Author Topic: PeerStreet Thoughts? Opinions? Alternatives?  (Read 14164 times)

Threshkin

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PeerStreet Thoughts? Opinions? Alternatives?
« on: April 27, 2016, 10:01:57 AM »
Mr MMM mentioned PeerStreet in his latest post so I thought I would take a look.

Please post your thoughts and opinions.

It is a crowdfunding site for short term real estate investments.  Minimum investment is $1,000 but you need to be an "accredited investor".  This means you need a NW of >$1M (excluding primary residence) or a income of $200K/yr (single) or $300K (couple) with a reasonable expectation that this income will continue.

The loans are not liquid, once you invest you must wait for the loan to be paid off.  Typical term is 6 to 24 months with LTV ratios usually below 75%.  There is no secondary market for these investments but this is potentially a future enhancement.

PeerStreet claims their typical return is an average APR of 6 to 12%.  This is pretty darn good for a fixed income investment! 

You can self select the loans you want to fund or let PeerStreet do it for you.  This is a pretty typical crowd funding model I think.

They claim carefully qualify borrowers and have a process in place to manage defaults.  Loans are backed by the property, a hard asset but, as we all saw with the real estate crisis the value of that asset can fall.  This is not an investment for someone who expects another real estate crash!  On the other hand any asset is better than none so this should be lower risk than crowd funding someone's vacation.  I have not found information on default rates yet.  This is very important to me.

I have also not found any information on where the real estate is located.  This is of interest to me because some markets are more stable than others.  I expect this information is available and will update my post if I find it.

PeerStreet makes their money off the float.  This is the difference between the interest the borrower pays and what the investor receives.  I did not notice any other fees.

One competitor I found is RealtyShares.  I have not researched them yet.
Another competitor is REITs.  PeerStreet talks about how they are better, mainly because of greater transparency.

Overall the concept looks interesting.  Many of us here can meet the NW requirement.  A 6 to 12% fixed rate return on investments is good, very good if the default rate is reasonable.  If you spread your investment across multiple borrowers some of that default risk can be mitigated.

ShoulderThingThatGoesUp

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #1 on: April 27, 2016, 10:17:32 AM »
I'm not sure what the point of these middlemen is; there are developers who will make this arrangement with you directly. Here's one in Philadelphia. I know nothing about them other than that they're real, but honestly you don't know that about any of the developers these people are working with either.

Threshkin

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #2 on: April 27, 2016, 10:23:31 AM »
I'm not sure what the point of these middlemen is; there are developers who will make this arrangement with you directly. Here's one in Philadelphia. I know nothing about them other than that they're real, but honestly you don't know that about any of the developers these people are working with either.

Thanks STTGU.  This is definitely an alternative worth investigating.  It looks like you are investing directly with the developer who is then using your capital to build homes for sale.  Is this correct?  What is the liquidity of the investment?

Interest Compound

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #3 on: April 27, 2016, 10:29:58 AM »
PeerStreet claims their typical return is an average APR of 6 to 12%.  This is pretty darn good for a fixed income investment!

For the amount of risk here, that's pretty low in my opinion.

ShoulderThingThatGoesUp

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #4 on: April 27, 2016, 11:39:13 AM »
I'm not sure what the point of these middlemen is; there are developers who will make this arrangement with you directly. Here's one in Philadelphia. I know nothing about them other than that they're real, but honestly you don't know that about any of the developers these people are working with either.

Thanks STTGU.  This is definitely an alternative worth investigating.  It looks like you are investing directly with the developer who is then using your capital to build homes for sale.  Is this correct?  What is the liquidity of the investment?

I think so. I haven't actually done this, but here's my understanding of the process:
1. You give them a minimum of $10k, for a specific property, not as an investment in their company
2. They do the project
3. They sell the project and give you your money back with a multiplier of 1.1-1.15

Presumably if the project fails you lose your money, or part of it. I think the liquidity is Boolean: there is none until the sale, then you get it all back.

Threshkin

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #5 on: April 27, 2016, 12:09:35 PM »
PeerStreet claims their typical return is an average APR of 6 to 12%.  This is pretty darn good for a fixed income investment!

For the amount of risk here, that's pretty low in my opinion.

How are you determining the amount of risk?

JZinCO

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #6 on: April 27, 2016, 12:20:59 PM »
I can't speak for PeerStreet but I am interested to see how crowd funded real estate goes..

One that has caught my attention is Wunder Capital which I may consider in a year. They offer two funds which are a bundle of loans for solar panel installation and development projects.

I do have money in the 'Income' Fundrise eREIT so we'll see how that goes.. I believe accred. investors can directly invest in real estate projects rather than a bundle of projects (like the eREIT). They also have a 'Growth' fund that plans to derive returns not from loans to RE development but on speculation on the purchase, development, and sale of projects.

