My $10,000 Real Estate Crowdfunding Experiment with PeerStreet [Review]

 

Are you an accredited investor looking for a way to get involved in real estate investing without actually owning and managing a piece of property yourself?

Our Rental UnitI have my own rental property (pictured to the right), but I can’t imagine taking on another one at this point. And the turnkey stuff either seems shady or too involved. So I’ve been looking at all of the various options and asking some friends.

Coach Carson, the author of Retire Early with Real Estate, suggested I look into PeerStreet. So I did. I liked what I found, and back in April, I got started with them.

Here is my experience with PeerStreet, a real estate crowdfunding platform that I’ve been using for the past six months that’s helped me scratch my real estate itch. All while earning ~5% annual return.

What is PeerStreet?

PeerStreet is a peer-to-peer lending or crowdfunding platform. It provides a stage that connects lenders (that is, you) with borrowers looking for short-term loans for real estate.

The borrowers are “real estate equity investors,” meaning they are professional investors who purchase a home or property, fix it up quickly, and sell it again at a higher price.

The lenders who invest in PeerStreet put their money in real-estate-backed loans and are offered a first-lien position. A first lienholder is the first person to get paid back if a deal goes sideways, which means your money is more protected in case of default or other significant problems.

This investment type is different from a more traditional REIT because it provides more transparency and flexibility for the investor.

With PeerStreet, you can select from various portfolios of real estate loans. These loans are constructed of different property types, geographic locations, loan maturity dates, and more.

PeerStreet also claims to have a lower fee structure than a traditional REIT, which allows the investor to capitalize on the higher returns offered by PeerStreet. You can expect to pay a servicing fee of between 0.25% and 1.00% with PeerStreet for each loan you invest in.

All real estate loans through PeerStreet have been selected from vetted private financial institutions in the United States. The borrowers you will be lending to are proven experts in the real estate industry.

PeerStreet is not an investment platform for everyone. There are extensive criteria for the investors with whom they work. These investors are known as accredited investors.

PeerStreet

Connecting lenders (like you) with borrowers looking for short-term real estate loans!

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What is a PeerStreet Accredited Investor?

To invest with PeerStreet, you must qualify as an accredited investor. According to the SEC, to be an accredited investor, you must earn an income that exceeds $200,000 a year or $300,000 if jointly filing with a spouse.

If you don’t meet the income requirements, you can have a net worth that exceeds $1 million individually, not including any equity in your primary residence.

Here’s the complete list of the qualifications required for accreditation.

How Does PeerStreet Funding Work?

PeerStreet works with trusted private lenders to source real estate loans. Before they bring the loans to the investors, they review the private lenders’ loan history as well as run each loan through their underwriting algorithms, in addition to traditional underwriting methods.

Once the private lenders and loans have been vetted, then investors can select their investments.

You have the choice of looking through the options individually to choose your investments, or you can specify investment criteria like the loan rate, the loan-to-value ratio, the loan term, and the amount you will invest per loan.

What are PeerStreet Returns?

Per PeerStreet, the average mortgage rate is about 5%. However, they claim to offer an average APR of 6%-9%. This is because they are using private money lenders, which tend to offer higher interest rates.

Borrowers will take higher rates from lenders because these loans may provide more flexibility and quick access to the money.

PeerStreet Dashboard

PeerStreet Features and Fees

PeerStreet is setting itself apart by giving investors more flexibility and transparency than they could get with more traditional real estate investments.

Some of the features you can expect to find with PeerStreet include:

Investment options

The majority of loans offered by PeerStreet are short-term loans, generally about 6-24 months.

However, when you open an account, you can select different criteria to meet your diversification requirements. Tthese preferences include geographic locations, maturity dates, property types, investment risk, and more.

Automated investing

Another way that PeerStreet allows you to fulfill the diversification of your portfolio is to automate your investing. If PeerStreet doesn’t currently have a loan available that meets your preferences, you can choose to be placed on a waiting list.

When that loan becomes available, PeerStreet will automatically invest your funds into that specific investment. Your balance must be over $1,000 to participate in automatic investing.

Multiple account types

You can choose to open a taxable account or a self-directed IRA. Your self-directed IRA will act as a retirement account. You can transfer funds from your previous 401(k), 403(b), or a 457 plan to fund your account.

Integrations

PeerStreet has recently announced its integration with Betterment and Wealthfront. This will now allow you to view all of your investments in one location and see the entirety of your portfolio and asset mix.

Account security and protection

Investors’ funds are held in Investor Trust Accounts with City National Bank. All accounts are FDIC insured up to $250,000.

Loan defaults

If a default should occur, PeerStreet works on behalf of the investor to make sure the process will maximize the investor’s proceeds. They work to protect the investor’s best interest at every step of the default process.

Additionally, the program reassures investors that if PeerStreet itself were to go out of business, a third party would step in as a “special member” and manage all remaining loan investments as a trustee.

Peerstreet Alternatives

PeerStreet has a variety of competitors, but Realtyshares and Fundrise are the two most closely related alternatives.

Peerstreet vs. Realtyshares

One of the most significant differences between these two companies is the types of investments offered. PeerStreet sticks to just debt, while RealtyShares provides debt and equity investments.

These two companies also offer a different minimum investment required to open an account.

