PeerStreet Review 2022 – Invest in Real Estate Debt
PeerStreet’s homepage reads:
Invest in real estate without the hassle or expense of managing property.
This is more than a little misleading because it makes PeerStreet sound like another fractional real estate investing platform where you can buy actual slices of property (and collect partial rent).
But that’s not what PeerStreet does.
Instead, PeerStreet lets you invest in real estate loans at interest rates ranging from 6.0% to 12.0% APY and terms typically hovering in the 6- to 24-month range. And while the underlying property secures your loan, the notion that you’re investing in the real estate market is debatable.
Misleading marketing aside, how does PeerStreet work? What are the pros and cons? What are the risks associated with the double-digit returns, and is investing with PeerStreet a superior alternative to fractional real estate investing?
Let’s investigate PeerStreet.
PeerStreet Review
Commissions & Fees - 9
Customer Service - 8
Ease of Use - 8
Diversification - 5
Amount of Deals - 8
Due Diligence - 8
Pros and Cons
pros
- Invest in real estate debt – Although you’re never taking full- or partial ownership of property, some consider investing in real estate debt a viable and less volatile entry point into the RE market.
- Start with as little as $100 – PeerStreet’s low minimum investment (down from $1,000 previously) enables accredited investors to build quite a diverse portfolio of loans.
- Shorter terms – With terms as short as one month, PeerStreet’s loans offer a unique, risk-adjusted alternative to I Bonds for generating high returns in a short lockup period.
- Automated investing – PeerStreet will automatically seek out and reserve your spot in investments that meet your preset criteria (max term, LTV, min. yield).
- Secured loans – Lenders on PeerStreet are offered the first-lien position, meaning you’re less likely to see a loss in the case of a default.
cons
- Accredited investors only – Unlike some competitors, PeerStreet is restricted to accredited investors only.
- Short-term but highly illiquid – PeerStreet is reportedly working on a secondary marketplace, but until then, you’ll have to wait until your loans reach maturity to exit.
- Requires knowledge of private lending – Private lending is a less-regulated niche within real estate that PeerStreet investors may want to research before building a portfolio.
- Funds in Pocket (PeerStreet’s HYSA) require 15 days’ notice for withdrawals – Money stashed in PeerStreet’s in-house savings account may be too inaccessible for seizing investment opportunities.
What Is PeerStreet?
PeerStreet is a peer-to-peer (P2P) lending site that connects real estate borrowers to accredited investors willing to fund their loans.
- Borrowers get their real estate loans originated quickly and with minimal red tape,
- Investors like you and me generate interest, and
- PeerStreet takes a small cut.
Everyone’s happy.
So how exactly does it all work, and what other features does PeerStreet offer?
How Does It Work?
Here’s a detailed breakdown of how PeerStreet works:
1. PeerStreet Sources the Loans
PeerStreet sources its loans from either its nationwide network of private lenders or directly from the borrowers themselves.
Borrowers can fill out a brief application form on PeerStreet.com.
As for selection criteria, PeerStreet uses a combination of “thorough human review,” an “ underwriting engine,” and “old school boots on the ground valuations” to handpick the highest quality loans.
CEO Brew Johnson has also hinted at a focus on loans that help to rejuvenate aging homes.
“As a society, we can either continue to build more new homes and take over green spaces, or we can up-cycle and renew aging and dilapidated homes.”
In the end, PeerStreet’s borrowers tend to be professional real estate equity investors flipping homes. They don’t mind paying 11% APR with PeerStreet instead of 8% with a bank because private lenders like PeerStreet are faster and enable them to seize timely business opportunities.
2. Loans Are Then Published to the Marketplace for Investing
Once PeerStreet approves a loan, the company will publish it on its marketplace for accredited investors to browse and consider funding.
Due diligence includes the basics (address, photos, etc.) plus borrower credit details and financing details like APR, the loan-to-value (LTV) ratio, term, number of other investors involved, and more.
3. PeerStreet Distributes Borrower Payments With Interest to Investors
Once the borrower receives the loan and begins making monthly payments, PeerStreet automatically collects and distributes the funds to investors — plus interest and minus their fees — via a monthly payment schedule. The average interest rate tends to hover around 8%.
Now that we’ve covered the core function of PeerStreet, let’s talk about some additional features.