In all I think RE crowdfunds are becoming larger and larger so it will be interesting to watch. I like the model of funds that package multiple projects rather than single projects. Theoretically that should reduce geographic and developer risk. I'm most concerned about manager/platform risk. Most funds will fail and I'll find out what happens the tide goes out.

edit: Oh and if it matters, the Income eREIT returned 9-10% annualized last quarter. They simultaneously excused the low return by saying they are still in ramp-up/acquisition phase while saying the returns are actually amazing compared to the sp500 Q2016...
« Last Edit: April 27, 2016, 12:23:58 PM by JZinCO »

pl28

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #7 on: April 28, 2016, 06:30:04 AM »
I am considering investing in Peerstreet but need to do more research. I do find their business pretty interesting. They are facilitating investments that were before not available to the masses but in doing that, there could be complication. For instance if there is a default. I'm not sure how they handle that and what fees are associated in managing a complicated default.  I spoke to a rep from the company and he said there is no default to date.

Like to see what others think as well.

Threshkin

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #8 on: April 28, 2016, 01:36:42 PM »
Okay, I signed up (but have not funded) for an account at PeerStreet.  I also talked to one of their reps.

The specialize in non-owner occupied single family properties.  They have been offering investments since November 2014.  Their model is to purchase existing loans from the originating lender and then offer these loans to investors.  They take 1% of the interest on all of the offerings I checked.  Currently the pool of available loans was small (<10), interest paid was 8 to 9% (after fees) and terms were 5 to 12 months. 

They have funded roughly 140 loans since inception and about 40 of these have gone to term.  They only purchase loans where they are the first lien holder.  Their LTV ratio is based on the as-is value, not the after rehab value.  They do independent appraisals to determine this value.  Their maximum LTV is 75%.

They have had 0 defaults so far so, while they have a contingency plan in place they have not used it yet.  This is good because it shows that they are being careful (or lucky) in selecting loans to purchase.  It is bad because there is no way to judge how well the contingency plan will work.  It is easy to be good when things go well.  It is much harder to be good when things go badly!

This is interesting to me but more due diligence is needed.


Threshkin

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #9 on: April 28, 2016, 01:43:53 PM »
I have also started doing more research on RealtyShares.  They are a little older (~2 years) and have received more VC funding than PeerStreet (~30M vs ~6M)

RealtyShares offers a wider variety of investment types including: fix-and-flip loans, preferred equity and mezzanine products, joint venture equity and commercial loans. 

Their site is pretty well firewalled.  Not much investor information is available before you set up an account which I have not done yet.  This is a little bit of a concern for me.  I like to research before signing up.

These guys deserve more research though.  They appear to be more established and better funded than PeerStreet.  That does not mean they are automatically better but it does get them a closer look.

Threshkin

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #10 on: May 10, 2016, 04:15:51 PM »
I bit the bullet and funded my account today.  I set up automated investing and am waiting for the first set of loans to be funded.

The last MMM blog post was about PeerStreet.  He funded his account in mid-April.  It was kind of interesting reading the blog comments.  Much more whiny pants about how "I don't have enough money to be an accredited investor." or "The SEC has rigged the game so only the rich get richer."

The different in attitude between comments in the forums vs. blog comments is interesting.  It is like the two groups are separate sets of people.

One minor complaint.  I cannot add PeerStreet to my Mint asset tracking.  (First world problem!)

MidWestLove

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #11 on: May 11, 2016, 05:43:17 AM »
Let us know how it would go ...

for me this smells very similar to early lending club experiment and all of the previous comments apply  (no liquidity, unknown legal protections and untested case law if you will have to recover, unknown regulations, unknown fees, etc) - a large amount of stupid money would come in desperately looking  for yield. First comers would get decent returns to brag on blogs, bloggers would get paid to promote it, APIs would get built to give real money (institutional) access to the market, one or two companies would IPO to allow founders to cash out, fraud would eventually be found (or categorized as such) as it always is in any new and untested area, vast majority of the people would later scratch their head thinking why in the world did I do this other than being blinded by greed. may be limiting this to accredited investors would make this a little better.. 

Another Reader

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #12 on: May 11, 2016, 06:22:16 AM »
The premise (or rather the sales pitch) of this and similar businesses is the risk of these loans is mis-priced and we can use a combination of traditional collateral and borrower evaluation plus data analytics to reprice the risk, undercut hard money lenders, and make money doing it. 

Hard money loans are not mis-priced.  Ask anyone that's ever had one go bad.  Borrowers don't perform, markets change, all kinds of things can go wrong.  Real estate is illiquid and foreclosure is expensive.  What the extremely savvy people in this business are really saying is that we can make a boatload of money by offering not so savvy retail investors a higher yield than they can find elsewhere and make money off the originators and by taking a cut of the yield.  Like Lending Club, you don't own the note.  You are buying Mortgage Dependent Promissory Notes issued by the company.  A lot is made about the wall around the loans to protect the investors.  We will see over time how that works out.

