PeerStreet Review: My $10,000 Real Estate Crowdfunding Experiment

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Are you an accredited investor looking for a way to get involved in real estate investing without actually owning and managing a piece of property yourself?

I have my own rental property, but I can’t imagine taking on another one at this point. And the turnkey stuff either seems shady or too involved. So I’ve been looking at all of the various options, and asking some friends.

Coach Carson, author of Retire Early with Real Estate, suggested I look into PeerStreet. So I did. I liked what a found and back in April I got started with them.

Here is my experience with PeerStreet, a real estate crowdfunding platform, that I’ve been using for the past six months that’s helped me scratch my real estate itch. All while earning ~5% annual return.

PeerStreet is a peer-to-peer lending or crowdfunding platform. It provides a stage that connects lenders (that is, you) with borrowers looking for short-term loans for real estate.

The borrowers are what’s known as “real estate equity investors,” meaning they are professional investors who purchase a home or property, fix it up quickly, and sell it again at a higher price.

The lenders who invest in PeerStreet are putting their money in real-estate-backed loans and are offered first-lien position. First lienholder is the first person to get paid back in the event that a deal goes sideways, so that means your money is more protected in case of default or other major problem.

This investment type is different from a more traditional REIT because it provides more transparency and flexibility for the investor. With PeerStreet, you have the ability to select from various portfolios of real estate loans. These loans are constructed of different property types, geographic locations, loan maturity dates, and more.

PeerStreet also claims to have a lower fee structure than a traditional REIT, which allows the investor to capitalize on the higher returns offered by PeerStreet. You can expect to pay a servicing fee of between 0.25% and 1.00% with PeerStreet for each loan you invest in.

All real estate loans through PeerStreet have been selected from vetted private financial institutions in the United States. The borrowers you will be lending to are proven experts in the real estate industry.

PeerStreet is not an investment platform for everyone. There are extensive criteria for the investors they work with. These investors are known as accredited investors.

What is a PeerStreet Accredited Investor?

In order to invest with PeerStreet you must qualify as an accredited investor. According to the SEC, to be an accredited investor you must earn an income that exceeds $200,000 a year or $300,000 if jointly filing with a spouse. If you don’t meet the income requirements you can have a net worth that exceeds $1 million individually, not including any equity in your primary residence.

Here’s the full list of the qualifications required for accreditation.

How Does PeerStreet Funding Work?

PeerStreet works with trusted private lenders to source real estate loans. Before they bring the loans to the investors, they review the private lenders’ loan history as well as run each loan through their underwriting algorithms, in addition to traditional underwriting methods.

Once the private lenders and loans have been vetted, then investors can select their investments. You have the choice of looking through the options individually to choose your investments, or you can specify investment criteria like the loan rate, the loan-to-value ratio, the loan term, and the amount you will invest per loan.

Per PeerStreet, the average mortgage rate is about 5%, however; they claim to offer an average APR of 6%-9%. This is because they are using private money lenders, which tend to offer higher interest rates. Borrowers will take higher rates from lenders because these loans may provide more flexibility and offer quick access to the money.

PeerStreet is setting itself apart by giving investors more flexibility and transparency than they could get with more traditional real estate investments.

Some of the features you can expect to find with PeerStreet include:

Investment options: The majority of loans offered by PeerStreet are short-term loans, generally about 6-24 months. However, when you open an account you can select different criteria to meet your diversification requirements. Some of these preferences include geographic locations, maturity dates, property types, investment risk, and more.

Automated investing: Another way that PeerStreet allows you to fulfill the diversification of your portfolio is to automate your investing. If PeerStreet doesn’t currently have a loan available that meets your preferences, you can choose to be placed on a waiting list. When that loan becomes available, PeerStreet will automatically invest your funds into that specific investment. Your balance must be over $1,000 in order to participate in automatic investing.

Multiple account types: You can choose to open a taxable account or a self-directed IRA. Your self-directed IRA will act as a retirement account. You can transfer funds from your previous 401(k), 403(b), or a 457 plan in order to fund your account.

Integrations: PeerStreet has recently announced its integration with Betterment and WealthFront. This will now give you the ability to view all of your investments in one location and see the entirety of your portfolio and asset mix.

Account security and protection: Investors’ funds are held in Investor Trust Accounts with City National Bank. All accounts are FDIC insured up to $250,000.

Loan defaults: If a default should occur, PeerStreet works on the behalf of the investor to make sure the process will maximize the investor’s proceeds. They work to protect the investor’s best interest at every step of the default process. Additionally, the program reassures investors that if PeerStreet itself were to go out of business, a third-party will step in as a “special member” and manage all remaining loan investments as a trustee.

Learn more and try out PeerStreet

PeerStreet has a variety of competitors, including RealtyShares.

