- 10 Jul 2021
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Back in 2012, the Jumpstart Our Business Startups Act (JOBS) allowed for the exchange of equity for early investments. This was referred to as “equity crowdfunding” and was the starting platform for real estate crowdfunding.
Even though the original intent of the JOBS Act was to give early-stage companies more options when it came to raising money, over 100 real estate crowdfunding sites have emerged alongside the JOBS Act.
Surprisingly, this sector of equity-based investments has seen the most growth, and consequently, offers the most opportunity for investors. Top-tier companies are handling the majority of the volume, but real estate crowdfunding, on the whole, is still an emerging landscape.
The shared cost structure minimizes risk across multiple stakeholders and allows for investing in much larger properties than there might otherwise be access to. There is also no need to provide upkeep or maintenance.
These platforms offer commercial and residential investments to everyday investors, removing the high barrier to entry that originally made the highest quality opportunities only available to the wealthiest and most established companies or individuals.
Now, this opportunity allows savvy investors a major passive income stream to continue diversifying financial portfolios. With real estate crowdfunding, you need only a minimal upfront investment to begin working with these properties and rentals at your leisure.
2021 PeerStreet Review
Brew Johnson founded PeerStreet in 2012, using his experience as a real estate attorney to enlist his friend and tech entrepreneur, Brett Crosby. Together, the two invested in and built PeerStreet, inspired by Prosper and LendingClub, two non-conventional companies, leading their industry.
Since its inception, PeerStreet has funded over $4 billion in loans on the platform, with over $175 million paid to investors as interest. 96.32% of PeerStreet’s loans are paid off without any kind of foreclosure-related actions, as of December 2020. Of the remaining 3.68%, only 0.4% yielded a negative return.
The company is very transparent about loans and returns – detailed information about all loans, performing and non-performing, is listed plainly on the PeerStreet website.
The average investor earns between 6-8% actual annualized return.
PeerStreet doesn’t hold any of the loans themselves, instead, a third party handles this, so even in the incredibly unlikely event of bankruptcy, a third-party trustee would make sure that investors still get their money.
Additionally, all funds default to an FDIC-insured Wells Fargo trust account, protecting investments further. The only way these deposits aren’t protected is if the investor moves them out of the account themselves.
PeerStreet is a very strong company and a leader in the real estate crowdfunding industry.
All loans on PeerStreet come directly from a network of private lenders trusted to fully vet potential borrowers. These are the only loans that get listed on the platform for investors to fund.
These real estate loans were historically reserved only for professional investors.
The potential origination partners undergo extensive track records, background, and financial checks, and the loan originators that make the cut are regional and often are lenders to real estate developers.
There is independent, in-house valuation and underwriting performed on all loans before they make it to the website.
PeerStreet sets up its loans with security by first liens on real estate properties, so in the case that a borrower defaults, the investors that funded the loan have a senior claim on the underlying real estate, further lowering the risk to investors.
Most loans are only 6 months to 2 years in duration and are meant to fund things like fix-and-flips, acquisitions, and cash-out refinancing, not extended year mortgages.
Who Can Invest?
PeerStreet has a low minimum investment of $1,000 for initial investments and only $100 for reinvestments.
The only downside is that you must be an accredited investor in order to access the platform.
How it Works
It usually only takes one to three days after a loan is fully funded to close. Immediately after closing, the loan begins divvying interest to the investors.
Each month, the accrued interest will go to the investor’s “Available Cash”, as listed on the PeerStreet dashboard. These funds can be reinvested into new loans as soon as the minimum threshold is met, otherwise, the investor may withdraw funds to the account of their choice.
There is a service fee charged on each loan, spread between the interest rate paid to investors and the rate charged to borrowers. According to the PeerStreet website, each loan tends to be in the 0.25% to 1.00% range. This is the only fee that affects the investors and is the main way PeerStreet makes money.
The upside to this is that, as long as you find an interest payment rate agreeable, you will never see any additional charges.
It is important to note that all PeerStreet real estate investments and debt investments are illiquid. That is to say that it will be nigh on impossible to retrieve money on a loan in progress.
There is not a secondary marketplace for PeerStreet loans, so you would just have to wait until the loan’s terms have been completed. That being said, PeerStreet loans are only between six and twenty-four months in duration.
Is it Safe?
Despite PeerStreet’s stellar reviewing and vetting processes, like any lending platform, there is still the possibility that the loan is not fully repaid. If the borrower stops making payments on the loan, the investors will no longer receive interest payments, either.
PeerStreet has demonstrated with relative certainty that its selection process keeps the chances of nonpayment to a minimum, however. Their track record includes over 95% of loans sold being paid off to investors without any legal repercussions necessary.
