PeerStreet investing review, borrower loan rates, real estate accredited investor returns, IRA account fees. Is PeerStreet a good and safe company?

Rating:  4.5-star brokerage firm rating

Overview of PeerStreet

If you’re unsure of what the stock market is going to do next year, you may want to consider investing in real estate instead. PeerStreet is one company that allows accredited investors to provide loans to property buyers, and this debt investment can translate into returns of 7% or more. Let’s check out the details.

Making an Investment

PeerStreet sells notes to accredited investors, and then uses the proceeds to provide loans to borrowers. These notes are not securities, and so they are not regulated by securities regulators.

Notice also that we said “accredited investors.” Typically, this means you have to have at least $200,000 in annual income (or $300,000 for married couples) from the previous two years with an expectation of receiving the same amount or more during the current year. That’s the income test.

PeerStreet 30 days rate

It’s also possible to qualify with a net worth of at least $1,000,000 (individually or jointly). Under U.S. government guidelines, you can also qualify if you’re a general partner, executive officer, or director of a company.

A business or group can qualify as an accredited investor if it has assets over $5 million or if it’s a private development company. Or if an enterprise consists of equity owners who are accredited investors, the group is considered to be an accredited investor.

In any case, you will have to satisfy one of these definitions to buy notes on the PeerStreet platform.

Borrowing and Lending at PeerStreet

When PeerStreet sells a note, it uses the funds to provide loans of 6 to 24 months to real estate shoppers. The spread is the company’s profit. The peer-to-peer lender adds about 1% to a loan’s interest rate.

PeerStreet keeps its loan-to-value ratios at 75% or less. This means the property must have a fair market value at least 33.3% higher than the loan amount. For example, if a property is valued at $400,000, the maximum loan amount is $300,000. This would produce an LTV of 75% (300/400).

Most notes pay interest on the 1st and 15th of each month. Principal is paid as PeerStreet receives it, which sounds like higher risk to us.

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PeerStreet Safety and Security

Because PeerStreet isn’t a brokerage firm, it is not associated with a securities regulatory organization, such as FINRA or SIPC. Because it’s not a bank, it’s not a member of the FDIC.

PeerStreet says it works with originators throughout the United States and carefully scrutinizes their loans before making them available. The company also allows investors to provide loans to a wide range of properties in order to achieve portfolio diversification. Different maturities, LTV’s, property types, and geographic areas are available on its platform.

From the time an investor deposits funds until he purchases a note, the funds are insured by the FDIC up to $250,000. PeerStreet is able to offer this service by partnering with Wells Fargo.

In California, PeerStreet is officially licensed as a real estate brokerage company. The firm’s license number is 01984664. The license does expire in June, 2020. According to its license details, PeerStreet has been subjected to no disciplinary actions since its license was issued in 2015.

PeerStreet is also licensed as a financial lender in California. Its license number is 60DBO-45398. We found zero problems on its license page.

PeerStreet’s employees have a combined 97 years of experience in commercial and residential real estate. That boils down to 13 years per person.

The lender holds loans in a bankruptcy-remote entity that is disconnected from the operation’s corporate self. If PeerStreet went out of business, a third party would step in to function as a trustee to ensure investors continued to receive their principal and interest payments.

According to its website, PeerStreet runs due diligence on both investors and the loans themselves. For investors, PeerStreet runs background checks, looks at track records, ensures adherence to state laws, and reviews financial documents.

Although PeerStreet does have a clean record, its esoteric form of lending seems higher risk to us than America’s tightly-controlled securities industry.

Loan Defaults

PeerStreet intervenes in the event of a default to protect investors. Each loan at PeerStreet has a first lien to the property the loan was used for. This provides some amount of security to the lender. If the borrower defaults, there’s a piece of property that can be foreclosed on to recoup the loss.

Short-Term Loans

PeerStreet has recently launched a 30-day note. This obviously is designed for short-term investing. Both interest and principal are paid when the note matures. The note has the same origination standards as other notes, which means it is backed by collateral.

One example of a 30-day note we found on the broker’s platform was a 65% LTV note paying 3.00%. There is a liquidity premium on the 30-day note that is charged to investors. Eleven investors had purchased the note, although the loan was only 27% funded by them. The total requested amount was $528,678.

Bridge Loan

s During our research, we also found bridge loans on PeerStreet’s platform. These are loans with durations of around 3 to 4 months. With a bridge loan, a home buyer can get into a new home while his current home is still on the market. Once the old home is sold, the buyer can pay off the bridge loan and take out a regular mortgage for the new property.

PeerStreet’s bridge loans can be paid off before maturity without penalty. Unlike the 30-day notes, they require monthly payments. They can be extended 1 month at a time, up to two times. The rate does not change, although PeerStreet charges a fee for this service.

PeerStreet IRA

One really nice feature about PeerStreet’s loan program is that it comes in an IRA format. The same notes can be purchased inside the company’s retirement accounts. Roth and Traditional versions are available.

PeerStreet IRA

A PeerStreet IRA seems rather expensive, though. There is a $25 IRA setup fee ($50 for paper applications), a $100 annual fee, and a $50 or $25 fee for processing investments. A paper statement costs $30.

Comparison to Other Real Estate Investments

PeerStreet isn’t the only game in town for real estate investors. If you’re wanting to invest in the property market, you could buy a REIT or REIT fund, both of which are securities and are regulated by the securities authorities. Many REIT’s and REIT funds have high liquidity and volume, but still manage to provide decent returns.

For instance, we found WREI, the Invesco Wilshire US REIT ETF. It has 3 stars from Morningstar and has delivered 8.7% annualized over a 5-year period. Its best year on record was in 2014 with a 33.6% return; and its worst year was 2018 at -6.6%.

WREI invests in various properties and property companies, such as Public Storage, AvalonBay Communities, Boston Properties, and Simon Property Group. Morningstar rates the fund’s risk as higher than its return potential.

PeerStreet Review Judgement

PeerStreet has a unique investing service that is sure to attract high-net-worth individuals looking to capture above-average profits. Its 30-day note especially looks attractive with its short life, which adds to its safety rating.

On the downside, the company’s IRA, while a good idea, looks rather unattractive with its high fees. REIT’s, with their ordinary dividends, sound like better retirement investments to us. Plus, it’s easy to find brokerage IRA’s with zero fees.

Speaking of securities, the securities markets seems to have more regulation around them than the investment products PeerStreet offers, which makes us hesitant to recommend PeerStreet’s notes for all but the most sophisticated investors.

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Real estate investing with 8.7 – 12.4% historical annual returns.

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