PeerStreet Review

PeerStreet is a Real estate crowdfunding marketplace that expands into the loan market, offering access to fractional loan shares. This highly illiquid investment isn’t for everyone and is only available to accredited investors.

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PEERSTREET REVIEW AT A GLANCE

  • Numerous product offerings
  • Flexible terms
  • Fixed-income returns
  • All on one powerful technology platform
Overall Rating
4/5

Top rated real estate crowdfunding platform

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Pros & Cons

Pros

  • Low $1,000 minimum
  • Bi-monthly loan distributions
  • Self-directed or automatic investing
  • Access to an alternative investment, real estate debt

Cons

  • Only available to accredited investors
  • Highly illiquid investments

As the market bull run continues, forward-thinking investors are considering how to prepare for the eventual market downturn.

This may explain the growing interest in alternative investments, an industry that has witnessed unprecedented growth, driven by the engine of financial technology (fintech) transformation.

One such alternative investment gaining steam is real estate crowdfunding.  Entrepreneurs have realized a tremendous demand exists for crowdfunding.

For those new to crowdfunding, it is where a group of individuals pool funds to finance a new idea, business, or investment. 

These days, everything is being financed through online crowdfunding – from political campaigns to charity efforts and startups. 

While real estate equity investors have had access to crowdfunding options for a few years now, PeerStreet offers a new take.

Instead of offering fractional equity shares of real estate, the company offers fractional debt shares of real estate. Investors on the investment platform purchase portions of loans created by loan originators.

These are usually short-term, high-yield loans. PeerStreet overs many different loan types sourced from all fifty U.S. states.  Before jumping on the bandwagon, there are a few stipulations. 

PeerStreet, and many of its equity-oriented real estate investing competitors, are open only to accredited investors.  To invest, you need a net worth over $1,000,000 and an annual (single-filing) income of at least $200,000. 

If this alternative investment idea has piqued your curiosity, read on for our review of PeerStreet.

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Quick Summary

Minimum Investment: $1,000 investment per real estate loan ($100 for automatic investments)

Fees: 0.25% to 1.00% service fee per loan 

Promotion: None (at the time of writing)

What is PeerStreet?

PeerStreet is an online marketplace that brings together accredited real estate investors and borrowers.  Investors purchase fractional shares in real estate lending debt, loans offered by private organizations.

Loans are short-term, high-yield.  For as little as $1,000 per loan, investors can invest in real estate debt with targeted returns from 6% to 12%.

PeerStreet sources deals, vets deals, and handles any problems that may come up, such as loan default.  So far, the platform has attracted many accredited individual and institutional investors.

At this time, government restrictions are such that non-accredited investors have to wait on the sidelines.  PeerStreet was created, in the words of founder and CEO Brew Johnson “to make the unique asset of real estate debt available to everyone through our two-sided marketplace in which investors can access a diversified group of secured real estate loans, funded by private lenders and backed by data analytics, due diligence and internal underwriting processes.”

The company offers real estate loans with a loan-to-value ratio, or LTV, of 75% or less.  What is an LTV?  It is the ratio of the loan to the value of the asset, in this case, the real estate.

A higher LTV means a more risky investment for lenders.  As an example, borrowing $150,000 to purchase a $200,000 house represents a 75% LTV ratio (150,000/200,000).

PeerStreet has seen consistent growth since inception in 2013 with over $3 billion in loan value transacted since founding, and a doubling of the year-over-year loan volume.

The company has been recognized with numerous awards, with the most recent being a top 25 win on Deloitte’s 2019 Technology Fast 500 for North America, an annual award of the fastest-growing technology companies. 

Company Background

PeerStreet was founded in 2013 to give investors access to investing in real estate debt.  Often called a marketplace lender or crowdfunding platform, PeerStreet is best described as a two-sided marketplace for attracting real estate investors and real estate loans.

What is a two-sided marketplace and how does it differ from other funding platforms?  The company has a unique origin story. Prior to founding, COO and co-founder Brett Crosby spoke with Michael Burry on the viability of the idea.

