Peer Street Features
#1 (out of 100+) Last year ranking: #1
#1 in best residential debt platforms, #2 in best hard money loan safety records, #3 in lowest minimums.
What is PeerStreet?
PeerStreet specializes mostly in residential debt investments (also called fix-and-flip loans or hard money loans), and a smattering of multifamily and commercial loans. They have one of the lowest minimums in the top 10 ($1K versus $10K average). They also have excellent transparency and claim a very low default rate.
On the other hand some investors have complained of inadequate information when a deal goes wrong. And conservative investors who have stricter criteria may not find enough volume on the platform to justify the effort. Also, the single-note investing style of PeerStreet (and all hard-money loan plaforms) may be less desirable to those who prefer the better diversification and higher volume of hard money loan funds. More on these in the "pros and cons" section.
How Does PeerStreet Work?
Most debt platforms make loans to borrowers, and then resell them on their marketplace. Peerstreet is different, because it doesn't originate any loans.
Instead, it purchases them from others, and then lists them on the marketplace. Investors can purchase pieces of those loans to share in the profit (or loss). Typically the borrower is themselves an investor who wants to flip a home. (Purchase a home that is run down, fix it up, and hopefully sell for a profit).
Since the site purchases the loans from third parties, this removes a potential conflict of interest. Since platforms that originate generally charge the borrower an origination fee, that might make it harder for them to stop originating when it's necessary.
On the other hand, it does mean that Peerstreet is more expensive, because its a middle-man that charges an extra "servicing fee". Platforms that originate themselves don't charge this (or have lower fees).
The Peerstreet fee is usually 1%, but can range from as low as 0.25% to 1%. Peerstreet does a good job of notating this in the rate details on the loan so you know exactly how much it is. They also tell you who the originator is, and how much skin they have in the game, which are also helpful features.
Occasionally there are other fees associated with an investment, such as when they pay the originator extra for an older, "seasoned" loan. (The idea being that sufficiently old loan has a lower chance of defaulting). It also discloses these since these fees are ultimately paid by the investor. with a lower return.
If the borrower on a loan stops paying, Peerstreet will attempt to negotiate a payment. If that fails, they will oversee the foreclosure process, which can take months (in nonjudicial states) to years (in judicial states) and can get expensive. After that, it oversees the rehab and selling of the property.
If the net proceeds are more than is owed than the investor gets back their owed principal and interest, and maybe even a boost of extra penalty fees. On the other hand, if they're insufficient then the investor takes a loss. During the time all of this is going on, the investor usually receives no interest nor their principal back.
Like on many crowdfunding debt platforms, investors do not directly own the notes (i.e. the investment is not directly secured by the note). Instead, they are indirectly secured. What this means is that the note is held in (and is direct security in) a separate LLC. That LLC then pledges the note to the LLC the investor is a co-owner of. This indirect structure helps platforms avoid some legal structural issues, as well as prevents them from having to disclose the name of each investor in UCC filings (since most investors don't want to that information disclosed). (Here's more information from another platform with the same structure, on why this is done, and giving more details).
In most cases, investors would not notice a difference between this and directly secured notes, and investors would receive the same benefits and/or losses as if the investment were directly secured. However, if the administrator of the LLCs (PeerStreet) stopped performing their duties (such as in a bankruptcy) there would be a potential problem. There would be no company to service the linkage between the two. And even if there were, potentially all of the investor money might be held in limbo by the bankruptcy court for a year or more, while they determine if the money should go taken from investors and used to satisfy creditors of Peerstreet or not. Obviously, that's not a good situation for investors to be in.
Fortunately, a company can address these issues. They can set up the investment as a bankruptcy remote entity so that it won't get sucked in the bankruptcy. And then they can set up provisions for backup manager to take over in the event of a bankruptcy (either a backup administrator set up in advance, or the ability for shareholders to vote on a new one). Peerstreet claims it does both of these:
"PeerStreet holds loans in a bankruptcy-remote entity that is separate from our primary corporate entity. In the event PeerStreet no longer remains in business, a third-party “special member” (CT Corporation) will step in to serve as a trustee to manage loan investments and ensure that investors continue to receive interest and principal payments." -PeerStreet.com
Peerstreet pre-funds notes and used to do it with its own cash. So if investors didn't like the loan and didn't fully fund it, Peerstreet was stuck with it. In theory this would seem to make a platform do strong due diligence. In practice, investors on another pre-funding platform allege that the feature has not prevented inadequate due diligence.
