Review: PeerStreet

Among the investments we’ve made in the past few years, PeerStreet is among the most intriguing. It is a way for everyday investors to invest in real estate debt. One of several crowdsourcing platform options, PeerStreet provides an opportunity to invest at a higher rate of return than, say, a savings account, CD, bond, or most other forms of fixed income. The loans allow for real estate investors to buy, improve, and rent out properties throughout the United States. Read more on their About page.

Our investment is a few years old. We have invested in real estate loans that have interest rates ranging from about 7% to 9% on average. There have been some “bonus” type investments that allow for a higher rate of interest, up to 14% or 15%, made available early in the COVID-19 pandemic (though these opportunities are not popping up on the site lately).

Our intention was to invest a total of about $10,000 in PeerStreet loans and see how it goes. That is more or less what we have done, in $1,000 increments. There are plenty of ways to do it: you can invest in varying amounts and either automatically or by choosing your specific investments. The terms on the loans varies, from a few months to about a year, with a range of loan-to-value (LTV) ratios and different rates of interest.

Here is the scorecard on our investments to date, cut-and-pasted from the PeerStreet site:

14 Paid Off
6 Active – Current
0 Active – Deferred
3 Active – Late
0 Short Pay

What that means is that we have made 20 total investments, each of $1,000, over a little over two years. 14 of those investments have “paid off” the amount we expected to receive. We have 6 current investments that are paying what we expected to receive. We have 3 current investments that are not paying us anything at all. Of the 3 that are not performing as expected, two of them are “90 days late” or more and one is in an “REO” status and has not paid for a very long time–pretty much ever (to be precise: we invested in September of 2018 and it has paid a total of $0.89 in interest on a $1,000 loan). According to the PeerStreet site, this last one that is “REO” is “Real Estate Owned” by the lender and is up for sale. If a sale comes through at a decent price, presumably those of us who are lenders will get paid back.

The overall return has been fine. In total, our investments on the site have paid just about 6% annualized, according to the PeerStreet site and our own records. The cumulative return on investment for our two-plus years is about 12%. At least in theory, we have not lost any of our capital. We are of course watching the three non-performing loans to see if we get our capital back.

In the current month, we received about $43 in interest on just about $9,000 currently invested. These funds become available shortly after the first of the month. It is easy to transfer these funds into a savings or checking account.

Bottom line:

(1) From an investment perspective, the PeerStreet loans have performed OK but not as well as expected. We are neither furious nor excited about a 6% annual return. The fear, of course, is that the three non-performing loans might result in a loss of capital. If we lose capital when only getting a 6% return, then investing in PeerStreet will have been a very poor idea. If we eventually get all our capital back, then the 6%+ return will have been OK. We’d be much happier if all of the loans were performing and if there were no fear of loss of capital. We would be expecting more like an overall 8% return based on what our loans are supposed to be paying. Since we currently have 3 of 9 loans in a “non-performing” status, we are not adding any more capital to this investment. That is why we currently have just over $9,000 invested instead of the targeted $10,000+.

(2) From an impact investing perspective, there is no real way in which these investments are providing a meaningful “social” return. Perhaps one could make the case that providing direct loans to real estate investors not being served by banks is a pro-social activity, insofar as it creates jobs and makes investments possible. They do argue on the site that “As a society, we can either continue to build more new homes and take over green spaces, or we can up-cycle and renew aging and dilapidated homes” (Brew Johnson, Founder and CEO), and there’s something to that argument. They also have argued on Twitter: “With PeerStreet, you invest in the loans made to borrowers, and as they pay back their loans, neighborhoods are improved and you make money. Win-win-win.” Also plausible. But in our book, PeerStreet should be seen just as a straightforward cash-returns-oriented investment rather than as an impact investment per se.

As with everything we share on this site, we are merely describing our experiences and not offering any kind of investment advice. Please read and consider this information as “for entertainment purposes only.

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