You may remember Burry from The Big Short, a popular book written by Michael Lewis about how the 2007-2008 financial crisis was triggered by the U.S. housing bubble.

The book also became a feature film by Paramount Pictures, in which Burry’s character was played by Christian Bale. The real-life Burry loved the PeerStreet and PeerStreet loans idea so much he signed on as an early investor, and now sits on the board. 

Since 2013, the company has garnered over $100 million in funding, with a most recent Series C investment round of $60 million in 2019.

This recent capital infusion is being used to hire employees and scale the company. PeerStreet is a licensed real estate broker and a licensed California finance lender.

Its competitors include companies like Patch of Land, Groundfloor, and the recently purchased RealtyShares. 

PeerStreet Features

  • Low Self-directed and Automatic Investing Minimums. Get started investing with either $1,000 for do-it-yourself portfolios or $100 when using automatic small balance reinvestments.
  • Build or Automate Your Portfolio. You can select the loans for your portfolio or choose portfolio parameters and loans will be selected for you.
  • Real Estate Loan Crowdfunding. Invest in high-yield real estate loans alongside other accredited investors. 
  • Upfront Per Loan Spread Fees. Expect to pay between 0.25% and 1% in fees per loan.
  • Access to 3 Real Estate Property Types. Invest in single-family, multifamily, or commercial properties across all 50 U.S. states.
  • Four Account Types. Open an individual account, IRA, trust, or a corporate account.
  • Accredited Investors Only. Must meet guidelines for an accredited investor, which requires a net worth over $1M and annual individual income over $200K.
  • Varying Loan Terms. Invest in loans with terms from 1 month to up to 60 months. 
  • Select a Loan-To-Value Ratio That Works For You. Choose an LTV up to 60%, 65%, 70%, or the maximum of 75%. 
  • Different Loan Types to Invest In. Get strong returns investing in a variety of loan types, from cash offer to 30-day notes.
  • First Lien Loan Investing. Investors own shares of a promissory note that entitles them to the first lien on the loan, which means they hold the first rights to be paid.

How Does PeerStreet Work?

PeerStreet is a two-sided marketplace that connects groups of investors with real estate loan servicers. The platform was created to give investors unique access to an alternative investment: real estate debt

How Peerstreet Works

Investing in real estate has always been popular, and the growing importance of crowdfunding in recent years has only increased the desire for investing in real estate.

PeerStreet recognized an opportunity by letting investors become a bank-of-sorts, lending money to borrowers in return for interest on the principal.

Private loan lenders benefit from getting access to more capital outside of traditional financers.  While PeerStreet hopes to offer real estate debt investing to the market in general, only accredited investors can take part at the moment.

Remember, an accredited investor, as defined by the SEC, is one with $1,000,000 in net worth and $200,000 in single ($300,000 joint) annual income.

Let’s take a look at just how PeerStreet creates and structures this alternative investment opportunity. 

The PeerStreet Process

PeerStreet operates as a secondary market and an intermediary for existing real estate lenders and investors looking to access returns on real estate debt.

PeerStreet does not originate loans, but sources loans from existing lenders and then makes those loans available to investors on the marketplace.

Investors come together and pool money to finance a loan, much like traditional crowdfunding.  Investors either self-select or automatically select one or more loans to finance, with a minimum buy-in per share of $1,000.

Investors can therefore create a portfolio of loans, structured to meet a particular objective, like diversification based on loan type or geography.

The loans are first lien real estate loans. A lien is a legal right to claim a piece of a property, which a creditor holds.  In the case of a first lien, the loan is structured such that, in the case of default, the holder of the first lien gets paid before all other liens. 

Importantly, investors don’t own a portion of the loan. Investors own shares in a mortgage-dependent promissory note, or MDPN - entitling you to a specific share of the principle and interest payments from the borrower.

