PeerStreet Review: Intermediary Between Investors and Loan Originators

As an investor, you likely understand and appreciate the many benefits of investing in real estate. However, there are often many high barriers to entry. These barriers can prevent you from investing in multiple properties at one time, which can be limiting. So, if you don’t or can’t pay tens of thousands of dollars for a down payment on one property, what other options do you have? This is where PeerStreet comes into the picture.

PeerStreet Overview

PeerStreet is a marketplace where accredited investors can make investments in private and high-quality real estate loans. The platform provides real estate loans for crowdfunding, acting as an intermediary between investors and loan originators.

PeerStreet started in El Segundo, California in 2013. It has managed to raise more than $50 million in funding to date. PeerStreet uses the same concept that many other peer-to-peer lenders use, but borrowers use real estate as collateral. This means that if a borrower cannot repay the loan, you can recover your funds; however, this can take several months and sometimes even years.

The company has raised more than $21.1 million in venture funding from the likes of Rembrandt Venture Partners and Andreessen Horowitz. When you invest with PeerStreet, you have access to many asset classes that used to be quite hard to access.  Also, PeerStreet purchases loans from various third parties after vetting.

How Does PeerStreet Work? 

PeerStreet works as a middleman between loan originators and the investors on its investment platform. The company comprehensively vets both the borrower and lender of the loan to ensure that the risk profile is suitable.

PeerStreet, unlike other peer-to-peer platforms you may have heard of, doesn’t originate its own loans. Instead, it collaborates with regional loan originators. These loan originators source loans from borrowers, usually real estate investors and developers looking to flip a property. The company does not want there to be a considerable risk that any of the parties to the transaction will default on their obligations.

This is why PeerStreet thoroughly vets all borrowers on its site. The company uses background information, legal, financial, and licensing reviews to achieve this goal. An experienced team examines and evaluates each potential loan with many proprietary analytics, documentation reviews, and independent appraisals that give customers peace of mind.

The investments the company offers are also called ‘hard money lending.’ Investors are often looking for short-term loans, typically up to 2 years. These investors need the funds quickly as soon as they identify a viable project.

What are You Investing in?

PeerStreet is an effective real estate peer lending platform. The platform allows you to invest in property loans usually reserved for professionals. Real estate properties often secure the loans you invest in. This means that if a borrower defaults, PeerStreet is first in line to get paid. In case of default, PeerStreet would also take ownership of the relevant property with its partners.

Types of Loans PeerStreet Offers

The platform provides the following types of loans for investment:

30-Day Note 

This is a short-term investment, and it provides you with more liquidity. Then, in thirty days, you’ll receive the principal and interest. You can then decide to reinvest that amount in another note or the same one. One advantage is that PeerStreet will pay off the loan, interest, and principal in full, irrespective of whether the borrower makes the loan repayment in a timely manner.

Cash Offer Loans 

Cash offer loans are short term loans that allow buyers to provide sellers with an all-cash offer rather than waiting for mortgage finalization. Homebuyers identify the home and engage a service provider or agent to buy it on their behalf.

After that, a bridge loan is given to the service provider or agent with the new house as collateral. The home buyer puts down a deposit known as earnest money and moves into the new home as a tenant. When the buyer sells the current home or finalizes the mortgage, the service provider or agent sells the home to them and pays off the loan.

Bridge loans

In most cases, these loans are short term, usually three months to three years. Bridge loans are typically used for ‘bridging the gap’ between financing and an upcoming event like sale, refinancing, or removal of a current obligation. Bridge loans on PeerStreet are either for an investment purpose or a business purpose.

PeerStreet Customer Support

There is a thorough and comprehensive FAQ section on PeerStreet. This section will answer many questions you might have. Otherwise, you may also call their support line, send an email, or send a message via their website chat feature. In most cases, you’ll receive a reply within 24 hours if you send them a message.

PeerStreet Reliability and Security

The company uses a number of robust security features to keep its platform secure and safe. For example, every interaction that you have with the platform uses a secure and encrypted connection thanks to TLS/SSL. Also, the company stores all personal and private data using the latest public-key encryption technology.

The company’s data center is under the reliable power of AWS (Amazon Web Services). Also, there are frequent tests to ensure the privacy and security of your data is maintained at all times.

Benefits of PeerStreet

By investing on PeerStreet, you can eliminate the hassle of owning a property, which makes it better than directly investing in real estate. So, with your investment, you become one of several passive lenders that are limited partners in a high-yield loan.

Some of the other benefits include the following:

Short-term Investments

A most, your investment is locked up for 2 years, which makes lending more efficient and profitable.

Minimum Investment is Low

You can easily invest in the PeerStreet platform with as little as $1,000. This is unlike most other investment platforms on the market that may require up to $10,000 upfront.

Several Ways to Diversify

While you can only invest in real estate through PeerStreet,  you can invest small amounts of money over several different loans. Also, you can restrict your investment by loan risk, specific states, and ratios of your loan to the full value of the investment.

Easy Reinvestments

As soon as your investment pays off, you can easily put your earnings toward another loan.

PeerStreet Returns: What can You Expect?

The short answer to this question is that the expected return usually depends on the loan. Real estate properties back PeerStreet’s loans. The underlying borrowers usually have a variety of different credit profiles which can affect your rate of return.

Your expected return also varies with loan length. One of the best things about the PeerStreet marketplace is that you can easily filter your potential investment opportunities by many factors, such as the expected return.

PeerStreet’s Fee Structure

There aren’t any fees to open and maintain your account on PeerStreet. However, the platform will collect a spread on each loan. This will likely range from 25 to 100 basis points which will be taken out of interest payments.

So, for instance, if the rate of interest on your loan is 10 percent, and the platform has assigned a 0.75 percent or 75 basis point fee to the loan, your net return on the investment will be 9.25 percent. The fees are conspicuously marked for every deal, and you will find them in the Rate Details section for all properties under the Capital Stack.

Also, the published rate when assessing each deal in the automation tool is listed net of fees. So, the interest rate that you see is exactly what you get.

Where PeerStreet Falls Short

One of the biggest issues with PeerStreet is that it only deals with accredited investors. As a result, this tends to rule out many individual investors who want to have a certain portion of their investment portfolio in real estate.

To be an accredited investor, you need to have a minimum net worth of $1 million (excluding the worth of your principal place of residence or home), or you have to make at least $200,000 a year. So, if you’re an investor who prefers a hands-on approach, you’ll find yourself at a bit of a disadvantage when using PeerStreet.

If you think PeerStreet isn’t for you, explore RoofStock Review and CrowdStreet Review.  These platforms may also be a good fit for you.

Who PeerStreet is the Most Suitable for

Final Thoughts

If you’re an accredited investor, PeerStreet is worth your consideration. You’ll get new and better opportunities to diversify your investment portfolio with many real estate-backed loans.  Another benefit is that the platform offers opportunities to earn considerably more interest than you may get from many other fixed-rate investments. However, the returns offered by the platform are still lower compared to other crowdfunding platforms.

You need to have a certain level of experience and knowledge about specialized real estate lending and a comprehensive understanding of the various risks you’re taking on by investing on the platform. This is why PeerStreet appeals to many high asset and high-risk investors and is not an ideal platform for an average investor.

PeerStreet’s impressive combination of big data analytics, reasonable pricing structure, and real estate expertise makes the platform an excellent addition to any investment strategy that needs greater diversification.

If you want to know our view on other real estate platforms, read this top 5 real estate platforms article.