Wondering if you should consider PeerStreet for your next investment? This in-depth PeerStreet review will break down how real estate backed loans work and the pros of cons of investing in them. The review also provides a step-by-step guide of PeerStreet’s application process.
PeerStreet is an investment marketplace that surpassed $300 million in loans funded as of May 2017. It is a place where accredited investors, institutions, and funds can invest in private real estate loans.
Co-Founder and COO of PeerStreet, Brett Crosby says, “We have investors of all kinds, from beginners to people who know a lot about real estate, lending, and mortgage finance.” Unlike other marketplaces where people apply for loans that investors can fund, PeerStreet does not offer loans to borrowers.
Instead, it sources its loans from existing real estate lenders. So, if you as a consumer find a house you want and apply for financing, your financing company can turn to PeerStreet, but you can not go to the company directly (except for a referral to a lender). It’s a platform for investors to build their own portfolio of real estate loan investments.
In the words of Crosby, “PeerStreet’s mission is to democratize access to investments in real estate backed loans. We help investors find yield from an asset that improves communities. The bigger this gets, the more neighborhoods we can improve.”
PeerStreet private real estate loans: The general loan profile
PeerStreet loans are usually secured by first liens on real estate, they have short tems (3-36 months), and they have a loan-to-value (LTV) of 75% or less. They also have a wide range of investments available, varying in characteristics such as property type, maturity, geography, and originator.
PeerStreet’s mission is to democratize access to investments in real estate backed loans. We help investors find yield from an asset that improves communities. The bigger this gets, the more neighborhoods we can improve.”
When it comes to profitability, the historical annualized returns range from 7%-12%, according to PeerStreet. How is the rate so high if traditional mortgages typically have rates around 5%?
The secret is that PeerStreet works with loans originated by private money lenders. These lenders offer borrowers quicker capital with more flexibility, which warrants the higher interest rates.
How do PeerStreet’s real estate loans work?
What happens when you go to sign up with PeerStreet? You can sign up for free but must be an accredited investor. Accredited investors include banks, developers, and private investors with $1 million or more in liquid assets.
See the “getting started” section below for step-by-step instructions. After you are all set up, you will fund your account.
Then, you can manually choose the loans you want to invest in, or you can set parameters using the Investor Dashboard and let automated investing do the work for you. In the case of the latter, when a loan comes up that meets your criteria, you will receive an allocation based on PeerStreet’s prioritization algorithm.
Investments can be as little as $1,000 per loan.
Click here for PeerStreet’s latest rates and terms.
PeerStreet loans: Getting Started
Here’s how the application process works.
1: Head over to the PeerStreet website home page and click “Get Started.”
2: Provide your basic information to create your account.
3: Provide your income and net worth information.
4: Complete your investor profile.
5: Your basic account is set up. You can now learn more about PeerStreet and start checking out investments.
6: If you click “See Investments” above, you will be taken to this page where you can view available and active investments.
7: You can also click over to the “Overview” page, which is where you will manage your investments.
8: Next, you will want to click “Complete Profile.” Here, you will provide additional personal information, verify your identity, sign the investor agreement, confirm your email address, and then will be all set!
The set up is relatively easy and quick.
Why choose PeerStreet over investing on other platforms?
“PeerStreet has always focused 100% on first position liens on real estate. That means it is the safest place in the capital stack and first position to be paid back. And rather than sourcing loans from borrowers, we work with existing private lenders across the country who know their local real estate market. We vet them and their loans, which helps us scale while maintaining quality,” says Crosby.
For the loans, vetting includes:
- Reviewing legal documentation
- Performing an independent valuation
- Ensuring the loan meets PeerStreet’s underwriting guidelines
- Performing independent underwriting of all loans using both manual processes and big data analytics
For the origination partners, vetting includes:
- Reviewing their track records, financials, legal and underwriting processes, licensing, and adhering to state usury laws
- Running background checks
You may be wondering what happens if the loan defaults. If it does, your ROI will be at stake. However, PeerStreet has a team highly experienced in law, real estate, and regulatory compliance that goes to bat to protect investments.
Being that the loans are tied to the deed or mortgage which is secured by a hard asset, you will be in a favorable position to recover your principal investment. PeerStreet also has a good track record: a zero-loss record to date.
Pros and Cons of PeerStreet real estate loans
To recap, here’s a quick rundown of the pros and cons.
Compare the pros and cons to make a better decision.
- High annualized return rate
- Short term loans allow for quick turn around
- Loans are backed by hard assets
- The debt you are buying is first position senior debt
- Low minimum investment requirements allows for increased diversification
- Low LTV provides equity cushion (margin of safety in case the property loses value)
- Good track record: $300 million loans funded with no losses yet
- Advanced technology that makes this asset class more accessible
- Private real estate loans have a higher risk of late payments
- Loans could default, which can put your returns at risk
If this sounds like a marketplace investment opportunity, you would like to pursue, learn more and apply by clicking here.