Since there is so much competition now among these platforms, it appears to me this company is buying some pretty sketchy paper.  I looked at one performing loan in my area where I could not pin down the square footage of the property, the borrower was on their second extension, and the guarantors had mid 500 credit scores.  All that for an 8 percent yield to the investor. 

My advice is to put your wallets back in your pockets.

Threshkin

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #13 on: May 11, 2016, 06:23:16 PM »
I have about 1.5% of my portfolio invested here so I am not too worried.

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #14 on: May 11, 2016, 07:05:31 PM »
The premise (or rather the sales pitch) of this and similar businesses is the risk of these loans is mis-priced and we can use a combination of traditional collateral and borrower evaluation plus data analytics to reprice the risk, undercut hard money lenders, and make money doing it. 

Hard money loans are not mis-priced.  Ask anyone that's ever had one go bad.  Borrowers don't perform, markets change, all kinds of things can go wrong.  Real estate is illiquid and foreclosure is expensive.  What the extremely savvy people in this business are really saying is that we can make a boatload of money by offering not so savvy retail investors a higher yield than they can find elsewhere and make money off the originators and by taking a cut of the yield.  Like Lending Club, you don't own the note.  You are buying Mortgage Dependent Promissory Notes issued by the company.  A lot is made about the wall around the loans to protect the investors.  We will see over time how that works out.

Since there is so much competition now among these platforms, it appears to me this company is buying some pretty sketchy paper.  I looked at one performing loan in my area where I could not pin down the square footage of the property, the borrower was on their second extension, and the guarantors had mid 500 credit scores.  All that for an 8 percent yield to the investor. 

My advice is to put your wallets back in your pockets.

+1

You'd be better off buying a ToysRUs bond, currently yielding 10%+, but even that'd be a bad idea...


retiringearly

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #15 on: May 12, 2016, 01:34:25 PM »
Here is a post I made on another thread:

I have money invested through four sites: RealtyMogul.com, Fundrise.com, RealtyShares.com, and PatchofLand.com.  I have been very, very happy with the performance.

The majority of my investments have been in debt deals - lending money to people that are doing "fix and flips".  I only invest in deals where 1) I have first position lien on the property - meaning if the borrower does not pay us back we take the property (not what you want to do but it provides security), and 2) the borrower has put in a significant amount of his own money in to the deal (this means there is a financial cushion that will help soften the blow of having to take the property, and it means the borrower has a vested interest in making good on the loan).  The loans I participate in are usually no longer than 12 months, with a couple being 18 months.   

I have my investments spread out over a few dozen investments - I keep each investment relatively small so I can't get burned too badly by one bad loan.

All of my loans have been paid back prior to the maturity date.

I have not used any "automatic investing" feature.  I want to hand pick each investment on my own.  There have been some loans that didn't make sense to me so I did not participate in them.

I can't inspect every property myself but I do look up each property on Zillow, Redfin, and other sites.  I will put money in if I feel comfortable that the property isn't grossly overvalued (I don't want to be part of a $500K loan on a property that is only worth $250K).

Most interest rates have been between 9% and 10.75%.

I have invested in a few preferred equity deals as well as a couple straight equity deals.   The nice thing about the equity deals is the depreciation on the property is passed out to the investors which helps at tax time. 

I only invest in preferred equity deals if 1) the sponsor has a significant amount of money invested in the deal and 2) I get paid out before the sponsor receives his payout.

I have only had one "negative" experience so far - a borrower was late on the first payment, clearly not what you want.  He ended up refinancing with another lender and we were paid back in full in two months - the bonus was the loan required a minimum of three months interest to be paid so we got an extra month of interest payment.

I have increased my investments in this area and plan to continue maintaining a decent amount of money in this area until something radically changes (the real estate market starts to drop, etc).   

I have money in 4 different online platforms because 1) I want to be able to pick and choose investments, 2) each platform is a bit different and offers different types of investments, and 3) I want to be diversified (I don't want a ton of money in any one platform in such a new industry, who knows who will be left standing in 5 years).
« Last Edit: May 12, 2016, 02:14:35 PM by retiringearly »

Amesenator

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #16 on: May 12, 2016, 03:33:33 PM »
Here's a link to a podcast (and transcript) with one of the PeerStreet founders: http://www.lendacademy.com/podcast-58-brew-johnson-of-peerstreet/.