In practice, this means investors are purchasing shares in an unsecured note, which is tied to the underlying note, which is backed by the property.

PeerStreet vets both loan originators and loans.  In the case of originators, the company reviews financial statements, track record, licensing, underwriting process, and conducts background checks. 

For loans, PeerStreet checks compliance with its internal guidelines through manual review and data analytics.  If you are asking yourself, what happens if PeerStreet goes out of business? Good question.

The company has arranged that loans are held in a bankruptcy-remote entity apart from the company itself.  This means that, in the event of bankruptcy, a third-party will manage loan investments and ensure investors receive interest and principal payments. 

PeerStreet offers the following account types:

  • Individual
  • IRA
  • Trust
  • Corporate

PeerStreet is a marketplace that provides
unprecedented access to high quality
real estate loan investments


Investment Options, Returns, & Fees

PeerStreet offers a variety of loan types to interested investors. The loans are sourced from across the country from different originators.

They include the following:

  • Single-family residential properties
  • Multifamily
  • Commercial real estate
  • Cash offer loans
  • Bridge loans
  • Residential for rent loans

Most loans through the platform are 'residential debt investments' - also known as fix-and-flip loans or hard money loans.

Each of these loan types range in duration from 6 to 24 months, although some are as short as 1 month and others may stretch to 60 months or more.

The loans are underwritten at a loan-to-value ratio (LTV) of 75% or less. LTV ratios of 80% or less are fairly standard. Expect most returns to fall within the 6% to 12% annual range, depending on performance and PeerStreet fees.

There are both self-directed and automated investing options available on the platform.  Loan interest distributions occur twice each month.

Updates on your loan performance can be tracked online through the investor dashboard.  PeerStreet charges a service fee on each loan up for investment.

Investors can expect to pay between 0.25% and 1% in fees per loan, however there may be some exceptions. 

PeerStreet vs. Competitors

best choice

Fundrise logo
  • Annual Fee: 1%
  • Minimum Investment: $500
  • Promotion: No current promos

BEST FOR BEGINNERS

Realtymogul logo
  • Annual Fee: .30% to .50%
  • Minimum Investment: $500
  • Promotion: No current promos

BEST FOR NO-FEES

Crowdstreet logo
  • Annual Fee: None
  • Minimum Investment: $10,000
  • Promotion: No current promos

How to Get Started With PeerStreet?

PeerStreet is upfront that the service is only for accredited investors.  This means that, unless you have a net worth over $1,000,000 and $200,000 in single ($300,000 joint) annual income, you won’t get access to the platform. 

If you can’t meet these qualifications, you can still register, but won’t receive access to the PeerStreet platform. Registration is free, and for those accredited investors, you can register and browse the available investments at no charge.

Should You Invest With PeerStreet?

PeerStreet offers a novel alternative asset class that may appeal to some accredited investors.  Investing in real estate debt, while not a first choice for many investors, may offer a different source of returns relatively uncorrelated with typical investment choices.

PeerStreet offers willing investors the chance to capture more of the total returns available in real estate, not just the equity-based returns. We like this.  

While PeerStreet is only available to accredited investors at the time of writing, this may actually be beneficial to less well-financed investors.

For the most part, investing in real estate has proved to be a safe investment that builds real long term wealth.  What remains to be seen is whether or not investing in the debt side of the real estate market will prove to be as stable and lucrative as investing in the equity side of real estate.

The company has demonstrated over the past nine years that there is a large (and growing) market for investing in real estate loans. Will this continue after the market ends its epic bull run?

Overall, this is a niche investment opportunity and should probably be reserved for those with deep experience in real estate. 

PeerStreet

PeerStreet is a Real estate crowdfunding marketplace that expands into the loan market, offering access to fractional loan shares. This highly illiquid investment isn’t for everyone and is only available to accredited investors.   

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  • Editor Rating
  • Rated 4 stars
  • 80%

  • PeerStreet
  • Reviewed by:
  • Published on:
  • Last modified: April 1, 2022


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