Residential real estate is a popular way to earn passive income and is an excellent alternative to commercial real estate.
Accredited investors can use PeerStreet to invest as little as $1,000 into single family and multifamily properties. The platform can also be an easy way to invest in out-of-state properties to expand your real estate footprint.
This PeerStreet review takes a closer look at how to earn investment income from residential properties.
PeerStreet lets you invest as little as $1,000 in individual residential properties and earn an average dividend yield between 6-9%. However, only accredited investors are eligible to invest.
- $1,000 investment minimum
- Above-average dividend income
- Short investment periods
- Accredited investors only
- Cannot sell notes early
- Limited investment options
In This Article
What is PeerStreet?
PeerStreet is a crowdfunded real estate platform for accredited investors. Unlike most services that focus on commercial real estate and multifamily apartments, you can invest in residential properties across the United States.
Some of the property types include:
- Single family residential
- Multifamily apartments
This service only lets you invest in individual properties. The platform doesn’t offer real estate funds where a fund manager decides which properties to hold.
Another difference between PeerStreet and other real estate crowdfunding services is that all investment offerings are 100% debt-based.
You lend money to the borrower and your investment income is the monthly interest payment.
This funding method is less risky than equity deals and can earn more dividends. Still, your investment won’t appreciate if the property value appreciates and the property manager sells it to another buyer to make a profit.
The investment minimum is $1,000 per offering and the investment period is from 6-24 months. Each loan also has a maximum 75% loan-to-value ratio (LTV), meaning the borrower has enough equity to avoid private mortgage insurance.
Borrowers can use your funds to acquire a property or refinance an existing note.
Who is PeerStreet For?
Only accredited investors can invest on PeerStreet with taxable and tax-deferred retirement accounts. Family offices and institutions can also join the platform.
You can qualify to invest by meeting one of these requirements:
- Have an individual income of at least $200,000 ($300,000 for couples)
- A minimum liquid net worth of $1 million (excluding the value of your primary residence)
As PeerStreet doesn’t offer managed funds, federal regulations currently prohibit non-accredited investors from joining this platform.
This platform is an excellent option if you want to invest in individual residential properties outside of your local market.
You might also appreciate PeerStreet because you only need to invest $1,000 in each offering if you want to dabble in multiple projects. However, it’s not uncommon for accredited-only platforms to require at least $10,000 per offering.
How Does Peerstreet Work?
Here is a closer look at how the investment process works.
Borrowers Receive Loans
Borrowers will apply for financing from a PeerStreet lending partner. If the borrower meets the basic requirements, the lender turns to PeerStreet and its investors to fund the loan.
If the PeerStreet team approves the loan request, investors can commit to investing in the project.
The borrower receives the loan funds when the offering reaches 100% funding. It takes up to three business days to close a loan after investors commit full funding.
While borrowers must wait for the entire project to receive investor funding, the lending process can be less rigid than going through a traditional lender. For investor safety, PeerStreet carefully screens each borrower application to minimize investment risk.
You can review the investment details for open offerings and commit at least $1,000 to purchase a position.
PeerStreet Collects Payments
The borrower makes monthly payments for the loan term to PeerStreet. In addition, investors receive dividend income minus a minimum 1% asset management fee.
It’s possible for the borrower to repay the loan early or it may also be possible to extend the repayment term.
PeerStreet has a first lien position for each property. As a result, you can be the first investor to receive the monthly payment if the borrower only makes a partial payment.
The service will collect late payments and payment extensions if the borrower doesn’t stick to the original payment schedule.
You Get Paid
Investors receive interest payments on the 1st and 15th of each month. You can reinvest the dividends, keep your uninvested cash on the platform or withdraw to a linked checking account.
This income is taxable if you buy notes with a non-retirement account. PeerStreet provides an end-of-year Form 1099 reporting your income details.
You cannot sell your notes early and you must wait for the borrower to repay the loan to receive your total investment back.
These services can make it easy to invest in real estate.
Pocket is one of the newest platform features. This short-term investment idea lets you earn up to 2% interest on your uninvested cash.
The investment minimum is $1,000 and there isn’t a minimum investment period. This account is separate from the cash balance in your investing account.
There are no service fees for this investment product.
While this account doesn’t have the same liquidity as a high-yield savings account, you can earn a significantly higher yield.
You can deposit new funds daily and withdraw your balance on the first of each month. However, you will need to request your withdrawal before the 15th. That’s at least two weeks before the withdrawal date.
Pocket reinvests your dividends to earn compound interest until you make a withdrawal.
It’s important to remember this account doesn’t have FDIC or SIPC insurance.
You might keep your uninvested cash here when you’re waiting for an offering matching your investment preferences.
PeerStreet uses these funds to finance the acquisition of new loans but not to finance the actual loan itself.
These are the different taxable and tax-advantaged accounts available:
- Individual taxable
- Traditional IRA
You must use a self-directed IRA with STRATA Trust Company to invest on PeerStreet with a retirement account. These accounts typically have additional fees that stock brokerage IRAs do not charge.
PeerStreet will make a one-time fee reimbursement for each person when the initial IRA balance is at least $5,000.
The IRA fee reimbursements include:
- Account opening: $50
- Annual fee: $100
- Initial investment purchase: $50
You will be responsible for any other initial setup or ongoing maintenance fees.
An effortless way to never miss a great investment opportunity is enrolling in automated investing.
