PeerStreet Review 2021 – Should You Invest In Real Estate Debt?
PeerStreet gives accredited investors the opportunity to invest in real estate debt with as little as $1,000. The investments are best for investors who can handle the risk and are comfortable leaving their money invested for a maximum of two years. With average annual returns of 7% to 12%, it’s worth considering if it is the right choice for your portfolio.
At a Glance
What we like
- You know your rate of return because you’re investing in debt, not equity.
- PeerStreet does a lot of due diligence to only offer “good” loans to investors.
- It’s a short-term investment with a maximum 2-year term.
What Needs Work
- PeerStreet is only available to accredited investors.
- There’s no secondary market if you need to liquidate.
- You must invest at least $1,000 in each loan.
- Accredited investors looking to invest in real estate without the hassle of owning physical real estate themselves.
Investing in real estate is a great way to diversify any portfolio, but not everyone wants the stress of owning physical property. PeerStreet makes it easy to invest in the debt side of real estate without the hassle of owning residential or commercial properties.
Is PeerStreet legit and worth it? Find out in my PeerStreet review below.
PeerStreet is crowdfunding for real estate loans. Multiple investors pool their money to fund a loan rather than one investor providing the entire amount. But PeerStreet is different from your typical crowdfunding website — they don’t lend directly to borrowers.
Instead, they buy single-family, residential, and multifamily residential loans from private lenders who have already funded them. The overall goal is to fix them up and either flip or rent them.
On average PeerStreet loans earn 7% to 12% annually, and each loan has a first lien position. This means if the borrower defaults, PeerStreet investors are the first to get paid from the proceeds of selling the property.
How PeerStreet works
PeerStreet works with private lenders who vet their own loans. When PeerStreet accepts a loan on their platform, they list it for potential investors (like you) to fund it. You must fund at least $1,000 initially, and then you can re-invest in loans in $100 increments.
In addition to the private lenders’ due diligence, PeerStreet grades the loans using their underwriting process. PeerStreet also doesn’t work with just any lender — they do their background checks, including checking each lender’s track and financial records before working with them.
Most PeerStreet loans are short-term, typically no longer than 24 months. They are all first-lien loans and usually have a down payment of at least 25%. So, there’s room in the value should the borrower default for investors to get at least some of their money back from the property.
Investing in PeerStreet loans
PeerStreet makes it easy to invest in real estate loans whether you want to manually invest in loans or set up automatic investments with predetermined loan criteria.
You can manually select loans from the PeerStreet dashboard when they become available. You can evaluate the terms, loan-to-value ratio, and interest rate to decide if it’s a loan you’d like to invest in.
You set criteria for the loans you’d be comfortable investing in, and PeerStreet holds your spot in newly available loans for 24 hours. Once you review the details, you can commit or pass on the opportunity. You can also set up automatic reinvestments to make investing in real estate simple.
PeerStreet minimum investment requirements
You start investing with PeerStreet with $1,000, but you’re free to invest more in a single loan if you’d like. You can also invest in several loans as long as you invest at least $1,000 in each loan. Since PeerStreet is only open to accredited investors, it’s not a hard minimum requirement to meet.
Investors can open a taxable account or tax-deferred retirement account. If you choose retirement accounts, you can open either a Roth or traditional IRA. All IRAs are self-directed.
No loan is without risk of default, so it’s something to consider before investing in real estate loans. PeerStreet works hard for investors to work out the delinquency with the borrower. If there’s no workout plan, PeerStreet liquidates the property for as much money as possible to protect investors.
Most PeerStreet loans are short-term, but you have a say in which loans you fund. On average, PeerStreet loans are for 6 to 24 months, but you can fill your portfolio with loans with varying terms to offset your risk and time your earnings.
Choose your criteria
In addition to the loan term, you can further diversify your portfolio by selecting loans based on the following:
- Geographic location
- Property type
- Loan-to-value ratio
- Borrower’s risk
- Maturity date
All non-invested funds are held in Investor Trust Accounts at City National Bank. Each investor has FDIC insurance up to $250,000 on cash balances.
List of originators
PeerStreet does its due diligence on originators, but they also provide a list of their originators if you’d like to do your own research too.
Typically PeerStreet charges a fee between 0.25% to 1% on each loan, but it doesn’t come directly out of your pocket. Here’s how it works.
PeerStreet charges a service fee on each loan, but it’s just the difference between the interest rate the borrower pays and the rate they’ll pay you. For example, if a borrower pays 10% on the loan, but PeerStreet pays you 9%, they keep the 1% as their servicing fee. So it doesn’t come out of your pocket even though it’s your fee.