  • With RealtyShares, most of their accounts require a $5,000 investment, and you must be an accredited investor. RealtyShares is no longer taking new investors.
  • PeerStreet investors must also be accredited, but it has a lower investment minimum of $1,000, which allows for more diversification because you can have a small slice of multiple loans by investing the minimum in several different loans.
PeerStreet

Connecting lenders (like you) with borrowers looking for short-term real estate loans!

Get Started
We earn a commission if you click this link and make a purchase at no additional cost to you.

PeerStreet vs. Fundrise

Another popular competitor to PeerStreet is Fundrise.

Both companies are available to investors in all 50 states. They also both allow investments through IRA accounts. Beyond that, they are very different companies.

While PeerStreet focuses strictly on residential properties, Fundrise offers residential and commercial investment opportunities.

Another big difference is that you do not have to be an accredited investor to invest with Fundrise. Anyone can get started with as little as $500. Fundrise’s fees are all at 1% of every investment.

Investments made through Fundrise are typically set up with a long-term focus in mind, as they charge a fee if you withdraw your money before it has been invested for five years.

Each peer-to-peer lending company may vary. Do your research and compare all companies before moving forward with your financial decision.

Check out our full review of Fundrise here

PeerStreet Pros and Cons

Pro: Low Minimum Investment Requirement:

PeerStreet requires a $1,000 minimum investment.

Pro: Opportunity to Diversify

All of the investments at PeerStreet are real estate loans; however, you can select various geographic locations, property types, maturity dates, and more within this investment class.

Pro: Limited Risk

PeerStreet investments are closer to bonds than stocks. This minimizes some of your exposure to volatility and risk. Essentially, you may be less likely to lose all of your money with this type of investment.

Pro: Short-term Maturity

All loans have short-term maturity rates between 6-24 months. This can offer a better option than an investment in a fixed asset.

With fixed assets, you run the risk of interest rates rising above your locked-in rate without being able to liquidate your investment without penalty.

Investments with shorter-term maturity give you more flexibility to make changes to your investment strategy as rates change since your money will never be tied up for more than 24 months.

Con: Non-Liquid Asset

Though the short-term maturity is a big selling feature, it’s important to remember that once you invest in one of PeerStreet’s real estate loans, you will need to stay invested until the loan matures. Unlike similar bonds, there is no secondary market for you to sell your asset. If you need liquidity, this may not be the right investment choice.

Con: Must Be an Accredited Investor

The accredited investor requirement removes a lot of smaller investors from the PeerStreet platform. Many investors may not meet the SEC requirements.

My Approach with PeerStreet

Here’s how I went about investing in real estate through PeerSteet.

First, I opened my account, verified my accredited status, and deposited $10,000.

Over three months, I invested $2,000 at a time in various deals. My goal was to diversify a portfolio of five investments by geography (East Coast, West Coast, Heartland), time horizon (three months, six months, twelve months, and eighteen months), and loan type (acquisition vs. refinance).

Here’s a snapshot of my portfolio six months later (you can see some of my original loans have closed, and I’ve picked up more):

LoanStatusInvestmentRateMaturesOutstanding PrincipalInterest
Washington, DC AcquisitionPAID OFF$2,000.003.00%5/7/2018$0.00$5.00
Capitola, CA AcquisitionPAID OFF$2,000.007.25%6/6/2018$0.00$19.33
East Hampton, NY Cash-Out RefinancePAID OFF$2,012.003.00%6/11/2018$0.00$5.03
Sacramento, CA AcquisitionCURRENT$2,000.007.25%4/1/2019$1,635.43$24.38
San Antonio, TX AcquisitionCURRENT$2,000.007.00%4/1/2019$2,000.00$48.62
The Colony, TX AcquisitionCURRENT$2,000.007.00%5/1/2019$2,000.00$58.74
Beverly Hills, CA Cash-Out RefinanceCURRENT$2,074.008.25%1/1/2020$2,074.00$46.11
Edmond, OK RefinanceCURRENT$2,000.007.00%3/1/2020$2,000.00$65.74

Friends might notice I picked one of these properties near my hometown so I could see the property if I wanted. All in all, I’ve made $272.95 in interest on my total investment of $10,000 in roughly six months. That’s around a 5.5% annual return. Not bad.

I’m a little out of balance and will likely fund my account to get me up to $1,000 in investable cash over the next few weeks. Then I’ll try to pick up a three-month investment on the East Coast to round out the portfolio.

PeerStreet

Connecting lenders (like you) with borrowers looking for short-term real estate loans!

Get Started
We earn a commission if you click this link and make a purchase at no additional cost to you.

Am I afraid that a default could happen? Sure. But in case of default, you are the first lien holder, which means you’ll be first to receive the funds from a future sale of the property.

Also, anecdotally I’ve heard that PeerStreet makes an effort to bring investors back to a whole position on bad deals, but that’s not promised. That’s why I’m diversifying with 5+ investments.

Long-term, I see PeerStreet as a way to raise the interest rate I’m earning from my excess cash and remain somewhat involved in real estate beyond my one rental property.

At some point, I may turn on automatic investing and let PeerStreet do its thing, but , I’m happy sifting through the options for now. Try PeerStreet investing today.

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About Philip Taylor, CPA

Philip Taylor, aka "PT", is a CPA, blogger, podcaster, husband, and father of three. PT is also the founder and CEO of the personal finance industry conference and trade show, FinCon.

He created Part-Time Money® back in 2007 to share his advice on money, hold himself accountable (while paying off over $75k in debt), and to meet others passionate about moving toward financial independence.