PeerStreet Features
Minimum Investment $1,000
Account Fees 0.25% - 1.0% setup fee
Time Commitment 6 Months
Accreditation Required
Private REIT
Offering Types Debt, Equity, Preferred Equity, Direct Ownership
Property Types Commerical, Residential, Single Family, Foreign Investors
Regions Served 50 States
Secondary Market
Self-Directed IRA
1031 Exchange
Pre-vetted
Pre-funded
Invest in Real Estate Loans (Not Real Estate Itself)
It’s worth reiterating that PeerStreet is not a fractional real estate investing platform. When you invest with PeerStreet, you’re playing the role of lender — not landlord.
In more technical terms, PeerStreet investors aren’t generating income from rent and the rising value of the property. So if a borrower buys a property for $200,000, rents it for $2,000/mo., and later flips it for $300,000, you won’t share a penny of that profit.
Instead, your profit from PeerStreet comes from the borrower’s interest payments since you own a part of the borrower’s debt, not their property.
Is that a bad thing? A scam?
Not at all. Investing in private real estate debt is a bonafide investing niche; it’s more detached from property investing than PeerStreet’s marketing seems to lead on.
Automated Investing
Don’t want to miss a new investment opportunity before the loan gets fully funded?
PeerStreet offers a simple-yet-handle automated investing tool that asks what kind of investment you’re looking for (max term, LTV, min. yield) and automatically sends new opportunities to your inbox to review.
It may not be as sophisticated as a full-fledged robo advisor, but for passive investors, not having to refresh PeerStreet.com constantly is a blessing.
PeerStreet Pocket (HYSA Alternative)
Once you’ve funded your PeerStreet account, you might wait weeks or months for the right investment opportunity. And as any investor knows, letting money sit – especially during periods of high inflation – is a big no-no.
So PeerStreet came up with Pocket, its own in-house savings account, to incentivize investors to keep capital on the platform.
As of this writing, Pocket offers an impressive 3.5% APY, but there’s a catch: you can only withdraw from Pocket on the first of each month and only after giving PeerStreet 15 days’ notice.
3.5% APY is nearly 30x higher than the average savings account these days, but that illiquidity may be too much of a tradeoff for some fast-moving investors.
Self-Directed IRAs
PeerStreet offers self-directed IRAs through STRATA Trust Company. That’s a nice touch, considering the attractive combination of flexible assets, tax advantages, and lower fees provided by this account type.
Better yet, if you fund your account with an initial investment of $5,000+, PeerStreet will waive what small fees they charge ($200).
Read more >>> Why Smart Investors Should Consider a Self-Directed Brokerage IRA
Only Available to Accredited Investors
For the uninitiated, accredited investors are allowed to trade unregistered securities. As defined by SEC Regulation D, an accredited investor is an individual with an expected annual income of $200k+ this year and for the past two years or with a net worth exceeding $1m+.
The reason accredited investor status exists — and why PeerStreet requires you to be one — is to protect individuals below a particular net worth from devastating losses resulting from investing in unregistered securities.
What Are the Fees and Costs of Using PeerStreet?
Here’s how PeerStreet describes its fees:
“The short answer, PeerStreet typically takes only a 1% spread on each loan we put up for investment, sometimes less.”
They go on to say that investors can see a rate breakdown on each listing, so at least there are no surprises. There are also no signup fees.
If you choose to open a self-directed IRA, the fees are as follows:
- Account set-up fee: $50
- Annual account fee: $100
- Processing fee: $50
As mentioned above, PeerStreet will make a one-time reimbursement for the above fees on one self-directed IRA with an initial balance of $5k or more. However, the annual account fee will still apply for years two and beyond.
Now that we’ve covered the basics, key features, and fees, let’s zoom out a bit and get real: what are the risks of investing with PeerStreet?
What Are the Risks of Investing With PeerStreet?
PeerStreet does an admirable job of hedging investors’ risk in a complicated space, but it still leaves a few flanks open.
What Happens if a Loan Defaults?
PeerStreet has a whole FAQ on the topic, explaining how their experienced, in-house Servicing and Asset Management team will swoop in quickly to protect investors’ capital.
First, PeerStreet will pay legal fees and other foreclosure-related costs. Next, they will distribute principal, interest, and default payments to investors on a pro-rata basis (i.e. proportionate to their investment).
PeerStreet considers loan extensions on a case-by-case basis, and it doesn’t appear they solicit investor voting in that decision. They only distribute 50% of the default interest they collect to investors.
Can I Resell My Debt Holdings on a Secondary Market?
