Many people are interested in real estate investing but don’t want to deal with all the hassle of being a landlord. Finding tenants, making sure they won’t ruin the house, dealing with phone calls when something breaks, and all the other aspects of being a landlord can really take its toll.
PeerStreet gives investors a way to invest in real estate in directly, by investing in real estate loans.
Unlike platforms such as Lending Club that crowd fund personal loans, real estate loans have an asset backing them. If someone defaults on a personal loan, there’s nothing to repossess to make sure the lender gets some of his or her investment back. With real estate loans, if the borrower does not pay, the lender can take possession of the house, land, or building that the loan was used to purchase or build.
Assets Under Management$250 Million
Number of UsersUnknown
0.5-1% for investors, deducted from distributions as they are paid
How It Works
PeerStreet works with private lenders across the country to source real estate loan investments. PeerStreet analyzes the loans using a combination of manual loan underwriting and algorithms to determine which loans offer the best ratio of risk to reward.
PeerStreet then lists those investments on its website. You can choose whether you’d like to manually select loans to invest in, and how much to invest in each, or you can make use of PeerStreet’s automated investing feature. You can set up automated investing by providing information on the types of loans you’d like to invest in: you can select the loan-to-value ratio, the length of the loan, and interest rates, you’re looking for in a loan.
The minimum investment in each loan is $1,000, so you can easily diversify among a wide number of loans. That way if borrower defaults, you won’t be out your entire investment.
PeerStreet claims that investors can see 6-12% annual returns by investing in real estate loans through the platform. Investors are charged a .25-1% fee, which is deducted from any payments that you receive. PeerStreet always clearly discloses the size of the fee on each loan so that you know exactly how much you are paying.
Who Can Invest?
The US Securities and Exchange Commission regulates investing in the United States. In order to protect smaller investors, the SEC has issued rules regarding who can invest in riskier or more complicated assets, such as real estate loans.
That means that you must be an accredited investor to invest in loans on PeerStreet.
You can become an accredited investor by meeting one of two requirements:
- In both of the past two years, have an annual income of $200,00 or greater if you’re single, $300,000 if you are married.
- Have a net worth of $1 million or more.
What Happens if the Borrower Doesn’t Pay?
There’s no such thing as a 100% secure loan. Eventually, a borrower will default on one of the loans you’ve invested in. The good news is that all of PeerStreet’s loans are secured by liens on the real estate so that PeerStreet can take possession of and sell the land that the borrower purchased. The loan to value ration is also capped at 75% or lower, meaning debt holders have a 25% buffer to protect against a downturn.
PeerStreet’s team has a combined total of nearly 100 years in residential and commercial real estate lending and will work to maximize the amount of money you get back from your investment.
PeerStreet even protects investors against PeerStreet going bankrupt by holding loans in a bankruptcy-remote entity that is separate from PeerStreet. If PeerStreet goes out of business, your investment is still safe. A third-party entity will step in to manage the loans to make sure you still receive your payments.
What Types of Loans are Available?
PeerStreet offers the opportunity to invest in all types of real estate loans, commercial and residential. Unlike a typical thirty-year mortgage,
PeerStreet’s loans are typically short-term, lasting six to twenty-four months. The term may be shorter or longer depending on whether the borrower pre-pays the loan or exercises an option to extend it.
It is important to know the length of the loans you are investing in because you won’t be able to cash out early.
Most borrowers on PeerStreet have made a down payment of 25% or more, providing plenty of security for the loan.
What Are the Drawbacks of PeerStreet?
Investing in PeerStreet’s loans has three major drawbacks:
- You must be an accredited investor.
- Your investment is not liquid.
- High fees.
Becoming an accredited investor is difficult. If you earn $200,000 a year you’re already in the top percent of the nation by income. Similarly, a net worth of $1 million places you in the top 10% of the United States. At that point, you may already be working with a financial advisor and be investing in other alternative assets and not want to make your investments more complicated.
The other major drawback is the fact that you can’t access your money if you need it. You have to wait until the loan is paid in full. If you run into a financial issue and need cash quickly, you won’t be able to get it if all your money is invested in PeerStreet’s loans.
The final issue is the fact that through investing in PeerStreet you can access a type of asset that is difficult to invest in, but you have to pay a significant fee for the privilege. You might be able to find similar returns with lower fees elsewhere.
Despite the low minimum initial deposit requirement, PeerStreet is not an investment platform that will work for most investors, and certainly not small investors. PeerStreet will certainly appeal to certain high asset, high risk investors, but it is not a platform for the average investor.