PeerStreet offers debt investments in real estate loans, primarily for residential properties. Investors can select individual loans to invest in, or use PeerStreet’s automatic investing feature to fund loans meeting their criteria as they become available. Returns vary from 6-9%, and as of March 2019, PeerStreet reports $2B in platform transactions, $1B+ in assets under management, and four years of no net losses (there have been defaults and foreclosures). Notably they share full details of all past loans with customers, a strong model of transparency in the industry. With venture backing from Andreesen-Horowitz and an ex-Googler among the co-founders, PeerStreet is a solid choice among crowdfunded Reg D real estate investment platforms, especially for investors with some prior experience in real estate.
- Website: https://www.peerstreet.com
- Investment Types: Real Estate
- Security Types: Debt
- Sectors: Commercial Real Estate, Industrial Real Estate, and Residential Real Estate
- Minimum Investment: 1000
- Advertised Returns: 6-9%
- Must be accredited
- Strong dealflow of available investments
- Automatic investing feature allows for easy diversification into a large number of loans
- Low minimum investment ($1,000 per investment, can auto-re-invest in $100 increments)
- Offers more sub-$500K single-family homes than most similar platforms
- Available only to accredited investors
- Loans are not pre-funded, so there can be a delay between when you invest and when you start earning interest
- High volume of loans means there can be delays in updates on specific loans, and you may not know a payment is late or a loan term extended unless you check the platform's investor dashboard
With an ex-Google co-founder and backing from Andreesen-Horowitz, PeerStreet is attacking real estate lending exactly the way you’d expect a tech company to attack a large market filled with legacy incumbents: with technology and Big Data. (Co-founder Brett Crosby was on the team that created Google Analytics – he joined Google when his prior startup, Urchin Software, was acquired by Google in 2005 – so it’s fair to say they have some credibility with that approach.)
Unlike some other platforms, PeerStreet itself is not a direct lender. Instead, they work within the existing ecosystem of private-money lenders to resell loans to crowdfunding investors. Arguably, that allows the folks with the expertise in underwriting loans (the private lenders) to keep doing what they do best (after they’ve sold the loan off via PeerStreet, they can then “recycle” their capital into the next loan). While lenders are encouraged to retain some “skin in the game” and retain a portion of the loan in order to better align interests, they do not always do so.
Types of investments PeerStreet offers
PeerStreet only offers real estate debt investments. Most of their loans are for residential acquisitions or refinancings, and rental investment, though they also occasionally offer multi-family, industrial, and other commercial real estate loans. Investors can choose individual loans as they become available, or utilize PeerStreet’s automatic investing feature to invest (and re-invest) in loans that meet particular criteria (eg interest rate, LTV, term, and investment type). Most loans offered are 6-24 months, and the longest term shown was 36 months on the website as of this writing. Generally speaking, LTV ratios are below 75%.
While the minimum is $1,000 for investing in a new loan, as of April 2019 automatic balance reinvestments of a minimum of $100 are an option, in order to allow investors to easily reinvest interest payments and compound their returns.
What do you get when investing with PeerStreet?
One of the appeals of real estate investing (especially debt investments) is that the investment is backed by a tangible asset that can be sold off to recover investor money if something goes wrong. But as with many of the crowdfunded real estate investment platforms, your investment is, strictly speaking, not actually secured by the underlying property. Instead you receive what’s known as a “Mortgage-Dependent Promissory Note” which entitles you to a specific share of the principal and interest payments received from the borrower on the mortgage.
PeerStreet fee structure
Like many of the crowdfunded real estate platforms, PeerStreet charges their fees as a “spread” between what the borrower pays and what the investor receives. This way, PeerStreet is paid only as its investors are paid. PeerStreet’s fees are on the lower end among similar platforms, and usually vary between 0.25% and 1.00% (So for example, if the borrower is paying 9% interest on a loan you’ve invested in, and the fee is 1.00%, you’ll receive 8% interest.) The fee is always disclosed alongside the investment info.
Potential returns and cashflow
PeerStreet loans pay 6-9%, on terms between 6-36 months. Investors receive interest payments monthly (the exact date may vary by specific investment), with principal and any other distributions paid to investors as received by PeerStreet. Funds remain in your PeerStreet account until you manually withdraw them (or choose to have them reinvested once you exceed $100, the minimum reinvestment amount).
PeerStreet has improved their investor updates process, but given their high volume of loans, detailed pro-active updates are rare – if you invest in proporties on PeerStreet, plan to check back often to monitor their status.
Breadth of offerings on PeerStreet
PeerStreet knows that when you’re trying to compete on technology, Big Data, and efficiency, volume is key, so there’s a relatively high number of loans flowing through PeerStreet on a regular basis. An investor looking to utilize the automatic investing feature will need to decide if they’re comfortable with PeerStreet’s process and approach to vetting lenders and loans (which is largely reliant on a network of third-party origination partners).
Regulatory framework and due diligence expectations
PeerStreet offers investments only to accredited investors, under SEC Reg D. They are not a registered broker-dealer or investment advisor, though they (or one of their affiliates) are registered as a Real Estate Broker and as a California Lender (they are headquartered in Manhattan Beach, CA). Their advertised due diligence process for their loans includes reviewing an independent valuation and relevant legal docs, verifying that the loan meets PeerStreet’s underwriting standards, as well as doing an independent underwriting with both manual processes as well as “big data analytics”. Before accepting a third-party lending partner, they go over the prospective partner’s track record, state licensing and lending law conformity, and also perform background checks. In theory, their high loan volume gives them a lot of data to work with to help improve the system, though in practice none of these crowdfunded investment platforms have been through a major downturn yet, so the underlying algorithms may not yet have a truly representative picture of loan performance. (That said, I wouldn’t bet against an ex-Googler when it comes to sound algorithm design…)
You may be able to invest in PeerStreet using a Self-Directed IRA or 401K. To learn more about using a Self-Directed retirement account for alternative investments, visit our friends at Rocket Dollar.
PeerStreet in the news
PeerStreet Secures $29.5 Million Through Series B Funding Round to Further Transform Real Estate Investing | Crowdfund Insider
PeerStreet, an online platform for investing in real estate backed loans, announced on Friday it secured $29.5 million through its Series B funding round to further transform real estate investing. The round was led by World Innovation Lab. with participation from existing investors Andreessen Horowitz, Thomvest,Read More
Leveling the Playing Field Through Technology and Real Estate
Brew Johnson and Brett Crosby, co-founders of PeerStreet Lending, discuss leveling the playing field through technology and real estate.Read More
A startup backed by the hero of 'The Big Short' is attempting to bring Wall Street to Main Street
PeerStreet is applying the P2P lending model to real estate, giving investors access to high quality private real-estate loans.Read More
Andreessen Horowitz leads $15 million investment in PeerStreet | Reuters
Venture capital firm Andreessen Horowitz has led a $15 million investment in PeerStreet, a financial technology startup that gives individual investors access to real estate backed loans online.Read More