Not at this time. So if you invest in real estate debt through PeerStreet, it’s best to consider that capital locked in until the loan matures and you receive your last monthly principal + interest payment.
PeerStreet is working on a secondary market, but details are scarce, and a launch date has not been announced.
What Happens if PeerStreet Goes Out of Business?
For starters, your cash funds deposited with PeerStreet are FDIC-insured for up to $250,000. However, if you invest that cash in borrower debt through PeerStreet, those funds are no longer FDIC-protected.
That should raise a red flag to anyone with experience investing through small fintech startups. Because if the startup folds or gets handcuffed by the SEC, it could be nearly impossible to recoup your funds.
Some fintech companies like Lofty realize this and build contingencies to protect investor capital – like establishing each property as its own LLC.
PeerStreet, on the other hand, doesn’t seem to have a living will. And while I doubt the SEC will come banging down the door anytime soon, it would assuage my concerns if PeerStreet had a better plan to protect investors’ interests from beyond the grave.
How To Contact PeerStreet
PeerStreet has both an email and a phone number:
Email: info@peerstreet.com
Telephone: 844-733-7787
Phone hours aren’t listed, but it’s safe to assume they’re available during regular business hours M-F.
The company also has an FAQ page with dozens of helpful explainers, transparent leadership, and 190 employees on LinkedIn.
All told, it’s a little odd that PeerStreet doesn’t mention “customer support” anywhere on their site, but at least they offer it.
Best Alternatives to PeerStreet
Highlights 
Rating 9/10 8/10 7/10
Minimum Investment $10 $25,000 $5,000
Account Fees 1%/year None 2% annual management fee
Private REIT
For REITs: Fundrise
Fundrise’s chief value proposition is the eREIT, which is like a regular REIT but with fewer intermediaries. Fewer middlemen mean lesser fees, which is a big draw for REIT investors.You can invest in an eREIT for as little as $10, and Fundrise charges just 0.85% in asset management fees.
Compared to PeerStreet, your funds may be locked up longer with Fundrise, but you’ll be more directly invested in property and not just real estate debt.
Check out our full review of Fundrise.
For Fractional Real Estate Investing: Lofty
Lofty took an early lead in the “tokenized” (i.e. blockchain-based) fractional real estate investing space, allowing users to buy partial shares.
Lofty investors can even collect rent, and soon they’ll be able to trade their equity “tokens” on Lofty’s secondary marketplace.
And while I commended Lofty earlier for having a “living will,” the COO indicated they’d done little to prepare for the inevitable SEC probe into the tokenized fractional real estate investing space.
So while investing through Lofty may be more direct than PeerStreet and more liquid than Fundrise, you may be navigating uncharted regulatory waters while you do.
The Takeaway: Who Is PeerStreet Best For?
All things considered, PeerStreet is best for investors seeking high single-digit returns on short-term investments. PeerStreet investments behave much like bonds, so they could present a nice alternative when the bond market is underperforming.
Plus, you may feel good knowing your capital is helping to “up-cycle” an older home for the newer generation.
Further reading:
- Passive Real Estate Investing: What It Is & How To Get Started
- Is Real Estate a Good Investment Right Now?
- Commercial vs. Residential Real Estate Investing: Which Is Right for You?
I stopped investing in PS notes a couple years ago. Default rate on my holdings is at 13.3%. Of my 8 remaining notes, one is current and 8 are in default. I have 2 short pays thus far. One short pay returned 38% of my principal. The other returned 75% of it. So much for <70% LTV!
As mentioned by others, Peerstreet's LTV assessments are a farce. At best they are a result of incompetence, at worst they are fraudulent. I had believed these LTV rates were ok for a 6-10% return rate and diversification. Obviously, I was a fool.
At this point, its safe to say that I'll have somewhere between a 0% and 3% annual return from Peerstreet unless all my defaulted loans return 100% of my principal. What's the chances of that? In the meantime, I'll have lost 2-4 years of opportunity cost.. Its been a painful lesson. Perhaps its a lesson I should have already learned with Lending Club, but as bad as LC was, at least I had close to a 5% annual return over its lifetime. Unless all my remaining defaulted PS notes return 100% or better of my principal, I won't get anywhere close to that.
You can't blame COVID for insane LTV assessments. In retrospect, LTV should have been over 100%. Would a single person invest in a 100% LYV for a return of <9%?!? New investors would have to be pretty crazy to invest a single dollar into Peerstreet.