You can make preset filters and PeerStreet will automatically invest cash into new offerings meeting your criteria.
Some of the investment filters include:
- Investment term
- Max loan-to-value ratio (maximum 75% LTV)
- Dividend yield
When a qualifying investment opens, you have 24 hours to review and commit. PeerStreet will automatically buy the minimum number of shares you designate if you don’t check the offering.
The minimum investment is $1,000, just like when you manually buy investment notes. However, this feature also lets you reinvest as little as $100 in dividends at a time.
However, you can set a minimum and maximum investment amount to invest more than $1,000 while maintaining a balanced portfolio allocation.
New offerings can appear at noon Pacific Standard Time each business day. This feature can reserve your spot in popular offerings that may fill up before you have time to visit the investment dashboard and review current investment options.
However, your trade request may not fill if an offering becomes oversubscribed.
You can invest in real estate-backed loans throughout the country for different property types.
In addition to looking at the potential yield and investment term, you can also invest in different loan types.
The different loan strategies include:
- Buy to Rent: The borrower buys a property to earn rental income. Some of the loan proceeds can be for repairs and capital improvements.
- Refinance: Borrower pays off an existing mortgage and gets a new loan with more favorable terms. A cash-out refinance allows the borrower to perform repairs and improvements.
- Value Add: A borrower acquires or refinances a property, completes improvements before selling the property for a potential profit.
- Bridge: A temporary loan until the borrower qualifies for other financing.
- Investment: The borrower will use the property to earn rental income, flip for a profit or both.
It’s also possible to have taxable and retirement accounts with the platform. If you’re not ready to invest your cash, you can earn a competitive short-term interest rate with the Pocket account.
PeerStreet’s lending network contains hundreds of lenders, according to the crowdfunding platform.
The lender submits the funding request to PeerStreet. New loans become available at 12 pm Pacific when you can review the loan details and invest as little as $1,000.
Investors with an active automated investing feature can also auto-commit to investing. The service will automatically buy notes 24 hours later if the investor doesn’t decline the offering.
Each offering detail lists several details, including:
- Loan strategy
- Property details
- Projected rate of return
- Borrower credit score and investment track record
You can use an investment calculator with each offering to calculate your total return using your initial investment amount.
Once a loan receives full funding, the PeerStreet team financial, legal and real estate experts will manage the loan and collect payments.
While you must self-manage your portfolio, you can view your active and previous investments.
In addition to scrolling through your holdings, there are several search filters.
Some of the filters include:
- Property name and location
- Investment type
- Outstanding principal
- Maturity date
- Payment status
Lenders can partner with PeerStreet so investors have more investment offerings to choose from.
Selling loans to PeerStreet allows the lender to have more capital to finance new real estate offerings. Also, PeerStreet charges minimal fees which also keeps the asset management fee low for investors.
PeerStreet relies on lenders to provide loans that meet specific criteria but this approach helps the platform remain a marketplace to connect investors with borrowers.
Unfortunately, not every borrower repays their loan in full or might miss a payment. Defaults are a problem with any crowdfunding platform, although PeerStreet doesn’t state the number of defaults since the platform’s inception in 2014.
If the borrower defaults, PeerStreet can foreclose on the property. After paying the legal fees and foreclosure-related costs, investors receive 50% of the remaining proceeds to reimburse the outstanding principal and interest.
It’s possible you won’t recoup your investment principal or unpaid interest if the borrower defaults.
PeerStreet may offer the borrower two different options to help you get your estimated investment returns and reduce legal costs.
Borrowers may pay default interest in addition to the standard amortized interest. Investors receive 50% of this income stream and the investing app keeps the other half.
PeerStreet may also approve loan extensions on a case-by-case basis to give borrowers the opportunity to modify their repayment terms.
This extension is different from the one-time three-month extension borrowers can request if their account is current.
When researching Peerstreet we found some common questions. Here’s what we found.
Most PeerStreet loans have annual returns between 6% and 9%. Pocket accounts earn 2% APY.
PeerStreet can be safer than competing crowdfunding platforms as all offerings are debt-based. You lend money to the property owner who repays the balance with interest.
You can earn a dividend yield competitive with other crowdfunding platforms. The low $1,000 minimum investment makes it easier to diversify and also invest small amounts of money.
However, you will need to perform your due diligence before committing to an individual investment. In addition, normal market risks still apply and some borrowers will default.
The only funds that have FDIC insurance are the uninvested cash in your investment account. Unfortunately, these funds don’t earn interest.
Any cash you invest in a real estate deal or a Pocket account is neither FDIC-insured and SIPC-insured.
You only need $1,000 to start investing in loan offerings or a short-term Pocket account.
You can contact PeerStreet by live chat or receive telephone support from 9 am to 5 pm Pacific. The platform also has email support and an online FAQ library for non-urgent matters.
Investors only pay an annual asset management fee. This fee is 1% for most projects but can be higher or lower.
For example, the fee can range from 0.25% to 1.5% and PeerStreet deducts this fee from the monthly interest payments.
You won’t pay any out-of-pocket fees to create an account or if a borrower misses a payment.
If you invest with a self-directed IRA, the IRA provider will charge additional fees
If you’re an accredited investor, PeerStreet is one of the best real estate platforms as you can invest in residential real estate with minimal risk and competitive returns. Only having to invest $1,000 in individual properties is also lower than most services.
Other platforms can be better if you prefer commercial real estate crowdfunding or want managed accounts similar to what Fundrise offers.