Peer Street Review

Peer Street Review

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platforms offer commercial and residential investments to everyday investors, removing the high barrier to entry that originally made the highest quality opportunities only available to the wealthiest and most established companies or individuals.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

Overview

Peer Street

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.

Financial Protection

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.

Investment Sourcing

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.

Peer Street Review

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.

Peer Street Review

Platform Features

Some of the features that set PeerStreet apart from similar real estate crowdfunding platforms include:

  • Public Originator List – PeerStreet is very upfront about who they are willing to do business with. By providing a public originator list, you, as an investor, can perform additional research and learn exactly what businesses and people your investment dollars go towards.
  • Account Type Flexibility – Most platforms only offer traditional taxable investment accounts. While this is an option, PeerStreet also gives you the option to open a self-directed traditional or a Roth IRA.
  • Investor-Focused Loan Default Processes – If a loan defaults, it gets moved to a bankruptcy-remote entity away from the rest of the platform’s loans. From here, their specialized staff works to protect investments and maximize liquidation proceeds.
  • FDIC Protected Accounts – All investors are covered with FDIC Insurance for up to $250,000 per investor and all investor funds are held in an Investor’s Trust Account.
  • Average Returns – Typical investments see an average APR between 6% and 12%. Detailed information on averages is listed on the PeerStreet website, but they can maintain much higher rates because of their loan selection processes.
  • Automation – You can set parameters according to your investment preferences and the site's automated investing feature will automatically add loans fitting your criteria to your portfolio.
  • Investment Selection – All loans you choose can be manually selected, allowing you to individually build a portfolio to your liking.
  • Bank-Level Security – PeerStreet maintains regular vulnerability and penetration testing, fully encrypted connections and data storage, as well as SSL/TLS technology that is employed for every transaction.

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.

Account Summary

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.

Peer Street Review

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.

Customer Service

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.

Manual Investing

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:

  • The Property View – this first view offers pictures of the property, location, property type, loan strategy, loan terms, and a return projection calculator.
  • Rate Details – the rate details show you exactly what fee PeerStreet takes out of the investment and the capital stack determines the loan-to-value (LTV).
  • Originator Info – displays the originator and their ‘skin in the game’, that is, how much capital the originator has in the deal.
  • Investment Overview – This section lists the details of the loan investment again. You can also see previous deals that the originator has been on from this page. Because PeerStreet is very selective about its originators, many of them have quite a long history with the platform.
  • Maps & Comps – this view includes a map of the area as well as similar sales in the region as compared to the property in question. There is also a full property appraisal included (which can be quite lengthy).
  • Borrower (Guarantor) Info – details on this section are all about the borrower, including their credit score and downside scenario.

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:

  • 1099-MISC – this form is for incentives, late fees, and other income, to be distributed if the investor earns more than $600 in the year.
  • 1099-INT – this form is for notes with terms that are less than one year in duration as dictated at the original issuance.
  • 1099-OID – this form is for notes with terms that are longer than one year in duration as dictated at the original issuance.

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:

Pros

  • Investment Loans Only – You are less likely to completely lose an investment as you are investing with interest like that of a lender, not directly investing.
  • No Risk on Interest Rate – PeerStreet loans are a max of 2 years, so, unlike long-term bonds that face interest rate risk if rates rise above what you receive on your investment, there is no interest rate risk at all for PeerStreet loans.
  • Low Minimum to Join – In order to participate on any loan, it is only required that you have $1,000 and the reinvestment minimum is only $100.
  • Diversified – There is a wide amount of diversification with every loan, across property types, loan usages, amounts, property location, and other parameters.
  • Number of Investments – Multiple times per week, if not every day, new loans are posted to the PeerStreet platform. There is a great volume of high-quality investment opportunities.
  • Track Record – PeerStreet has an extremely low number of loans defaulted and even then, their success rate is quite high for recovering investor funds.
  • Transparent company profile – PeerStreet prides themselves on keeping their numbers and their partners visible.
  • Investment automation – Through the platform, investors can set up automated investing according to their preferred parameters. Then, you have 24 hours to decide on any pending transactions before it is moved to your portfolio.
  • Interest on uninvested money – Recently, PeerStreet launched an additional feature called PeerStreet Pocket where you have the ability to earn interest on available, uninvested cash.
  • Positive-impact company – PeerStreet as a company is involved in the community as well, launching the Evolving Neighborhood Uplift Fund, which supports real estate entrepreneurs in underserved communities.

The major cons to investing with PeerStreet include:

Cons

  • Accredited Investors only – It is required that you are an accredited investor to use the PeerStreet platform. Although they do bring high-quality investments to the masses, to meet this requirement, you must have a net worth over $1M (excluding home equity), or an annual income above $200k.
  • Potentially higher risk – As these loans are generally for entrepreneurial real estate purposes, they may carry slightly higher risk, but the due diligence of both the platform and the investor helps to mitigate this.
  • Illiquid investments – These loans have no secondary market. This means once you are involved in a loan, you must remain in the investment until it is paid off.
  • Pocket not insured – Even though you can earn interest on uninvested cash through PeerStreet Pocket, these funds will not be FDIC insured in the Investor Trust fund as invested monies will.
  • Not manual investment friendly – If you prefer to manually invest, this may not be the best option as most of the best loans are picked up quickly by automated investors. Using automation gives you an hour head start as well as a 24-hour due diligence window that manual investors will not receive.
  • Risk of lateness and default – As with any loan-based investment, there is a risk that the loan goes 30, 60, or 90 days late. In rare cases, it may default altogether, but this is a risk you must take. There is also a risk should the real estate market endure turbulence or enter a recession.
  • High- minimum funding – The minimum funding offered to borrowers is $100k, which is much higher than most crowdfunding platforms, especially for accredited investors.
  • No equity investments – This is both a pro and a con, but PeerStreet only offers loan and debt-based investments. If you are looking for equity investments, you will have to try another platform, but PeerStreet works well for passive interest income.

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.


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