Any other fees PeerStreet charges are charged to the borrower, not you (the investor).
What are the risks?
Like any investment, there is risk investing with PeerStreet. Since you’re investing in hard money loans, you may be investing in borrowers with less than perfect credit, and they may default.
Fortunately, PeerStreet has a great team of professionals dedicated to working out loans with borrowers. Like any loan, though, there’s always a risk of default. Overall, PeerStreet has a 95% rate of loans paying off, but 5% haven’t.
The loans that don’t get paid off go through the foreclosure process, which affects your investment, but most investors see at least a portion of their earnings.
Who should use PeerStreet?
You must be an accredited investor to invest in PeerStreet, which rules out a lot of “everyday investors.”
Even if you are accredited, consider the risks of investing in PeerStreet carefully. They don’t offer any investments in equity — only debt — which isn’t bad, but it has higher risk.
Taking it a step further, though, you aren’t investing in traditional mortgage loans. The loans PeerStreet invests in are short-term bridge or gap loans. They have much higher interest rates than typical mortgage loans and much shorter terms, typically 6 to 24 months.
Because it’s fix and flip investors looking for hard money loans that you invest in, the risk of default is much higher. So, you need a high-risk tolerance and a lot of money to invest since each loan requires a minimum $1,000 investment.
Who shouldn’t use PeerStreet?
If you’re not an accredited investor, you can’t use PeerStreet. So, that makes it easy to decide who can and can’t invest in PeerStreet.
Even if you are an accredited investor, you shouldn’t invest in PeerStreet if you want an investment with any sort of liquidity. There isn’t a secondary market to sell PeerStreet investments.
Once you invest, you cannot touch the funds until maturity. Like I said earlier, it’s not terrible since the longest term is 24 months. But, it can potentially prevent you from touching a large sum of money for two years (depending on the loans you choose).
PeerStreet review: Pros and cons
- You only have one investment option — debt. You don’t have to choose between debt and equity.
- The $1,000 minimum investment is low compared to other real estate investment platforms.
- PeerStreet has a steady stream of loans for investors to choose from, so you don’t leave cash sitting idle.
- You can easily diversify your portfolio across different loans.
- You can set up automatic investing, so you have first dibs on loans that meet your criteria.
- PeerStreet is transparent with its fees, telling investors upfront how much they are making on the deal.
- Your investment is illiquid.
- You must be accredited to invest in PeerStreet.
- You must invest at least $1,000 in each loan.
- You may still have to do your due diligence to make sure the originator is trustworthy.
PeerStreet review final word: Is it worth it?
If you’re an accredited investor who always wanted to invest in real estate, then yes, PeerStreet is well worth it. If you aren’t an accredited investor, though, it’s not an option for you. Bummer.
Keep in mind; you’re investing in the debt portion of the real estate transaction, not the equity. While your returns are limited, the interest rates are much higher because it’s a hard money loan from a private lender.
I suggest doing your due diligence on top of what PeerStreet provides to make sure you’re investing in a good loan with a low chance of default to make investing in PeerStreet worth it.
Every investment has risks, but PeerStreet does its due diligence on its partner originators and borrowers. They don’t intentionally invest in bad loans, but of course, bad apples come along sometimes. Overall, the platform is secure and a safe investment for those with at least $1,000 to invest in a loan.
PeerStreet makes money being the “middle man.” The borrower pays a specific interest rate, and PeerStreet pays investors (you) a slightly lesser amount, keeping the difference. This is PeerStreet’s service fee. It doesn’t come out of the investor’s pocket, but it decreases the return rate on your investment.
Any investment has ups and downs, but PeerStreet is a good investment for accredited investors who want to invest in real estate without owning physical property. You become the lender, giving borrowers a chance to invest in and flip real estate. Because you’re investing in debt and not equity, your returns are limited to the interest rate offered, but it can be a good investment for many investors.
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About Millennial Money Man
Bobby Hoyt is a former band director who paid off $40,000 of student loan debt in 18 months on his teaching salary and then left his job to run Millennial Money Man full-time. He helps other Millennials earn more through side hustles, save more through budgeting tools and apps, and pay off debt. He is a personal finance expert who has been seen on Forbes, Reuters, MarketWatch, CNBC, International Business Times, Business Insider, US News, Yahoo Finance, and many other personal finance and entrepreneurship media outlets.