Peerstreet should be avoided. I have had five loans on the platform. Three of them paid and are now paid off. Two other loans never made a single payment. Both of these loans are in Texas and it has been 2.5 years since loan origination. One of the Texas loans has the property on the market for less than the loan amount but Peerstreet does not communicate that information to the investors. I found the listing on Loopnet. The second property is a lake front house. It has been REO for the last six months and it is still not on the market. If this property was not gutted, the sale should easily cover the loan plus interest when sold. Both of these loans had a loan to value of under 70 percent.
Peerstreet was extremely lax in foreclosing on the lake front house. They actually had a foreclosure date and then gave the borrower forbearance for a month. In that month, the borrower declared bankruptcy and delayed foreclosure for over a year.
Even on one of the loans that paid off, the loan to value listed seemed to to be very over stated. When looking at the appraisal, the comps listed were obviously worth much more than the subject property. Yet they listed them as having the approximately the same value.
Stay away from Peerstreet.
I have been on Peerstreets platform since 9/19. I have had 12 positions with Peerstreet. Out of the 12. 3 are paid off, 3 are current, 2 are late 30 days, 4 are in default. 3 defaults in New York, 1 in Texas. The 3 that are “current” only one has not had a late notice sent. I’m sure COVID had a lot to do with the results, but some of the negative comments below go way back before COVID. I usually look for independent reviews before investing my money. That wasn’t the case this time. As a % of my net worth, I have about 2% of it with the Platform. That doesn’t sound like much but there were many years in my life I didn’t earn that much working full time.
My advice to anyone thinking about using Peerstreet. Don’t. If they were having problems in 2017 something is obviously wrong with the way they evaluate loans as a couple of people stated in the comments below.
If I were to make an uneducated guess as to how they are still in business it is because of a never ending stream of newbies such as myself.
Someone way smarter than me needs to investigate Peerstreet and perhaps file a class action.
That lakefront in TX… Not 103 scenic drive in Heath is it? We may be in the same one where there’s been nothing for 15 months and peerstreet had been terrible about communication. Luckily it was my only loan and I put more into fundrise which has been much more transparent and consistent. Small lesson.
I am considering Peer Street and other such companies. I have invested in hard money aka private equity loans for 30 years.
1. Determine the real LTV. I used to drive all properties, now I must trust the broker/originator and their method of valuation. Appraisals can be useless and misleading. I only deal now with brokers I have confidence in. I do not go over 65% LTV in 1st position and even that is high. Commensurately the lower the LTV, the lower the risk and the lower the return.
2. When researching a new company, I am only concerned with percentage of loans that went to foreclosure and became REO. And what happened once the property was disposed of in terms of gain or loss.
3. There will always be late fees and NODs with these type of loans. Who gets those fees?
I have been with PS a couple years. Before you invest, I strongly recommend reading the blog on their website – scroll down to the section where they post the analytics (its below all of the blog posts about all the awards they get). It is very eye-opening. Obviously you have a lot of experience in this area, but most people don’t – but I just see a basic problem…large loans to people who have low credit scores, who will attempt to fix/flip properties. That works when times are good and in certain markets, but in these current times (Covid), it seems like a bad strategy. These are my concerns:
1. high unemployment (bad for props that are intended for rentals)
2. the “cancel rent” movement – also bodes poorly for rentals
3. Covid is making foreclosures/evictions difficult to impossible for landlords
4. Prices are falling in some previously hot markets
Just my two cents. Initially I was satisfied with PS, but in my opinion, they have a lack of transparency. In todays world, they could easily update their analytics weekly, but instead, they are updated sporadically. I haven’t invested in any loans for about a year now, just letting them mature. Now I am down to 5 loans, 4 of which are seriously delinquent. I expect that it will take another 2 years to resolve them so I can close my account. I am not an experienced Real Estate Investor, so you probably have a better insight on this than I do. My basic premise is that a lot of loans are going into late, then into default, then taking long times to default. PS is extending some loan due dates in effort to keep them from defaulting, but I don’t see that really helping the investors. I know these are difficult times for most everyone, but this has not worked out well for me. I saw a weakening about a year ago, and decided it just wasn’t a good thing for me to be involved in.