Key points gleaned in research to date:

-Model focuses on sourcing projects from established originators with experience/track record in their communities.
-PS says it conducts independent evaluation as well.
-PS requires originators to retain stake in the debt as well (i.e., avoids the sell off of mortgage phenom that existed around mortgages in the housing crisis).
-PS takes first lien position on the project property.
-Michael Burry (i.e., the drum playing MD/hedge fund manager in the Big Short) is on their Advisory Board.

Questions/observations:

-Absence of defaults doesn't seem that impressive/telling, given that there's been no economic turbulence since the business began in '14.
-As someone else noted, the pool of projects is still quite small, so is there a wide enough sample from which to draw robust conclusions as to the efficacy of the business model?


dragoncar

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #17 on: June 07, 2016, 03:51:35 PM »
Anyone considering using an IRA?  I'm still considering the risk/reward, but it's definitely worse when you consider you make >300k/year and earnings are taxed as regular income.  Yikes

Threshkin

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #18 on: June 07, 2016, 04:25:28 PM »
My PeerStreet account is funded and fully invested.  I will start receiving income in about a week.  Overall my portfolio is earning about 9.5%.

Shameless plug!  If you use my referral link you and I will both receive a 1% yield bump on our next investment.

Here is my referral link: http://www.peerstreet.com/join?ref=1l6po7c

arebelspy

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #19 on: July 01, 2016, 03:37:18 AM »
PeerStreet claims their typical return is an average APR of 6 to 12%.  This is pretty darn good for a fixed income investment!

For the amount of risk here, that's pretty low in my opinion.

How are you determining the amount of risk?

Here's an interesting question, I'm hoping you have an answer for, since you've invested real money in this:
How are you determining the risk?

You say your portfolio "is earning about 9.5%" (after what, a month? with no income received? Okay...).  Now what do you project the risk at (and how do you calculate it), so you can tell us what you think your risk-adjusted return is.
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Threshkin

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #20 on: July 01, 2016, 02:21:19 PM »
PeerStreet claims their typical return is an average APR of 6 to 12%.  This is pretty darn good for a fixed income investment!

For the amount of risk here, that's pretty low in my opinion.

How are you determining the amount of risk?

Here's an interesting question, I'm hoping you have an answer for, since you've invested real money in this:
How are you determining the risk?

You say your portfolio "is earning about 9.5%" (after what, a month? with no income received? Okay...).  Now what do you project the risk at (and how do you calculate it), so you can tell us what you think your risk-adjusted return is.

I agree that with an early stage program like this risk is difficult to determine.  Peerstreet claims they have not had any defaults so far.  Does that mean there is no risk?  Of course not!  Since the risk level is hard to determine, does that mean there is 100% risk?  No, not that either.

Since I cannot quantify the the risk of this investment, I am mitigating it by only investing a very small percentage of my portfolio.  I have <2% of my overall portfolio invested in Peerstreet.  If it works well I may increase it, if not even losing 100% of this investment will not hurt me.

I saw this as a diversification play.  I was under-allocated in fixed income and distrust the bond market right now.  If (when?) interest rates go back up, I intend to increase my bond allocation.  Until then I am looking for alternatives.

Do you have more information on how to estimate risk on an investment like this?  I am very interested in learning more about risk/reward calculations in general.  I understand that any investment (or lack of investment) has risk associated with it.  But I do not know how to quantify such risk.

arebelspy

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #21 on: July 01, 2016, 03:58:40 PM »
Since I cannot quantify the the risk of this investment

But you've decided 9% non-risk adjusted, minus whatever risk there is, is an acceptable return?

Quote
Do you have more information on how to estimate risk on an investment like this?  I am very interested in learning more about risk/reward calculations in general.  I understand that any investment (or lack of investment) has risk associated with it.  But I do not know how to quantify such risk.

As Another Reader alluded to above, hard money loans is where you want to look.  :)
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Another Reader

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #22 on: July 07, 2016, 12:26:54 PM »
If you cannot estimate (quantify might not be the accurate term here) the risk, how can you decide whether to invest?  Hard money lenders have a pretty good idea of the risks.  Many have been lending for a long time.  If they don't properly estimate the risk, they lose some or all of their capital and are out of the business.

Big data does not help you much in making real estate loans.  Big data might help you assess borrower risk for a large pool of unsecured loans and credit cards.  If things go bad, the lender writes off the loan and sells the collection rights.  The loss is built into the model.  You don't see banks making real estate loans based solely on the creditworthiness of the borrower.  In real estate it's all about the collateral and the real estate track record of the flipper/investor. If a bank won't lend on these deals, that tells you a lot about the risk.

mr_orange

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #23 on: July 07, 2016, 12:50:56 PM »
Disclosure....I own a crowdfunding/SaaS site

This site:

http://www.therealestatecrowdfundingreview.com/top-100-sites-ranked-and-reviewed

has some ratings on it.  I have spoken with Ian a few times and I think he is genuinely trying to provide a service for the industry.  I don't agree with all of his assessments or rankings though. 

