Before you invest your hard-earned money with this crowdfunding platform, this PeerStreet review will shed light on everything you need to know.
You’ll also discover if PeerStreet is a good investment, including the pros and cons you should know.
What Is PeerStreet?
PeerStreet is an online real estate crowdfunding marketplace, which provides accredited investors with investment opportunities on loans in real estate.
If you’re familiar with Prosper – the personal peer-to-peer loan marketplace, then you should know your way around PeerStreet.
Since they operate in just the same manner, the only difference here is while Prosper provides loans for just about anything, PeerStreet only services the real estate market.
Since it began operating in the final quarter of 2014, PeerStreet has seen some very impressive numbers.
With about $4 billion funding well over 8,000 loans on its marketplace, PeerStreet has undoubtedly come a long way.
Interestingly, the platform has paid $2.2 billion principal with a further $175 million interest to its accredited investors as of February 2020.
How Does PeerStreet Work?
As stated earlier, PeerStreet is an online lending platform, which provides investors opportunities to invest in real estate loans.
Most online lending platforms provide borrowers with loans and then sell those loans to investors on their platform.
But PeerStreet operates slightly differently; they buy their loans from other lenders and list them on their platforms.
Subsequently, an investor purchases a part of that loan, and shares in the profit or loss, depending on the outcome.
So PeerStreet doesn’t originate loans; the investors are insulated from any conflict of interest that may arise along the way.
The borrowers who are also investors use these loans to purchase houses and other real estate assets on the low, fix whatever is wrong with them, and sell for a profit.
Since the loans originate from third parties, PeerStreet serves as a middleman, making their fees on the platform a lot higher than other platforms that create loans.
PeerStreet usually charges as high as a 1% fee on every investment, but the fees can also go as low as 0.25% depending on the loan.
The rates are clearly stated on the loans, so you know the exact amount you will be charged for your investment in a loan.
They also tell you who the originator of the loan is and how successful they have been in the game, which is also a great feature.
There might also be some additional fees if you happen to invest in a seasoned loan. (an older loan where the borrower is believed to have a meager chance of defaulting)
Such ‘seasoned’ loans attract higher fees because the originator charges extra, even though the return on investment is lower.
In a situation where the borrower defaults on a loan, PeerStreet tries to negotiate payment for the loan.
When no payment is forthcoming, PeerStreet then takes charge of foreclosing the real estate assets backing the loan.
This process can be costly, taking several months or even many years depending on the State.
The property is then renovated and sold.
While all of this is going on, the investor does not receive any payment until the property is sold.
If the proceeds from the sale are more than what is owed, then the investor finally gets the principal plus interests and sometimes even extra from certain penalty fees.
But if the sale does not turn a profit, then the investor is at a loss.
Is PeerStreet a Good Investment?
Convincingly, you can see that PeerStreet is a legitimate business.
It has adopted a business model that is similar to the peer-to-peer lending platform Prosper—yet fashioned to fit the real estate market well.
From the numbers posted on their platform, you can also see that PeerStreet is a strong business and would be around for a long time.
One exciting fact about the platform is that PeerStreet gets these loans from third parties.
So if something happens and PeerStreet goes out of business, the third parties still ensure that you get paid in full.
So unless a lender defaults on a loan, your investment is safe, and you’re sure to receive payments on loans at the appropriate time.
PeerStreet Pros and Cons
Solid Track Record
Since it began operations towards the final weeks of 2014, PeerStreet has kept a comprehensive record of every investment on its platform.
The records point out the fact that debt investments on PeerStreet have a great chance of succeeding and turning in a profit.
Less than 2% of past loans have defaulted and undergone foreclosure or are currently under foreclosure, with the worst of them resulting in a 10.5% loss.
PeerStreet has a very user-friendly interface that makes it easy for every investor.
Investing on PeerStreet is as easy as clicking a few buttons.
Users get to set up their investment preferences, and PeerStreet provides them with opportunities in loans that meet their preferred standards.
After an investment is made, the investor gets a 24-hour window before it goes live. Just in case you change your mind and want to opt-out of it.
This feature comes in handy for those who would like to manually go through all the finer details of a loan investment.
Almost every investor on PeerStreet will agree that the Investment platform operates with openness and clarity.
There are no hidden charges, and all information about a given loan is provided on the user’s dashboard. Credible records back their overall performance.
A Plethora of Investments
One of the great things about PeerStreet is the fact that members are provided with lots of loan investment opportunities, with more loans added daily.
However, this has slowed down as a result of the uncertainties caused by the pandemic.
But with things already returning to normal, users can be sure of many more loan investment opportunities to choose from.
PeerStreet Pocket allows users to earn interest on uninvested cash in their PeerStreet accounts.
Say an investor has been receiving monthly payments from one or several loans over a period of time.
Rather than just allowing the cash to sit dormant in their account, such funds could be invested into PeerStreet Pocket for more profit.
Unlike loan investments where your money gets tied down for more extended periods, you get to withdraw your principal plus interests from PeerStreet Pocket once a month.
Low Minimum Investment
The minimum investment on any loan is a thousand dollars, which is so far the lowest on any verified investment platform, real estate or otherwise.
Only For Accredited Investors
For an investment platform with a minimum investment of one thousand dollars, you would expect the platform to be open to anyone in the US who can afford to make an investment.
But that is sadly not the case.
Due to SEC regulations, PeerStreet only accepts accredited investors (which are people or entities who are allowed to make such investments on platforms like PeerStreet without needing to list such assets under the SEC)
However, PeerStreet is working on a way to get the general public involved in its platform, but it is going to take a while.
We have already discussed how PeerStreet operates, and your investment goes into loans in the real estate market.
While debt investments may have their advantages, they also have their disadvantages, especially in the event of a default.
What was supposed to be a relatively short-term investment might end up dragging for years before you’re able to get any payment.
If you’re looking for a relatively short-term investment opportunity, then PeerStreet might be just what you need.
You get to invest in real estate indirectly while avoiding all the hassles that come with directly being involved with the market.
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