And now Peerstreet no longer prefunds completely from it's own money. Instead it gets outside parties and investors to put up some or all of the cash. So any advantage of pre-funding that may exist here, is arguably diluted.
What are PeerStreet Pros and Cons?
Virtually every site in the industry claims that they have superior due diligence. PeerStreet is one of only a handful of sites that backs up marketing claims with concrete proof. They allow investors to review the performance of every past investment.
And very impressively, since 2014 it claims only 1% (12 loans out of 1,200 ) have had a notice of default (or lawsuit) filed. (In comparison, some sites might have 5 to 10% uncured default rate or more.)
The site has currently lost $0 of investor principal (although some interest was lost). In October 2017, the site had originated over $500M in loans.
Of those 12 loans:
one has been brought current and reinstated
two properties have been taken back through foreclosure - one of these foreclosures has been sold with 102% of the investors' initial investment amount returned and the other is in process
the remaining nine are at various stages of the foreclosure process
For this transparency, consistency and stellar performance record, PeerStreet is ranked #1 in our 2017-2018 rankings.
PeerStreet does have blemishes as well and may not be for everyone.
Some investors have complained of inadequate information when a deal goes wrong.
Also, it doesn't have a lot of volume (especially when compared to hard money loan funds). This can make it difficult to create a properly diversified portfolio.
And (like many other hard money loan crowdfunding platforms), many of the LTV's (loan-to-value, which is a measure of risk) have been increasing over the years. (For more information on the risks of investing in higher LTV loans and ways to address it, see this article series on "hard money loan roulette".)
Additionally, it loans in some states that do not have a nonjudicial option. This means that if things go wrong and foreclosure has to be invoked, it can take years (instead of months) to resolve before you get your money back. And it can be very expensive (which further stresses out the equity cushion and can cause losses). Investors who are concerned about a recession potentially causing a lot of foreclosures, may want to cherry pick the loans and avoid the states that don't have a nonjudicial option.
Overall, conservative investors who have stricter criteria may not find enough volume on the platform to justify the effort.
Also, the single-note investing style of PeerStreet (and all hard-money loan plaforms) may be less desirable to those who prefer the better diversification and higher volume of hard money loan funds
Finally, unlike some competitors, PeerStreet does not originate its loans. As a result, it's dual fee structure (spread charged to the investor, and spread given to the sponsor), results in higher total fees than competitors. However, given the performance, some investors may choose to overlook this.
Update 4/5/2018: Peerstreet filled it's coffers higher with an additional $29.5 million in venture capital.
For more raw data on the site (including investor and sponsor fees, legal structure etc.), or to easily compare it with the data of competitors, see the feature by feature comparison matrix.
PeerStreet Quick Pro & Con Summary
Advantages: Excellent transparency, solid performance record, lowest minimums in the top 25 ($1000 vs. $5000 average), $54.5 million in venture capital funding.
Disadvantages: Fees tend to the high side (dual spreads total .75% - 3.25% versus 1% average), not a lot of volume, many higher LTV loans and judicial only. May not be suited to some conservative investors or those who find single-note investing less preferable to a hard-money loan fund.
Accolades: #1 for residential debt investment, and #3 lowest minimums. #2 hard money loan safety record
Is Investing In PeerStreet Legal?
Peerstreet markets to investors under 506C, meaning that it's only available to accredited investors. Since it is not using 506B, new investors are able to view investments immediately and there's no 30-day waiting period. Since it is 506c, it also requires investors to prove their accredited status (and update it periodically).
What does a PeerStreet deal look like?