I spoke with a sponsor today that is listing on RealCrowd and he is legit.  In general I like the larger sponsors and I would recommend avoiding sponsors with little experience.  As time wears on you'll be able to invest directly with sponsors and bypass these middleman sites.  Our SaaS software is one of the few solutions in the industry for this purpose.  In general the main problem in the industry is the better-quality sponsors aren't willing to pay middlemen fees.  Thus you're left with lower quality sponsors, some of which are good. 

If you invest small amounts across many projects and cherry pick the projects I think all parts of the capital stack can make sense.  First position trust deed investments are probably the safest as a general rule, but there are other factors to consider as well in assessing risk.  The track record of the sponsor, their liquidity and debt, the LTC, etc. all matter for debt projects.  For equity projects I would focus more on deal structure and the track record of the sponsor. 

Our platform is hiring some former Goldman analysts for underwriting.  We'll only do a handful of deals each year and most of our income will be derived from SaaS fees.  We like to believe that this provides better alignment with our site investors.  Be careful making any judgements based on VC funding too.  VCs want a 10X return and will encourage their portfolio companies to do MORE deals and not necessarily the BEST deals.  The track record of the platform's founders and how their company is financed should be major diligence items for anyone considering crowdfunding. 

Threshkin

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #24 on: July 07, 2016, 01:46:18 PM »
Disclosure....I own a crowdfunding/SaaS site

This site:

http://www.therealestatecrowdfundingreview.com/top-100-sites-ranked-and-reviewed

has some ratings on it.  I have spoken with Ian a few times and I think he is genuinely trying to provide a service for the industry.  I don't agree with all of his assessments or rankings though. 

...Snip (But good info!)...

Thanks mr_orange.  I registered for the review site and looked at the ratings.  I was aware of some of the sites listed but there were many that I had not heard of.

Your opinion on the future of the middleman sites is interesting and informed but I wonder if they will continue to add value by vetting the sponsors.  I also hear you loud and clear regarding the VC influence not necessarily being in the best interest of the purchaser (or the company being funded in some cases).

I was pleased to see PeerStreet being ranked #1, better than being in the reject group!

Another Reader

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #25 on: July 07, 2016, 02:06:02 PM »
"If you invest small amounts across many projects and cherry pick the projects..."

Good luck as an amateur doing that.  I'm still following a local Peer Street deal and shaking my head at both the borrowers and the collateral....

frugledoc

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #26 on: July 07, 2016, 02:39:13 PM »
"If you invest small amounts across many projects and cherry pick the projects..."

Good luck as an amateur doing that.  I'm still following a local Peer Street deal and shaking my head at both the borrowers and the collateral....

Just because you're shaking your head doesn't mean it is a bad deal.  Looks like they have people who might know a little bit about these things.  We have similar p2p sites in the UK. They pay 12 - 14%.  I've been lucky so far and have had no defaults across a portfolio of 80k.

retiringearly

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #27 on: July 07, 2016, 02:58:22 PM »
"If you invest small amounts across many projects and cherry pick the projects..."

Good luck as an amateur doing that.  I'm still following a local Peer Street deal and shaking my head at both the borrowers and the collateral....
Looking only at Peer Street I would agree, that is why I am on a total of five sites.  There are many loans/deals/projects that make little sense to me so I avoid them.  Some make great sense. 

***I am editing out the rest of my comment.  This just isn't worth it****
« Last Edit: July 07, 2016, 03:09:26 PM by retiringearly »

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #28 on: July 07, 2016, 03:35:59 PM »
I will put my valuation skills and my knowledge of the local market up against the folks that greenlighted this investment any day.  Without going into the details, I would not invest a dime into this property or these borrowers.  There is VC involved in funding Peer Street, and I suspect Mr. Orange's comments about the pressure applied by the VC's are apropos.

retiringearly

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #29 on: July 07, 2016, 05:10:34 PM »
Edit - I am out.
« Last Edit: July 07, 2016, 05:29:36 PM by retiringearly »

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #30 on: July 07, 2016, 05:47:26 PM »
As a long time real estate investor, I'm a huge fan of "sniffing the dirt" before I buy anything.  I registered for the site, found a performing loan within 10 miles, and vetted the property and the borrowers on the site.  Did some research through other local channels.  Drove by and looked at the property, the street, and the neighborhood.  The credit scores of the guarantors were appalling.  Limited experience in real estate.  The square footage of the property varies from source to source.  The work done on the outside of the property by the prior owners is not of high quality.  The MLS photos showed they changed out the kitchen cabinets and did a few other upgrades.  The original list price was over $200k above what they paid six months earlier.  The last list price was $154k above their purchase price.