Rick I strongly suggest you reconsider. I was in the same situation as you. Doing hard money loans right requires a lot of work. When Peerstreet, Patch of Land, Sharestates and others came online I thought what a great concept. The loans were to be vetted by an experienced team of real estate professionals i.e. originators, appraisers, title companies, attorneys, etc. I proceeded and invested only in highest quality offerings of loans with experienced borrowers, good credit and LTVs of max 60% thus giving myself a comfortable margin. While I was not concerned with another housing market crash, I know the cost of processing a bad loan. Another plus of RE crowd-funding was being able to reduce amount invested in any single property. While all the aforementioned companies performed well the first couple of years starting in 2017, defaults went through the roof in end of 2019 on all platforms and have only gotten worse in 2020 due to inability to process defaulting loans due to Covid. My invested default rate over 200 loans in four accounts ranges is 13.6%, 14.6%, 19.5% and 27.2. Only one of the REOs have been sold, It was through Peerstreet, which returned only 18% of the principal. This was a refinance on a class B office building. According to Peerstreet, the appraisal was considerably off, there was $700K in back taxes that was somehow overlooked, building, elevators were not functioning. etc. Some of my other REO have been on the market for several months and still not selling even with multiple price reductions. While I limited most of my investments to $1,000 to $5,000 max, given the exceedingly high number of defaults it appears at this point my loss of principal will be substantial across all platforms. It’s been a difficult education and not sure how these companies are continue let alone win awards. I’m in a large investment group and everyone seems to be having similar experience with all these RE crowdfunding platforms.
I was in the same investment as yourself and I would be interested in a class action lawsuit. No excuse on that office building, someone lied and gave the investors bad data. Now half of my investments are late or defaulted with on REO. I’m done with peerstreet. Hopefully I get most of my money back before they dry up and blow away.
Excellent group. One on my properties try to not repay the loan. Peer was not letting that happen. This company is great. Compared to the POS Patch of Land.
Peerstreet is a terrible investment platform. In theory, you have loans backed by real estate assets. However, their appraisal values are not to be trusted. I invested in a loan with LTV (loan to value) ratio of 60%. So in theory, the backing asset is worth 40% MORE than the total loan. So you think you’re protected right? Wrong! The loan defaulted and I ended up with a recover of only 18% of the original invested principal! This is after Peerstreet represented that they had NEVER lost principal on any deals prior to my investment. Based on this, I would never invest in Peerstreet again. I don’t see how anyone would want to invest in a platform where the downside risk exceeds 80% loss while the upside is your 7% interest payment. The S&P 500 never loses 80% in a bad market, and has much better returns in a good market.
Amen to that! I have had a similar experience. You never know how long your money’s going to be tied up because they keep extending the loans. I have one loan in Chicago that’s been dragging on for almost 2 years. After doing some research, I now realize the appraisal was bogus and the property is likely worth much less. They move at a snail’s pace on recovery and don’t share much useful information. I now have 5 loans delinquent out of seven. Three I think are going to lose money if they can ever foreclose. I got the same story from them about never losing principal, which I now see is not accurate. Thanks for sharing your experience. To others reading this, run the other way from Peer Street, especially in these times.
As of Jan 2020, I have 16 loans on PeerStreet and 7 are late — this includes 3 that are 90+ days late. During a phone call with a rep, she could not tell me the overall performance rate across all investors. I won’t be making future investments with PeerStreet.
So far here is my experience: 18 fully repaid loans, 0 principal lost. A few loans went beyond their original maturity date but in the end they where all paid in full with interest + extra interest for the extensions. I currently have 16 active loans , 15 are current and one is 30 days passed due. Of the 15 loans that are current on their interest payments one was given a 6 months extension beyond the original maturity date for the loan. I am also using LendingClub and my return on PeerStreet so far is slightly better than what I have on LendigClub. However, LendingClub has a couple of advantages over PeerStreet: 1) Less money is required to achieve sufficient diversification, 2) Investment are more liquid since they have a secondary market.
I too have loans that have matured and waiting on my money for over a year. I have 7K owed to me out of 10k.
I would not do this again If I could go back. Rep told me that there was a chance I could lose all my money. Yikes!
Not encouraging after they told me they had a 90 something percentage of success!
Wow! 7 out of 10 defaulted? Really? I have not purchased any new loans for many months. My concerns drew addressed in a post and I won’t go into those details again. I am down to 14 loans now. I don’t even check the status because there is nothing I can do about it. I still think that, all things considered, there is a property at risk. That should make charge offs much less frequent. However, it only takes a few to completely wipe out an investors returns. I had 37 at my peak and I have a feeling I will wind up with at least a few that don’t pay which will probably result in a zero or negative return. I sincerely hope I am wrong. I will check in a year to see if I have any charge offs. I figure by then anything not paid back probably won’t be.