In those rare cases, however, if a borrower does default on a loan, the PeerStreet team takes care of the recovery process directly. They have a team of legal regulation experts on the staff alongside the real estate team.
Some of the features that set PeerStreet apart from similar real estate crowdfunding platforms include:
Using the Platform
The following sections are meant to give you a general overview of the platform so you can determine its relative ease of use and user-friendliness.
When you first log in, you are taken to the dashboard where you can see a summary of your account, including total account value, interest earned to date, available cash, account details, interest chart, and more.
The overview tab allows you to add and withdraw funds with just the click of a button.
In the positions section are all details related to current, closing, and paid loans.
You can see the loan’s name, status, investment dollars, interest rate, interest received to date, outstanding principle, as well as the beginning and end dates for each loan category.
The next tab is your transaction history, where PeerStreet lists records for every event in your account. This includes interest payments, investments, and account deposits.
The statements tab is where you can find all the monthly and tax statements currently available. Do note that statements come in HTML format instead of PDF, but most print pages allow you to print to PDF, or else, you can take a screenshot of the page.
Getting Your Account Set up
Opening and funding a PeerStreet account is relatively simple. After entering some basic personal information, you can choose between a traditional taxable account or a self-directed IRA account. PeerStreet has a reimbursement program for account openings with more than $5k as an initial deposit.
Accounts can be funded by either wire or ACH transfer. ACH funds are instantly available, so you can begin investing immediately.
One especially helpful feature free to all PeerStreet investors is the inclusion of a personal Investor Relations representative. Shortly after setting up an account, the representative will reach out to help with any questions as well as offer a few suggestions on using the platform.
Typically, the Investor Relations representative will reach out after account opening and again after funding, as well as offer some helpful hints via email. You can also reach out to them at any time during the life of your account.
Investing with PeerStreet
It is recommended that you set up loan automation immediately after setting up your account.
The reason for this is that the best, highest-demand loans will go in minutes to other savvy investors who have automation set up on their profiles. The best loans will rarely be available hours after the initial release.
There are new loans available a few times per week. PeerStreet will send out emails to investors one day before new loans go live and include a schedule for the displayed date of the times for each loan. Loans available for manual investing will only go live after automated investing.
The Automated Investing Tab
Automated investing takes place one hour before the public release of loans for manual investing.
To set up the automated investing tool, you must choose the minimum investment thresholds you’d be willing to invest in. You then set the loan term, interest rate, loan-to-value rate, and the investment amount per loan.
There is also an option to automatically reinvest at the normal $100 minimum reinvestment rate.
Once loans go live on PeerStreet, the automation tool automatically matches loans to the criteria given by the investor. As long as there are enough funds available in the investor account, a pending purchase will be made.
In the case that there is too much demand for a loan, a waitlist is made. Investments will be made if the investor reaches the front of the queue.
The automated option does allow you to perform some due diligence still. After the automation selects a loan matching your criteria, you must accept or decline the investment before it will go to your portfolio. In the “Loan Positions Awaiting Closing” section of the positions tab, you have the option to make the best selection for your current portfolio.
For those who still prefer to perform their investing manually, this can be done as well by closely monitoring emails, preparing for investments, and being sure to log in quickly to invest once loans go live.
Like technical investing, you will need to be very deft and spry, especially for high (>8%) interest rate loans, as a large percentage of the available investment pool will be gone an hour beforehand to automated investors.
Lower interest rate loans in the 6.5%-7.5% range are sometimes available for some time after the initial release.
Due Diligence Window
It is recommended that you allow for automated investing as this will give you the entirety of a 24-hour window to perform your due diligence. In the case of manual investing, you will have relatively little time to review documents, as there is no pending purchase window.
PeerStreet does provide multiple documents to make the review process relatively simple.
There are several tabs offering a wealth of information including:
How Does PeerStreet Handle Taxes?
PeerStreet details that all investors are issued a consolidated 1099 for the income from their various investments. These forms display on the statement tab for download and may include any of the following:
There are no Schedule K-1s issued, as these are for equity investment, which PeerStreet does not offer. For any additional tax-related questions, it is recommended that you consult your tax professional.
Final Verdict & Summary
PeerStreet is an innovative and strong company with good potential and an excellent track record. Their high transparency makes it easy to see why it has become a leader in the real estate crowdfunding industry.
The pros to investing in loans with PeerStreet include:
The major cons to investing with PeerStreet include:
All in all, PeerStreet is a great option if you have the means to gain accreditation to use the platform. This is the biggest barrier to entry, making it a poor option for small or new investors.
However, if you are a seasoned investor or investing company looking to add a high-quality, high-value passive income stream to your portfolio, the loans at PeerStreet are a good choice. Their low minimum investment and automated investing platform make for a sophisticated, low-maintenance real estate investing option.