan.
- After the lender submits the loan for review, PeerStreet determines if they wish to list it.
- If approved, the loan is listed on PeerStreet’s marketplace. Borrower credit details, property photos, location, and property types will be provided in the listing.
- If you invest in the loan, PeerStreet’s real estate team will manage the loan and ensure that borrower payments are distributed to your account
Self Directed IRAs
If you wish to invest in a retirement account, you can use PeerStreet’s self-directed IRAs (SDIRA). To start an account, you don’t have to have existing funds. It is also possible to transfer money from an existing 401(k), 403(b), 457(b), or other types of retirement accounts.
PeerStreet offers traditional and Roth self-directed IRA accounts through its STRATA Trust company. You can make either pre or post-tax contributions with these retirement account options.
New investors should be aware of the fees that PeerStreet charges for these accounts. Here are the ones to know about:
- $50 account set up fee
- $100 annual account fee
- $50 processing fee
If you make a minimum investment of $5,000, you can waive these fees.
You can earn 2% annual interest on any cash that’s uninvested in your account. Considering how low interest rates on savings accounts are these days, it’s a good deal.
Your account also has no maintenance fees either. With your PeerStreet account, you can also make daily deposits and monthly withdrawals. The catch is that you have to give PeerStreet 2 two weeks’ notice to do either.
PeerStreet Pocket will your interest on a monthly basis. It will also invest that earn interest back into your Pocket. The name for this action is called compounding interest.
If you’re looking for a shorter-term product, PeerStreet Pocket could just be the thing for you. Fractional real estate loans must be held for at least six months. However, the earnings can be withdrawn from the account once a month.
Who should Invest on PeerStreet?
Non-accredited investors can’t invest on PeerStreet’s platform. But for accredited investors, it is a great choice to add real estate to your portfolio or diversify your existing holdings.
The low minimum investment amount of $1,000 makes it easy to spread your cash through several deals.
Since you collect interest payments, it is also a great way to earn passive income. The platform allows you to hand-pick your investments or also has features to make it more automated.
You only have access to loans and debts on the platform. There are no single property deals or REITs.
Auto Invest Feature
PeerStreets automated investing allows you to take a hands-off approach to your equity investments. Automated investing gives PeerStreet the green light to manage the investments for you.
Its automated investing feature will only invest in loans that meet your preferred investment criteria. For example, you can choose how much you wish to invest in each loan.
As long as you have the investor funds indicated, only those investment opportunities will show up on your listings.
Other filters include the maximum term, maximum loan-to-value ratio, and minimum yield. You have 24 hours to review these real estate assets and decide if you wish to invest.
Investors that want to have control over their investments have the flexibility of investing manually. So you can hand-select the debt investments that you wish to invest from its listing.
Loans offered by PeerStreet are generally short-term loans that are 6-24 months long. When you open an account, you can select different criteria that meet your requirements.
Geographic locations, maturity dates, property types, and investment risk are among the investment preferences you can specify.
A recent integration was announced by PeerStreet with Wealthfront and Betterment. Investors can now view all their investments from these services in one location. This makes it easier to view your entire portfolio and asset mix.
City National Bank holds PeerStreet’s investor funds in Investor Trust Accounts. All accounts are FDIC insured for up to $250,000.
Loan default process
A few loans may default. If this happens, PeerStreet has a process in place to maximize their investor’s proceeds. The investor’s best interest is on the top of their mind through the default process.
They also have a program to reassure its investors that a third party would step in if PeerStreet itself were to go out of business. This entity is known as a “special member” and will manage the remaining loan investments as a trustee.
How does PeerStreet source Investments?
PeerStreet uses a network of trusted private lenders to vet potential borrowers and conduct their own due diligence. The company will also review each investment by looking at its track record, background, and financials. PeerStreet conducts an independent underwriting and valuation on these loans.
Loans on the platform are not the 15 or 30 year mortgages that homeowners take. Hard money loans, which are also called fix and flip loans are the majority of the type of loans on the platform. These loans are shorter-term loans that are typically 6 to 24 months in length.
Once these investments are identified and approved, they’re added to PeerStreet’s platform.
An accredited investor can fund the investment from there. Investors basically act as a mortgage lender. The loans that are found on the investment platform are typically secured by first liens on real estate. Most have a loan-to-value ratio of less than 75%.
PeerStreet investors have a senior claim on the underlying asset if the borrower defaults.
Seeking other potential investment opportunities in real estate? Or do you simply want to know how PeerStreet compares to other platforms? Consider some of these PeerStreet competitors.
Fundrise offers investors in all 50 states the chance to invest. It also offers IRA accounts like PeerStreet.
