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 6-12%, and as of May 2017 PeerStreet reports more than $300M in loans funded with no losses to investors. Notably they share full details of all past loans with customers, a strong model of transparency in the industry. With strong 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.
- Strong dealflow of available investments
- Automatic investing feature allows for easy diversification into a large number of loans
- Low minimum investment ($1,000)
- 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
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 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 crowdfunded 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).
Types of investments PeerStreet offers
PeerStreet only offers real estate debt investments. Most of their loans are for residential rehabs or 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 and term). Most loans offered are 6-24 months, and the longest term listed among paid-off loans as of this writing is 22 months.
What do you get when investing with PeerStreet?
One 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. PeerStreet's fees are on the lower end among similar platforms, and usually vary between 0.25% and 1.00% (So for example, the borrower is paying 12% interest on a loan you've invested in, and the fee is 1.00%, you'll receive 11% interest.)
Potential returns and cashflow
PeerStreet loans pay 6-12%, on terms between 6-24 months. Investors receive interest payments monthly, with the principal due at the end of the loan term. Funds remain in your PeerStreet account until you manually withdraw them (or choose to have them reinvested once you exceed $1,000, the minimum investment amount). Because a lot can happen along the way on a real estate project, borrowers are sometimes late on their payments. It would be great if PeerStreet provided more notice of when that happens (and why), it's usually left to the investor to inquire when they review the investment performance in their dashboard. Similarly, payoff of the principal can be delayed -- for example I have a loan that was supposed to be repaid as of May 1, 2017, and one month later no word except for "The refinance is still in process" shown on my dashboard.
Breadth of offerings on PeerStreet
PeerStreet knows that when you're trying to compete on technology, 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.
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 appraisal and relevant legal docs, as well as running it through their "big data analytics". 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.)