One of the biggest differences between these two companies is the types of investments offered. PeerStreet sticks to just debt, while RealtyShares offers debt and equity investments.

These two companies also offer different minimum investment required to open an account.

  • With RealtyShares the majority of their accounts require a $5,000 investment and you must be an accredited investor.
  • While PeerStreet investors must also be accredited, it has a lower investment minimum of $1,000, which allows for more diversification because you can have a small slice of multiple loans by investing the minimum in several different loans.

Finally, the other big difference between RealtyShares and PeerStreet is the fact that the former also allows you invest in commercial real estate. This is not an option PeerStreet offers.

Each peer-to-peer lending company may vary. Do your research and compare all companies before moving forward with your financial decision.

Pro: Low Minimum Investment Requirement:

PeerStreet requires a $1,000 minimum investment.

Pro: Opportunity to Diversify

All of the investments at PeerStreet are real estate loans, however, within this investment class you can select various geographic locations, property types, maturity dates, and more.

Pro: Limited Risk

PeerStreet investments are closer to bonds than stocks. This minimizes some of your exposure to volatility and risk. Essentially, you may be less likely to lose all of your money with this type of investment.

Pro: Short-term Maturity

All loans have short-term maturity rates between 6-24 months. This can offer a better option than an investment in a fixed-asset. With fixed assets, you run the risk of interest rates rising above your locked-in rate without being able to liquidate your investment without penalty. Investments with shorter-term maturity gives you more flexibility to make changes to your investment strategy as rates change, since your money will never be tied up for more than 24 months.

Con: Non-Liquid Asset

Though the short-term maturity is a big selling feature, it’s important to remember that once you invest in one of PeerStreet’s real estate loans, you will need to stay invested until the loan matures. Unlike similar bonds, there is no secondary market for you to sell your asset. If you need liquidity, this may not be the right investment choice.

Con: Must Be an Accredited Investor

The accredited investor requirement removes a lot of smaller investors from the PeerStreet platform. Many investors may not meet the SEC requirements.

My Approach with PeerStreet

Here’s how I went about investing in real estate through PeerSteet.

First, I opened my account, verified my accredited status, and deposited $10,000.

Over the course of three months, I invested $2,000 at a time in various deals. My goal was to diversify a portfolio of five investments by geography (East Coast, West Coast, Heartland), time horizon (three months, six months, twelve months, and eighteen months), and loan type (acquisition vs refinance).

Here’s a snapshot of my portfolio six months later (you can see some of my original loans have closed and I’ve picked up more):

Loan Status Investment Rate Start Date Matures Outstanding Principal Interest
Washington, DC Acquisition PAID OFF $2,000.00 3.00% 4/6/2018 5/7/2018 $0.00 $5.00
Capitola, CA Acquisition PAID OFF $2,000.00 7.25% 4/16/2018 6/6/2018 $0.00 $19.33
East Hampton, NY Cash-Out Refinance PAID OFF $2,012.00 3.00% 5/11/2018 6/11/2018 $0.00 $5.03
Sacramento, CA Acquisition CURRENT $2,000.00 7.25% 6/25/2018 4/1/2019 $1,635.43 $24.38
San Antonio, TX Acquisition CURRENT $2,000.00 7.00% 4/26/2018 4/1/2019 $2,000.00 $48.62
The Colony, TX Acquisition CURRENT $2,000.00 7.00% 4/30/2018 5/1/2019 $2,000.00 $58.74
Beverly Hills, CA Cash-Out Refinance CURRENT $2,074.00 8.25% 6/24/2018 1/1/2020 $2,074.00 $46.11
Edmond, OK Refinance CURRENT $2,000.00 7.00% 4/12/2018 3/1/2020 $2,000.00 $65.74

Friends might notice I picked one of these properties near my hometown so I could actually go see the property if I wanted. All in all, I’ve made $272.95 in interest on my total investment of $10,000 in roughly six months. That’s around 5.5% annual return. Not bad.

I’m a little out of balance and will likely fund my account over the next few weeks to get me up to $1,000 in invest-able cash. Then I’ll try to pick up a three-month investment on the East Coast to round out the portfolio.

Am I afraid that a default could happen? Sure. But in case of default, you are the first lien holder, which means you’ll be first to receive the funds from a future sale of the property.Also, anecdotally I’ve heard that PeerStreet makes an effort to bring investors back to a whole position on bad deals, but that’s not promised. That’s why I’m diversifying with 5+ investments.

Long-term I see PeerStreet as a way for me to raise the interest rate I’m earning from my excess cash and remain somewhat involved in real estate beyond my one rental property.

At some point, I may turn on automatic investing and let PeerStreet do its thing but for now, I’m happy sifting through the options.

Take Action: Learn more and try out PeerStreet

PeerStreet Review: My $10,000 Real Estate Crowdfunding Experiment