PeerStreet offers real estate loan investments with returns ranging from 7-12%. All loans are backed by an underlying property with a maximum loan to value ratio of 75%. The typical duration of the loan is 12-24 months.

They've been around for a few years and have repaid every single loan they've given out. With returns up to 12%, this seems like a great deal to me.

With an LTV maximum of 75%, that means the property can drop in value by 25%, and the investors won't lose a cent.

What does everyone else think? On the surface, this seems too good to be true.

Edit: It seems there were some flags marking this as potential spam. My question was mainly about how this investment firm can offer investments with 6-12% returns on real estate when a typical new mortgage nowadays has a 30-year interest rate of 3.5% or better. The answer about the hard money loans is excellent, but I still wonder why they can't just get a regular mortgage? Is it that difficult to get one without credit history?

Also, what is the risk to the lender? How likely is it that they won't receive the principal or interest back?

  • 3
    I find it unlikely that they provide loans with a 12% return after fees. If you read their verbiage, I think the potential returns are gross and that they may not always reach 6%. Note the "historical" and "for example" wordings. So the after-fee return might well be a more normal 3%. I doubt these are FDIC insured deposits. An LTV of 75% means that the last crash would have left many loans underwater. 50% valuations were not so uncommon. That said, I'm basing this purely on a skeptical reading of what they say.
    – Brythan
    Oct 9 '16 at 8:37
  • This question has been getting a few flags suggesting it might be spam just advertising the product rather than a genuine question. As far as we can tell, there's no concrete evidence of that. It would benefit from being worded in a more neutral way, though. Oct 9 '16 at 13:43
  • @GaneshSittampalam People may stumble on that site and be misled; it's good to address the risks with that site and it involves more risks than the way it presents itself. Oct 9 '16 at 15:01

(Disclosure - PeerStreet was at FinCon, a financial blogger conference I attended last month. I had the chance to briefly meet a couple people from this company. Also, I recognize a number of the names of their financial backers. This doesn't guarantee anything, of course, except the people behind the scenes are no slackers.)

The same way Prosper and Lending Club have created a market for personal loans, this is a company that offers real estate loans.

The "too good to be true" aspect is what I'll try to address. I've disclosed in other answers that I have my Real Estate license. Earlier this year, I sold a house that was financed with a "Hard Money" loan. Not a bank, but a group of investors. They charged the buyer 10%. Let me state - I represented the seller, and when I found out the terms of the loan, it would have been a breach of my own moral and legal responsibility to her to do anything to kill the deal. I felt sick for days after that sale.

There are many people with little credit history who are hard workers and have saved their 20% down. For PeerStreet, 25%. The same way there's a business, local to my area, that offered a 10% loan, PeerStreet is doing something similar but in a 'crowd sourced' way. It seems to me that since they show the duration as only 6-24 months, the buyer typically manages to refinance during that time. I'm guessing that these may be people who are selling their house, but have bad timing, i.e. they need to first close on the sale to qualify to buy the new home. Or simply need the time to get their regular loan approved.

(As a final side note - I recalled the 10% story in a social setting, and more than one person responded they'd have been happy to invest their money at 6%. I could have saved the buyer 4% and gotten someone else nearly 6% more than they get on their cash.)

  • Thanks for taking the time to address this question. I realize people tend to downvote and close these questions, but these sites are notorious for misleading people, so questions like this should be addressed as a warning sign. +1. Oct 9 '16 at 14:57
  • Thanks. It's tough to go against a knee-jerk reaction. multiple close flags for spam, but the question looked legit. Oct 9 '16 at 15:15

I am a user on the Peerstreet and competing platforms, let me tell you my experience. The rates are a little lower than my other investments but the associated risk is lower as well. Most loans available are 6-8%, loans with higher rate disappear quickly. 9% loans can be hard to buy, and I have never been able to buy a 10% loan (they always sell out before I can click the button). Loans are typically first liens with short duration (6 to 24 months) and the platform uses LTV instead of ARV witch also has much to do with the lower return and risk variables than platform that use ARV.

In my experience 6-8% returns for short term, fix and flip, first position loans is not very high. I keep 10% of my portfolio here because it is less risky than my other investments.

I think this is a legit question because its rare for investments that make good returns, buying short term real-estate debt is inherently risky as such you shouldn't get involved without doing a lot of research and learning before attempting it.

I have been with Peerstreet now 2 1/2 years and here is a summary of my loans, annual return rate 6.3%

183 Paid Off, 137 Current, 33 Late, 0 Short Pay

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