The borrowers were on their last extension IIRC.  The property was withdrawn from the MLS in mid-June.  Not contingent, not pending, not sold.  Hope they were able to extend again or better yet, refinance. No notice of foreclosure or anything else in the recorded documents since the borrowers' company bought the property.

This is the FIRST property I looked at.  The property was chosen on the basis of its proximity.  No cherry picking. It was enough for me to conclude the due diligence was sorely lacking.

mr_orange

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #31 on: July 07, 2016, 06:08:40 PM »
"If you invest small amounts across many projects and cherry pick the projects..."

Good luck as an amateur doing that.  I'm still following a local Peer Street deal and shaking my head at both the borrowers and the collateral....

Investing in small amount is quite easy.  Cherry picking projects is also easy, but you have to limit your selection set to:

1.  Platforms that can actually underwrite projects.  Ian's list has Fundrise at the bottom of the heap because of "legal issues."  Fundrise actually knows how to underwrite.  We need a site to rank the rankings site

2.  Quality sponsors.  These should be pretty easy to spot for someone with some level of intelligence.  The problem is that high quality sponsors are not highly correlated with hard money loans.  There is some intersection though

3.  Platforms that co-invest in projects and create alignment with their investors

I could go on and on and on.  Those 3 items above are a pretty good start though.

The fundamental business model of VC-backed marketplace sites is flawed.  Seeking a 10X return for trying to be the first to be the Amazon of the market is silly.  There won't be a marketplace to dominate all just like there isn't a bank that dominates everyone.

The better quality sponsors will crowdfund on their own and be selective about which deals they ALLOW people to invest in.  Our software will be catering to these sponsors and we'll list a select few from Texas in our marketplace we co-invest in.  Being the nation's leading distributor of marginal projects that VCs are forcing me to list is not my idea of a fun time. 

Before anyone invests they should think through the platform's business model and decide if it is sustainable without coked-up Silicon Valley financing in the long term or during a downturn.  Hint: VC backing is BAD if you ask me about it. 

retiringearly

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #32 on: July 16, 2016, 08:53:08 PM »
I put $20K in to Peer Street loans.  I am not a fan of their loans.  The interest rates were low when I first invested, and then continued to drop since.  It seems  like the average rate on Peer Street is 8% which is too low for my taste.

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #33 on: June 21, 2017, 08:05:57 PM »
I'm wondering if anyone has an update on their experience with PS, since it's been so long since this thread has been active? I'm considering investing with them but want some real life experiences. Thanks.

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #34 on: June 21, 2017, 08:12:27 PM »
I'm wondering if anyone has an update on their experience with PS, since it's been so long since this thread has been active? I'm considering investing with them but want some real life experiences. Thanks.

Nothing has fundamentally changed about the nature of the businesses, and problems therein, especially with regard to risk-adjusted return, and conflict of interest between the company and you, specifically in relation to how they make money (funding lots of loans, regardless of quality, to juice statistics and get high valuations for venture capital) and you do (funding only quality projects).
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retiringearly

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #35 on: June 22, 2017, 12:22:38 PM »
I'm wondering if anyone has an update on their experience with PS, since it's been so long since this thread has been active? I'm considering investing with them but want some real life experiences. Thanks.

I only invested a little over $30K on PeerStreet.  The interest rates on the loans they offer now are unusually low.  I have had no problems with any of the loans I made on PS.  All interest has been paid on time.  2 loans were paid off within 6 months.  I have 6 loans still open with interest rates averaging about 9.5%.  \

The interest rates that they have offered have dropped considerably since I invested with them.  I am simply taking my money out as loans pay off. 

I still have money invested in 4 other sites (Realty Mogul, Realty Shares, Patch of Land, Fundrise).  No real issues with any of them.  Out of dozens of loans, one is in default - it is a $2.5 million home on Singer Island, FL.  The borrower has over $600K of his money in it.  The foreclosure process is going along, I expect the borrower to repay before the actual foreclosure happens.  He has the home listed for sale at $3.0 million which is too high of an asking price.  If the foreclosure goes through we will actually do much better than if he pays it off.  The foreclosure and subsequent selling expense will be much less than the $600K of cash he put into the deal.

I am not putting any new money to work in real estate.  I am withdrawing the cash as loans are repaid or equity positions liquidate.

Very happy with the results of the past 4 - 5 years.

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #36 on: June 22, 2017, 12:34:21 PM »
Very happy with the results of the past 4 - 5 years.

?

Five years?

When was your first investment in a crowdfunded real estate platform, and what was the site?
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #37 on: June 22, 2017, 12:45:40 PM »
RetiringEarly, what will you do with your cash as it comes out of real estate?

I am in a similar place where I'm starting to build bigger cash positions.for what, I'm not sure!

retiringearly

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #38 on: June 22, 2017, 01:19:31 PM »
Very happy with the results of the past 4 - 5 years.