I would avoid all investments like these in the future. Buy VNQ if you want real estate exposure or one of many public investments. I also have investments in Fundrise and Realty Shares. It is not an apples to apples comparison to Peer Street but I am also not investing anymore $ into those platforms. The easy money in real estate is gone…for now. It will come back but only after a significant and sustained correction.
A follow up to my previous review. The CA concentration is concerning. I have nothing against CA but you add an element of risk by not being geographically diversified. Both known and unknown. That is why I am against the auto feature. Also, when loans are made available, bots are buying them up. I have seen a subscription fill within 20 seconds. I mean, really? Think this is not a problem. Try getting concert tix. Something needs to be done about this.
Anyway, an even bigger concern should be that banks are lending again. The implication of that is that PS and others are now competing for business that is of a lower quality. Thus, the pick up in troubled loans. Keep in mind, this is happening in a good economy. What will happen in a bad economy?
At my peek, I had 37 loans, all $1000 each. It is an absolute must to be diversified with this type of investment. If you cannot afford at least 25 loans, then stay away. I now have 29 and am taking money out when the deals are paid off. My risk will actually increase. If I wind up having just 2 or 3 defaults, then I will literally make no money. For someone who only gets 5 or 10 loans, if even 1 defaults, you are guaranteed to lose money. I honestly think that many look at the yields but they don’t look at the math on the other side.
If you are new to investing in this manner, I do not think this is a good time to enter this asset class. Just IMO. Ironically, my risk will increase as I do NOT reinvest my paid off loans into other PS loans. There isn’t much I can do about it now. I am concerned.
I invested $50k with Peer Street in June of 2017.
I have 20 loans, two of witch are 30 plus days late and two are 90 plus days late. That is a 20% fail rate. Not good. In Peer Street world that means 60 to 90 days with no payments and 90 to 120 days with no payments.
They only update/pay on the 1st and 15th witch turns in to the 2nd and 16th without holidays or weekends. Grindingley slow wait to see who defaults next.
The worse part is they appear to try and work it out with the borrower in steed of starting the foreclosure right away.
Also there loan to value is just BS. They use all kinds of banking tricks to claim loan to value of 75% or better.
They have about 850 loans on the books, I ask how many are 30 days later or greater they will not tell me.
I wish I felt like I could trust this company(would love to invest more) but at this point I am looking to get my money back before the ceiling falls in. Because they will not survive a 20% fail rate.
Another problem is they are not profitable. They claim to have 500 million in loans out, they also claim to make 1% ( If the loan is 8% they take 1% and you get 7%) that means that they make 5 million a year. they have a 100 people working there. Some PHDs some MBAs many BSs there is no way to cover all this with 5 million.
I am not saying don’t try this but I am saying use caution.
I invested 20k in peerstreet 18 months ago, 8k of my 20k is either in default or forclusure. This is not a good investment. Atleast with lending club you are almost guaranteed a positive return. Look elsewhere.
I will disagree with the assessment that Peer Street represents a high risk investment. Given the nature of the investment – short term and secured, the loans are actually much less risky than what you could find on other types of real estate platforms. Many fall behind on payments (not surprising given that many loans are for rehab purposes) but defaults are extremely rare. Compare that to Lending Club or Prosper. Certainly, there is some risk involved. I agree that this isn’t for the very small investor. You need at least 30 loans to be minimally diversified. I do have one concern – the majority of loans originate in CA. In of itself, this is not necessarily bad but does increase geographical risk.
I will disagree with your disagreement. I have 8 loans out of 20 with peer street that are in the forclosure process or about to start. This is incredibly risky and it’s very ignorant of you to say otherwise.
isn’t the spread separate from the fees charged to the investor?
for example, borrower pays 12% but investor makes 7%. the platform nets 5%. but doesn’t the platform charge an additional x% of the annual investment made by the investor each year?
Made a small investment of only 1k to try it out, yes it was only one loan but their sales pitch is such that they try to convince you that they weed out all the degenerates who won’t pay back their loans, when in fact they cannot do that. So buyer beware that you are investing in PeerStreets dreamed up value via the pitch and be prepared to lose you money.
