PeerStreet represents a real estate crowdfunding platform the gives investors opportunities to invest in real estate loans or debt-only investments. Therefore, it represents a type of peer-to-peer lending (P2P) opportunity. It highlights short-term loans with backing from real estate. This PeerStreet review will help you decide if PeerStreet is a platform for you.
PeerStreet Review: Overview
If you choose to invest in Peer Street’s platform, you basically will act as a mortgage lender. The platform vets the financial health and background of loan origination third-party partners and takes care of the loan underwriting of the short-term funding transactions posted to the PeerStreet website.
PeerStreet Review: How does PeerStreet work?
To understand how PeerStreet works and learn more about its track record, you need to know something about equity and real estate crowdfunding. It is a source for obtaining capital or taking out a real estate loan. This form of financing uses social media sites, such as Twitter, LinkedIn, and Facebook, and the Internet, to interest investors in funding loans with a reasonable interest rate for businesses and real estate.
The idea behind this approach is simple. If you have a large number of investors willing to invest a small amount of money, you can quickly raise large amounts of capital. As a result, investment opportunities arise when you have this type of set-up. This is because the interest rate is typically lower on the loan and the chances for default are lower.
Therefore, crowdfunding allows businesses to access the capital they could not otherwise raise. Alternatively, crowdfunding, or P2P lending, allows an investor to either become a company shareholder or invest in real estate. This is easy to do by the use of automated investing on a crowdfunding platform.
This History of Equity Crowdfunding
In the traditional sense, equity crowdfunding was, at one time, open primarily to accredited investors. Accredited investors included pension plans, insurance companies, banks, or affluent individuals who had a net worth over $1,00,000. As an investor on a crowdfunding site, your investment is much less and you do not have to meet any requirements with respect to net worth.
If you choose to invest with PeerStreet, you do need to be an accredited investor. However, to fund a PeerStreet loan project and real estate debt, you only need to invest $1,000 initially and pay monthly installments of$100.
By using the platform, you can receive a higher interest rate on a number of loans and still stay protected if one loan goes into foreclosure. PeerStreet charges also are minimal, thereby making the platform an ideal venue for a first-time accredited investor with a smaller minimum investment and less sizeable net worth.
The platformt offers real estate loans from its network of third-party lenders. Each of these lenders reviews PeerStreet borrowers carefully. In turn, the loans are featured on the PeerStreet website for an investor to fund with the minimum investment of $1,000. Automated investing is offered to keep things simplified.
PeerStreet makes it a rule to offer loans for investment that generally are secured by first liens and which provide regular interest payments for investors. Self directed investments, such as IRAs, also add to the site’s popularity.
What is the Loan-to-Value Ratio for Peerstreet loans?
Most of the loans Peer Street offers its investors have a loan-to-value ratio that falls at 75% or less. Therefore, an investor’s risk is lowered substantially with the loan-to-value incentive. As a result, accredited investors have a senior claim on the real property should loans in a bankruptcy take place, the real estate goes into default, or a real estate debt must be paid.
A Peer Street loan is generally short-term. Therefore, your investing portfolio does not include a long term 15- or 30-year fixed-rate mortgage. Instead, investors are investing in bridge loans that last for a period of 6 to 24 months. As a result, fix-and-flip financing is an investing feature of many of the loans PeerStreet offers on its site.
So, how does PeerStreet make money on the loans featured for investors?
Because PeerStreet represents a debt-crowdfunding investing source for loans, it makes money by charging a servicing fee on each loan produced by third party private lenders.
This servicing fee is taken out in the spread between the interest charged to borrowers and the interest paid to investors for loans on the PeerStreet site. The amount usually ranges between 0.25% and 1.00% for all featured loans.
For instance, if a loan is sold to an investor at 7%, PeerStreet might pay 6% to you. The difference between the 7% the borrower pays on loans and what PeerStreet gives investors (6%) is its servicing fee, or what PeerStreet pays itself.
While Peer Street and its third party private lenders do charge borrowers other fees for loans, the low minimum servicing fee is really the only charge that affects investors who are investing in loans on PeerStreet.
PeerStreet Review: Is PeerStreet legit?
As a real estate investing source, you can feel confident about investing in loans on the PeerStreet site. Like any real estate P2P lending site, you always have the risk of default or foreclosure on loans listed on the site.
However, PeerStreet follows up well when it comes to posting details about loan returns or providing information about all performing and non-performing loans, including default rate details.
PeerStreet is from the minds of Brew Johnson, the current CEO, Brett Crosby (COO) and Alex Perelman (CTO). Johnson previously worked as an attorney in the fields of technology and real estate investing. His goal was to create a transparent business in an industry that previously had little in the way of this type of influence when providing loans in the real estate field.
PeerStreet Review: Is PeerStreet safe?
When reviewing the statistics Peerstreet appears to be safe.
According to statistical data, about 93% of the loans featured on PeerStreet’s investing platform were either current of less than 90 days late, as of the end of February 2020. Around 7% of the loans were over 90 days late and 0.67% were real estate owned (REO). (REO loans represent properties where the real estate has gone through foreclosure, but the property has not yet been sold).
Further statistical data shows that about 3% of the 4,924 represented loans had gone into default.
PeerStreet was able to handle foreclosure proceedings and recover 135 out of 143 defaulted loans without any loss of principal to investors. Therefore, only 7 loans out of the 4,924 loans, on record, lost part or all of their principal.