Here is my step-by-step due-diligence on a random Peerstreet investment. So it may or may not be a typical investment. Also I'm a very conservative investor, so something that's way too risky for me might be the perfect fit for someone else who is more aggressive. Finally, I'm not a financial advisor, attorney or accountant. So this is just my personal opinion and always consult your own financial professionals before making any financial decisions.
This investment is in a Egg Harbor, NJ, and is loaning money to an investor to fix up a single-family residence, so they can rent it out. It's an 11 month loan that has a projected return of 7% and a minimum investment of $25,000.
The first step is to make sure that the asset class and strategy even make sense for my portfolio. (If you don't know how to do this, please see The Conservative Investor's Guide to Due Diligence).
For me personally, the single-note investing style of PeerStreet (and all hard-money loan plaforms) is less desirable to the better diversification and higher volume of hard money loan funds . But other coming from a different place may be perfectly fine with these issues. Let's say it makes sense for my portfolio and dive in.
Like all loans in PeerStreet, this is a first position loan, meaning that if there is a problem I will be the first to get paid back. As a conservative investor, that's a huge plus.
It is at 75% LTV (loan-to-value), which means it is lending 75% of the after repair value of house. Many experienced hard money lenders feel that it's too risky to go above 65%. If something goes wrong with the loan and there's a severe downturn, there's a good chance I won't get my principal back. (See the Guide on Hard Money Loan Investing). So this is an immediate red flag for me and I would move on to the next investment. But this might be perfectly fine for someone who's more aggressive.
(By the way, Peerstreet uses a proprietary metric called "as-is LTV" which many investors confuse with loan to cost (LTC). However the two are not the same and "as-is LTV" is always going to give a better-looking, lower number than actual LTC. For example, on this loan, the "as-is LTV" is 75%, which gives some investors the impression that it is 75% loan to cost. However if you actually calculate it out, it's 86% loan to cost ($164,500/$190,000). The reason for the discrepancy is that in their "as-is LTV" they subtract out the construction reserves, which in the beginning of the loan is going to be a large part of it. )
The loan is being made in New Jersey. New Jersey is a judicial-only state, meaning that if something goes wrong, the foreclosure has to go through the court system. This can be extremely expensive which increases my chance of losing principal. And it might take years to get my money back, which I don't like the sound of. I personally would rather be in a nonjudicial state, where I can foreclose very cheaply and in just a couple of months. So for me this is another red flag, but again might be fine for someone else less conservative.
Finally the rate is 7%. There are hard money loan funds (like Arixa Secureed Income) currently yielding 7 to 8%, but more conservatively underwritten (65% LTV, nonjudicial states, etc.). So for me this is not competitive and I would be out. But again, others might be fine with this.
Had the investment passed those initial check, I would have dived in further to check out the sponsor, the property itself, the projections, etc. To learn how I do those things, check out The Conservative Investors Guide to Due Diligence.
Where can I discuss other PeerStreet deals?
You can do this with thousands of other investors in the private investor club. While the club is free, membership is restricted to investors who have no business connections to sponsors or platforms. Also, all members must agree to keep all club info confidential by signing a nondisclosure agreement. Click here to join or get more info.
Who are PeerStreet Competitors?
Here are the reviews and rankings for other residential debt sites:
To compare this site directly with competitors, see the
feature by feature comparison matrix.
OR...if you're looking for more volume and/or more conservative LTV's than most crowdfunding sites provide, then a fund might be a better choice for you. If so, here is our Guide to the Top 15 Hard Money Loan Funds (and honors).
How do I invest in debt?
Looking to learn more about investing in debt (hard money loan investing)? Here's our 4-part step-by-step series.
How to pick? Check out our step-by-step guide.
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PeerStreet: Comprehensive Review and Ranking
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This site has been ranked and reviewed as part of our in-depth, 100+ site industry review. All data is believed to be correct, but may have mistakes. Please contact us if you notice one. All non-data (including rankings, investor comment summaries, etc.) are my opinion only. I'm just an investor and not an attorney, accountant, or certified financial advisor. To maintain neutrality: I do not own a portion of any of the companies reviewed.