Kevin, Would you have any information regarding Peer Street years in business, actual default rate on loans from inception and overall investor returns since inception? From your article, I cannot determine who a ‘small investor’ would be. It would be helpful if you could expand on that. As far as the ‘accredited investor’ status, would someone who has less than the “AI’ requirement be able to invest within the new A+ regulations? From the information you present, it looks to be a potentially lucrative investment for someone who is looking to diversify into the real estate area by using a small amount of money with a large potential for investing in multiple smaller loans as well. I’m wondering why you gave a ‘thumbs down’ recommendation on the investment. Thanks!
Hi Guy – I didn’t really give it a thumbs down, it was 3.5 stars out of 5 which is a positive rating. But I wouldn’t recommend it across the board.
A small investor would certainly be anyone who doesn’t qualify as an accredited investor, which leaves a lot of investors out. I don’t know how A+ regulations change that. It could be a lucrative investment for someone who has large resources and can take the hit.
This is a high risk type of lending, much more so than Lending Club or Prosper. First of all, you’re dealing with real estate investors, often involving rehabs. That’s risky enough. But you’re also dealing with a wide number of originators (contractor/investors) and that’s hardly a standardized group. And of course, the loan investments themselves are not secured loans, unless you can afford to fund an entire loan.
I do think this could work for someone with a large portfolio who can easily absorb the risk/reward equation, but it’s too risky for someone with limited capital and who doesn’t understand real estate investing. This type of real estate investing is highly specialized.
The firm got started in 2014, which in my opinion is another reason why small investors should probably avoid it. There’s little in the way of a track record, which increases the risk. I think that the people who run Peer Street have used good judgment in limiting investor participation.
Hey Kevin
just one question why is this more risky than lending club or Prosper ?
I use the auto invest in lending club and seem to have a high rate of default
making just above 3 percent. I am getting out and have moved to peer street
over the last year have had no defaults and no regrets
I will update my review from above. A few months ago I disabled the automated investing feature because more than 90% of my loans were in CA. I have nothing against CA but that violates a basic of diversification in regards to geography. Lately, I have attempted to purchase loans and have been on the platform when they are introduced. The exact second they are introduced and still cannot get a fill. It is highly probably that bots are now buying. I see no way this can consistently happen. I have registered my displeasure with PS who has informed me that people setting up bots to buy would be a violation of the terms and agreements and they would be banned. I take them at their word since they are transparent. However, common sense tells me differently. Everything I said in my review above still stands. Again, I am not in a position to conclusively prove anything. It is just my observation of what is happening that guides my thoughts.
I think it is an excellent way to invest as long as you can obtain enough loans to be diversified. This is not for someone who is just starting out. You need some real cash to invest. For a while longer I am going to attempt to invest. Yesterday, I actually had an investment in my Q seconds after it was introduced and it didn’t fill. I will try again but will find other investments should I continue to suspect that the playing field is not level.
PeerStreet advertises that they have had no defaults to date (but as Kevin reminds us, they’ve only been around for a short time, so take that with a grain of salt). I currently have 16 positions/loans that I’m participating in with the platform and so far only two are behind on their payments (the platform just says “Borrower payment not received. Borrower is working with lender and servicer to set up ACH”). I just started with these positions at the beginning of the year so they don’t have much time under their belt and the two late loans may be just issues getting ACH auto-payments set up. If you’re interested in these kinds of investments but without as much risk in each position (min $1k per position) then a more traditional product that has similar returns would be a REIT (I participate in RealtyMogul’s REIT and so far it returns about 8% which isn’t much less than PeerStreet).
Kevin, one correction in the listing here: PeerStreet lists mostly residential properties, not commercial (I’ve only seen a couple commercial properties come across the platform).
All in all, I agree with Kevin’s assessment. It’s a very “valid” financial product, but it is risky and hasn’t been around long enough to be “time tested” and the average investor should look at REITs or other traditional investment products as a better balance of return vs. risk. In a few more years, PeerStreet’s performance can better be evaluated and determined to be a “safe enough” investment for the more average investor. With the JOBS act that was passed a few years ago, it made new financial products like this possible (that’s why there are a bunch of new companies like PeerStreet now, since these companies/products are only made possible by the JOBS act). There’s hope that the more stable products will have the “Accredited Investor” restriction removed once enough time has passed to prove that a given product is indeed stable (and has similar risk/reward and transparency as existing, unrestricted financial investment products).