The biggest difference between the two is that Fundrise has residential and commercial investment opportunities. You also don’t have to be an accredited investor on its platform.
Fundrise takes a straightforward, 1% fee on each investment. You need at least $500 to get started with Fundrise. Another key difference between the two platforms is that Fundrise has a longer-term focus.
If you withdraw your money before it’s been invested for five years, you’ll get charged a fee.
Realtyshares offers investors debt and equity investments. You need at least $5,000 to invest with most of the accounts on RealtyShares.
Just like PeerStreet, its platform is only for accredited investors. However, they are currently not taking on new investors.
Investors get access to commercial real estate investments on CrowdStreet’s platform. Choose between investing in diversified funds, individual deals, or having your portfolio professionally managed.
Similar to PeerStreet, only accredited investors can participate on the platform.
The minimum investment amount is a steep $25,000. The benefit is that you don’t have to pay any account fees. That’s because CrowdStreet has the deal sponsors pay those costs.
That doesn’t mean there are no fees on CrowdStreet though. There are other fees for funds that are between 0.5% and 2.5% (dependent on the project).
PeerStreet Pros and Cons
Pro: Automated Investing
PeerStreet will automatically allocate uninvested funds into loans that match your preferences. Investors have 24 hours to opt-out of a specific investment.
Investors can save time using this feature so they don’t have to constantly be checking the listings. The 24-hour time frame prior to an investment going live allows investors time to do some research before accepting an investment.
Pro: Solid Track Record
PeerStreet’s track record is very good in terms of performance. Some loans have defaulted, but PeerStreet has a solid track record of recouping their investor’s capital.
Pro Platform has many Investments
New investments are posted every day on the platform. The company has increased the number of opportunities over the last year. These listings will generally post around noon, Pacific time.
Pro: Fee Transparency
The performance of the overall loan portfolio is very clear with PeerStreet. The company is also up-front in the various fees you could be charged.
Pro: Earn Interest on Uninvested Cash
If you have cash that’s not tied up in investment on PeerStreet, you can earn interest on that available cash. The interest is currently 2% which is much better than having it sit in a bank account.
Pro: Low Minimum Investment Requirements
To invest in PeerStreet’s platform, you only need $1,000.
Pro: Diversification opportunities
A financial advisor will recommend that you diversify your assets to minimize risk. The investments on PeerStreet are all real estate loans. But the platform allows you to choose different types of property, maturity dates, geographic locations, and more in this asset class.
Pro: Lower Risk
Investments on PeerStreet’s platform minimize your exposure to volatility and risk. In fact, they perform more like bonds. That reduces the likelihood of losing all your money with these investments.
Investments on PeerStreet are between 6-24 months long. So if you need to change your investment strategy, there is more flexibility since your funds won’t be tied up for longer than 24 months.
This also could make them a better option than investing in fixed assets. You have to worry about interest rates rising above your locked-in rate with fixed assets.
Con: Only available to Accredited Investors
The requirements to be considered an accredited investor is a huge hurdle for many. Many investors don’t have the option to invest on PeerStreet due to not meeting these qualifications.
Con: Not a Liquid Asset
PeerStreet offers real estate loans, so you will need to stay invested until the loan matures. You can’t go to a secondary market to sell your asset like you can with bonds. Hence, it may not be a good choice if you need liquidity.
Con: High Minimum on Fund Options
A diversified fund on PeerStreet has a $100,000 minimum investment amount. This is higher than similar crowdfunding platforms that give this option to their accredited investors.
Con: Only Invest in Debt
The only investments available on PeerStreet are debts. There are no equity crowdfunding opportunities. That might not be a concern for every investor, however.
FAQ: PeerStreet Review
Does PeerStreet offer good customer service?
A chat feature is available on PeerStreet’s website if you have questions about the platform. For investors, you can find general answers on their FAQ page. You can email them at email@example.com or give them a call at 844-733-7787.
How are the commissions and fees on PeerStreet?
PeerStreet is very transparent about its fee structure. It’s not the most expensive platform that’s out there. But it is also by no means the cheapest.
Is PeerStreet easy to use?
There’s no mobile app version of PeerStreet available. However, the website is very easy to use and navigate. The website is mobile-optimized, so you can access it on a mobile device with full functionality.
Does PeerStreet have top investment options?
PeerStreet only offers real estate loans on its platform. You can it to help fund your retirement. But if you’re looking for equity crowdfunding deals, PeerStreet doesn’t have any opportunities.
Conclusion: PeerStreet Review
PeerStreet has a high success rate when compared to other platforms. It also minimizes the risk for its investors if a foreclosure occurs. If you’re an accredited investor, PeerStreet is a great option for an investment marketplace.