PeerStreet is a crowdfunded real estate investment company founded by real estate attorney Brew Johnson in 2012.
The idea behind PeerStreet is to open up the complex and expensive (yet very lucrative) world of short-term real estate loan investing by introducing the market to the popular trend of crowdfunding.
In this PeerStreet review, we’ll cover:
- What crowdfunded real estate is
- The pros and cons of investing in PeerStreet
- The requirements and minimum investment
- How to get started
PeerStreet offers estimated annual returns as high as 9% on short-term real estate loans, but the platform is only available to accredited investors and is best suited for those who don't require liquidity.
What Is PeerStreet?
As a PeerStreet investor, you’re funding real estate loans — and more specifically, short-term loans that are referred to in the industry as “hard money loans.”
These hard money loans are often used by developers who need capital to build a project, or by “fix and flippers” who are looking to get in and out of a project as quickly as possible.
From the borrower’s perspective, these loans are not cheap. Hard money loans average around 6-12%, with some going much higher.
This makes for some very attractive rates on your end, and explains why the borrower’s goal is to sell (or refinance via a conventional lender) as quickly as possible.
PeerStreet only approves loans with a maximum loan-to-value (LTV) of 75%. Furthermore, in the vast majority of loans, they hold the first-lien. This protects your downside potential, because if a borrower is foreclosed upon, there’s still some margin before you lose money.
In other words, the property would have to decline by more than 25% of its original appraised value for you to be in the red. Additionally, as the first lien holder, PeerStreet investors have the first right to assets in the case of a foreclosure.
As an investor, you collect interest on the loan and are paid back your investment (minus fees and transaction costs). PeerStreet issues a 1099 (you’ll either get a 1099-OID, 1099-INT, 1099-MISC or 1099-B, depending on your mix of investments) at the end of the year for any interest income you earned.
According to PeerStreet, you can expect to earn around 6% to 9% per year by investing in this type of real estate loans.
There are a number of benefits to using PeerStreet.
- It doesn’t cost much to get started. You can begin with only $1,000 per loan, which lets you diversify your portfolio and lessen your risk.
- You don’t have to commit to anything to see how it works. You can sign up for free and look at the potential investments without promising any money. If you like what you see, you can proceed — but there’s no commitment to do so when you sign up.
- The loans have been pre-vetted by PeerStreet’s team of real estate and finance professionals.
- You don’t have to pick the loans yourself. You can rely on PeerStreet’s “Automated Investing” feature to hold your spot in loans that meet your pre-defined criteria. You then have 24 hours to review those loans before your funds are automatically invested.
- PeerStreet offers the ability to invest in a self-directed traditional or Roth IRA (through STRATA Trust Company).
At the same time, using PeerStreet isn’t for everyone.
- You have to be an accredited investor to use PeerStreet. (You can see some of the criteria accredited investors must meet in the next section).
- For some people, the lack of liquidity associated with the investments may be a problem. Once you make an investment, you can’t pull your money out of the loan if you suddenly become strapped for cash. (The loan terms are typically between 6 and 24 months.)
PeerStreet vs. REITs
What’s the advantage of investing in PeerStreet vs. a real estate investment trust (more commonly referred to as a REIT)?
First, you get to exercise a lot more control over what you’re investing in. With PeerStreet, you’re actually choosing specific investments on a case-by-case basis (or, if using automated investing, setting the criteria for the types of things you want to invest in).
With REITs, you don’t have that level of customization.
PeerStreet also claims that its fee structure is more favorable than that of REITs. With PeerStreet, you’re paying fees of .25% to 1% on average (charged through a spread in what PeerStreet makes the loan at vs. what they pay you).
For investors who need liquidity, REITs offer a big advantage. Right now, you can’t sell your PeerStreet investments before their terms are up (although the company hopes to offer this ability in the future).
On the other hand, if you’re invested in a REIT, you can sell your shares at any point and have the cash sitting in your account within a few days.
PeerStreet Investor Requirements
Although the minimum investment is only $1,000, you must be an accredited investor to invest.
To be accredited, you must have a net worth of more than $1 million – and that figure doesn’t include the value of your primary residence.
You can also be accredited if your yearly income is more than $200,000 (for a single person) or $300,000 if you’re married.
PeerStreet Review: Final Thoughts
Where PeerStreet shines in the crowdfunded real estate space is in the level of customization offered to investors. Other platforms, such as Fundrise, don’t allow you to invest in specific projects.
This customization can be both good and bad. For those with a lot of experience in real estate investing, it can be a great way to use that knowledge to diversify your portfolio.
For those new to real estate investing, the customization can be overwhelming and can potentially lead to unfavorable results.
The other large downside — especially for those who are not used to investing in real estate — is the lack of liquidity. You can’t sell your investments before the terms are up.
So, the knock against PeerStreet isn’t so much its ability to deliver excellent returns, but rather that it’s primarily suitable for a limited class of investors; those who are accredited, who are knowledgeable in real estate, and who don’t require liquidity.