As a result, it helps to keep the following in mind when investing on the PeerStreet platform: You do have a small risk of non-payment as an investor.
What if a Loan Goes into Foreclosure?
Every now and then, borrowers may have trouble with paying back PeerStreet loans, or go into foreclosure. In turn, an investor may stop receiving his or her interest rates and payments on a loan.
However, a PeerStreet loan is still a collateral loan. This means that real estate secures the loan. By doing this, you do have a way to get your money back if a problem occurs, such as a default.
When a default does occur, PeerStreet works with regulatory and legal professionals, including its real estate investing team, to resolve the issue to keep its investors still satisfied with the outcome of any bankruptcy remote entity event.
investors also have protection if the investing and financing company should stop operations. The company is set up so investors will still get their money if the company goes out of business. PeerStreet also holds your money in an FDIC-insured trust account when you initially fund your investor portfolio.
PeerStreet Cancellation Policy
When you make an investment on the PeerStreet platform, you are into the investment for a period of 6 to 24 months. There is no cancellation policy in force, as this type of debt investment is not liquid.
You cannot resort to a secondary market to get your money back. Getting your money back during the 6-to-24-month loan period is usually not an alternative for an investor on PeerStreet’s site.
However, unlike an equity crowdfunding investment, which may last 4 to 10 years, your money is not unavailable for as long of time. After all, investing in a real estate loan for 6 to 24 months is far different than investing in equity investments for several years.
That is because most of the funding involves hard money loans. You also receive regular interest payments on the loan amount you secure on PeerStreet’s platform.
PeerStreet Review: How much does PeerStreet cost?
The platform charges $1,000 to open an investor loan account. However, you do have an array of choices when it comes to choosing investments in this loan asset class.
PeerStreet investors can choose from various geographic locales, maturity dates, and property types. Reinvestments are $100 monthly per loan amount. Active loans featured in this investor asset class compare closely to bond investments versus stock accounts.
PeerStreet Review: PeerStreet’s Pros and Cons
The Minimum Investment is Low
You only need $1,000 to open a PeerStreet account.
The Ability to Diversify a Wealth-friendly Investment
You can become an investor in an investment that once was only open to the very rich or affluent.
Moreover, you can diversity your holdings in this investment class by property type, geographic location, and loan maturity.
You are less likely to lose all of your money with this type of investment. This is because the loan has backing from real estate.
All PeerStreet loans or investments only last 6 to 24 months. This ties up your money for a shorter amount of time.
A Non-liquid Investment
While PeerStreet investments are short-term, you still cannot liquidate them. Therefore, you need to be willing to invest in a loan until its maturity. If you require an investment with liquidity, this may not be a good choice.
You Must Be Accredited to Invest
To meet SEC guidelines, all investors on the PeerStreet platform must be accredited, or be able to invest at least $1,000. Therefore, people with smaller amounts to invest cannot use the platform.
PeerStreet Review: Is investing with PeerStreet right for me?
Only you can determine if PeerStreet is the right investment solution for you. If you’re someone who wants to invest short-term in the real estate marketplace without direct involvement, PeerStreet may provide the solution.
If you have at least $1,000 to invest and you want to learn more about investing in real estate, PeerStreet offers a good learning opportunity.
To determine if PeerStreet is right for you, ask the following questions:
· Do I have an extra $1,000 or more that I can invest that I will not miss?
· Does this investment class offer diversity?
· Can I handle the amount of risk involved with this type of investment?
Those who can commit to investing in the real estate market for 6 months to 24 months, PeerStreet might be a good option..
PeerStreet reviews by subscribers
When choosing an investment, such as PeerStreet, it also is helpful to take a look at the reviews posted by subscribers. What do they have to say about the product?
Many subscribers like the fact that PeerStreet offers diversity, and is more like a bond account than a stock account. This makes the investment less volatile and risky. Subscribers also commented that they liked the return they received on their investment.
For example, one subscriber said he received an average 5% return on his investment of $10,000 over a 6-month period – not bad for an investment that serves as a passive income source.
Most subscribers are happy with the results from their investments on PeerStreet. However, they prefer to diversify to reduce the risk involved with foreclosure and default.
Final Review: Is PeerStreet Worth it?
If you want to start your journey in real estate investments and “learn the ropes” of real estate investing, PeerStreet features loan investments that you might want to investigate. Plus, you can use money from the cash made on the site and apply it toward further investments on the PeerStreet platform.
You will need to be willing to invest in real estate for 6 to 24 months without worry. If this is doable, you may find that PeerStreet gives you a feasible way to make money from real estate investments. This can create a passive way of earning income. Users can even take advantage of the automated investing feature on the site to make real estate investing streamlined and fast.
How you use the PeerStreet site depends on how much of yourself you want to put into real estate investments. Besides PeerStreet’s real estate loans for residential real estate, you can also open an IRA. Your options are not just limited to real estate.
The IRA feature is just another perk of investing on the site. Giving business a third-party status, such as PeerStreet, enables investors to realize more opportunities.
This unique crowdfunding source offers a transparent way to invest in real estate debt. It also helps increase your understanding of the real estate marketplace. It is a specialized market that covers hard money loans or rehabilitative loans for single-family residences.
If you have an extra $1,000 you want to invest, the Peer Street website may be a good venue for you.