?

Five years?

When was your first investment in a crowdfunded real estate platform, and what was the site?
2013, Realty Mogul, a debt fund they put together.  From there I branched out to other sites for better investment selection.

retiringearly

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #39 on: June 22, 2017, 01:20:26 PM »
RetiringEarly, what will you do with your cash as it comes out of real estate?

I am in a similar place where I'm starting to build bigger cash positions.for what, I'm not sure!

I have just been putting it in a money market fund.  Not too eager to put it into equities at this point.

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #40 on: June 29, 2017, 06:06:11 PM »
I'm wondering if anyone has an update on their experience with PS, since it's been so long since this thread has been active? I'm considering investing with them but want some real life experiences. Thanks.

I (the OP) have roughly 30K invested with Peer Street.  I lump sum invested shortly after my post in April 2016.  My returns have been good, but not spectacular.  I average around 8-9% on my loans.  Several of my loans were paid off quickly. within a few months.  A few have had payment issues but usually they get caught up or paid off by the next month.  One is moving through the foreclosure process.

I use Peer Street as part of my diversification strategy.  As such it works for me.  The returns are much better than money markets and less volatile than the stock market.  I have no plans to cash out any time soon, but I also don't plan to invest more soon either.

As a company Peer Street has always been responsive to my inquires and their updates are prompt and clear.  I have no complaints on that front.

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #41 on: July 03, 2017, 02:16:53 PM »
I have enjoyed using Peer Street as a diversification strategy for my investments.  Most of our money is in the stock market, but about 40K is in Peer Street.  Most of my loans are 9-10% (partly because they often offered me a 1% bump in rates if I invested early on).  Lately though it seems most loans that are available are 7-8%.   Almost all my loans have paid on time or paid off early.  I do have one going through foreclosure and I expect not to get paid back for that after the sale goes through.  I like the short term nature of the loans (11 months to 2 years) better than say Lending Club which has longer time frames for loans (3-5 years). 

chasesfish

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #42 on: July 04, 2017, 12:20:12 PM »
I'll chime in as the opinion of a banker by trade - Peer Street is probably better than Lending Club because the loans are secured..

I'd worry about market timing, the challenge is if/when housing and commercial real estate turns, you can take a bath.

I'm personally winding down a lending club account and will stick to holding STAG and EPR inside retirement accounts for my real estate exposure.  Mid 5% dividends that increase some every year.  I'm particularly a fan of STAG since it owns industrial distribution space which is lacking in the US right now.  Too much retail, not enough distribution based on consumer's changing buying habits.

retiringearly

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #43 on: July 04, 2017, 06:31:49 PM »
I'll chime in as the opinion of a banker by trade - Peer Street is probably better than Lending Club because the loans are secured..

I'd worry about market timing, the challenge is if/when housing and commercial real estate turns, you can take a bath.

I'm personally winding down a lending club account and will stick to holding STAG and EPR inside retirement accounts for my real estate exposure.  Mid 5% dividends that increase some every year.  I'm particularly a fan of STAG since it owns industrial distribution space which is lacking in the US right now.  Too much retail, not enough distribution based on consumer's changing buying habits.
I have no idea why people ever felt comfortable with making loans on Lending Club given that they are 100% unsecured loans.  I will take making hard money real estate loans that are secured by actual real estate (and the cash that the borrower puts into the deal) long before I make a loan on Lending Club.

chasesfish

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #44 on: July 04, 2017, 08:12:25 PM »
I've been in Lending Club since 2011.  Banks losened up in 2013 and afterwards in consumer lending, demand rose for lending club loans, and standards loosened.  Returns weren't bad, but in hindsight I should have left it in index funds.  Only 2% of my portfolio at the peak, but still irritating.

I'm also a bit peeved at the company for not publishing annual returns each year and only publishing annualized returns since inception and I fell asleep while the acct was on autopilot.

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #45 on: July 05, 2017, 02:44:27 PM »
I'm not sure what the point of these middlemen is; there are developers who will make this arrangement with you directly. Here's one in Philadelphia. I know nothing about them other than that they're real, but honestly you don't know that about any of the developers these people are working with either.

I am actually in Philly area and was interest in looking at V2. Have you had any experience?

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #46 on: July 08, 2017, 07:23:00 AM »
I have a PeerStreet account, with a very small investment, not certain it meets my needs (which might be different from others) or if I will be adding more funds. I am getting the impression they have more investors than they have available investments. I don't like my money being idle. They also have relatively large minimal investment amount per loan ($1,000), I think that makes it very hard to be diversified across a number of investments (100s to 1000s of loans) unless you are investing large amounts. Most loans that are available seem to be "lower" interest: 7%-9%, for the risk, lack of liquidity, and lack of diversification, I would demand higher return.  The automated investing tool rarely filled orders for me, probably a function of them having more investors than investments, but it also seems they seem to be targeting picking your own investments (i.e. sending me emails when new loans are available, reserving some portion of space away from automated investing). This is not how I want to do business: I want to set investment criteria and have it invested across as many loans as possible.

Only one person alluded to this above, but the tax situation for Peerstreet (and similar) isn't great, especially if you are moderate to high income. It's taxed as ordinary interest at your marginal tax rate. That could easily mean a 20% - 40% haircut on your returns or more, depending on your tax situation. The only way to shelter the income is to hold it in a self directed IRA. Peerstreet will reimburse the initial fees for setting up a SD IRA, but you are on the hook for the ongoing fees, $100-$200 annually, which is probably worth the tax savings, but expensive for small amounts (<$10,000). More importantly, I only have so much tax sheltered room, and it's already allocated to other purposes.

As part of my fixed income portfolio, I don't mind a small allocation to it. But I see little upside: you will never get more return than the posted interest rate. When taking early repayment, defaults, and collection fees into account, the anticipated return should be even lower than the posted interest rate. The after tax returns will be even worse.

In terms of alternatives, I do also have some research, and very small investment with Fundrise. You at least get some equity exposure with their investments, appears easier to diversify among investments, and some semblance of liquidity (quarterly redemption options). This is not to say it's a good investment necessarily, but an alternative roughly in the same space. I understand and assume both are very high risk, but I am willing to take on a bit more risk for exposure to the private market.

My main concern with any such investment is that you are taking platform/management risk, with very little history. I don't think there is a good way around that.
« Last Edit: July 08, 2017, 07:25:03 AM by CanuckExpat »

MarciaB

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #47 on: September 15, 2018, 05:54:38 PM »
Bumping this thread. And my apologies if there are other threads on PeerStreet, I couldn't find them.

Does anyone know if Pete has updated his PeerStreet data in the last year or so (again, I can't find anything and apologize if it's out there somewhere and I'm irritating you by asking for it).

Is anyone winding up or winding down their positions on that platform? I've been investing for over two years and am now taking any principal out that gets returned to me (meaning, I'm winding down). The late loans and the possibility of losing principal is making me queasy (and yes, I knew going in that there was risk, I'm just not as happy taking it at this point, so I"m not reinvesting principal).

I'd appreciate hearing what others are experiencing and what decisions ya'll are making about PeerStreet these days. Thanks.

Threshkin

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #48 on: September 15, 2018, 10:16:52 PM »
Bumping this thread. And my apologies if there are other threads on PeerStreet, I couldn't find them.

Does anyone know if Pete has updated his PeerStreet data in the last year or so (again, I can't find anything and apologize if it's out there somewhere and I'm irritating you by asking for it).

Is anyone winding up or winding down their positions on that platform? I've been investing for over two years and am now taking any principal out that gets returned to me (meaning, I'm winding down). The late loans and the possibility of losing principal is making me queasy (and yes, I knew going in that there was risk, I'm just not as happy taking it at this point, so I"m not reinvesting principal).

I'd appreciate hearing what others are experiencing and what decisions ya'll are making about PeerStreet these days. Thanks.

I am OP and I am winding down my account with them.  My reasons for this are mainly due to a shifting investment strategy post FIRE.  At the peak I had a low 6-figure account.

Here are my thoughts on the experience.

Good:
  • Customer service - They are always responsive and helpful when I asked questions.
  • Loan Security - I did not loose money on any of my investments.  I did have a couple of defaults that went all the way through foreclosure and sale of the property and several that had late payments but I always got my money back in the end. (Knock on wood)
  • Application Usability - The app UI is clean and easy to use.

Bad:
  • Loan Duration - I knew going in that this would not be a liquid investment.  Most of my loans were 6 to 12 month terms.  BUT several of my loans were extended significantly (12 months or more) locking up my principal unexpectedly.  You do not get a say in this.
  • Payment Delays - Late interest payments were not uncommon.  They were always caught up but..... (See Loan Security above)
  • Loan Availability - For a while it was hard to invest manually.  Loans were filled before I had a chance to get in.  This was not a problem if you used automated investing and appears to be better now.

Overall it was a good experience and if I still wanted a hard money component in my portfolio I would definitely consider using PeerStreet again.  That said, there are new modern RE investment applications available now that should also be considered.

chasesfish

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Re: PeerStreet Thoughts? Opinions? Alternatives?
« Reply #49 on: September 16, 2018, 09:08:22 AM »
I'm curious, do you get validated information on the particular borrower's last five deals?  Loaning/investing into this business is a lot about "betting on the jockey", do you have a management team that knows what they're doing.

That's why I think a private lender has a competitive advantage if they know the person and has a track record with them.