The PeerStreet Experiment

PeerStreetMustacheTransparent-2-6ayhghrpwerci8q192cr2p7sq1niwmx218dgdsfee68In April of 2016, I invested $10,000 into the new field of peer-to-peer real estate loans. I chose PeerStreet as the most promising subject at the time, and wrote about it in this article:

High Efficiency Real Estate Investing with PeerStreet

This tracks the results of the investment and keep up with news on the company and its industry.

Final Update: I ran this experiment from 2016 through 2018, and it was a moderate success. Most loans paid out at the expected rate of interest, and one of them failed ($1k, which was about 8% of my portfolio at that time). This gave me a chance to see how the foreclosure/reclamation process went for PeerStreet. It was very slow – it’s still in process after over two years and made me very glad I’m not in this line of business myself! But my overall returns were still positive and it didn’t cause me any personal stress.

If this can happen even in my small sample size of loans, and even in a booming economy and housing market, I figured there would be more foreclosures whenever the next crash hits. Foreclosures don’t mean you lose all your investment, but the clunky nature of our legal system and property ownership rules means they cause a very long delay where your money may not be earning any interest for you.

Here’s an example of a foreclosure recovery happening in the background, on my one late loan (click for larger).

So I decided to disable automatic reinvestment and pull the rest of my money out. It’s all back in normal index funds now.

Since the purpose of experiments is to learn something, I still consider it a success – and thanks for following along.

Currently active loans, with paid off earlier loans before. Many loans do pay off early, which tends to cause idle cash and decrease your returns slightly.

Since starting this account in 2016, there has been a bit of interesting action. Twelve loans have been paid off, many of them ahead of schedule. While this sounds good, it’s not necessarily a great thing for investors because you presumably wanted to keep collecting interest instead of waiting for that money to be invested elsewhere.

On the positive side, it does make your account a bit more liquid than it would otherwise be – easier to pull out money if you ever need it, if you simply disable automatic reinvestments.

Right now, the money has automatically deployed across five properties, and the account value of $11,652 means that we have made about 16.5% over 23 months.

Although accounts occasionally go into late payment mode, the deed-secured model of these loans should make it much harder for the money to truly go missing in the long run (unlike Lending Club where my defaults have more than eaten up all my interest payments for the past two years!)

With PeerStreet, the late payers have always caught up. So, let the experiment continue!

Strategy Considerations:

I set my account to “automatic investing” mode, with the following settings:

If there is spare cash in the account, the PeerStreet system will automatically put it into qualifying new offerings as they enter their system, and send me an email with the news. I then have a day to review and opt out of anything that doesn’t look quite right to me.

A conservative banker friend taught me to look for low loan-to-value ratios, and to prefer properties that are in healthy but not hopelessly bubbly markets. Admittedly, some of my first investments are still in insanely expensive coastal LA projects, so we can see how those go as well.

If you have questions, comments, or suggestions, feel free to leave them in the comments and we can work together to make this experiment more educational and comprehensive. Thanks for reading and thanks to the PeerStreet staff for helping to teach me all this new stuff so far.

A May 2017 Update/Bonus

If you’re interested in trying out some investing with PeerStreet yourself, I have negotiated a special offer with the company where they give a double signup bonus to you (two 1% yield bumps), and none to me. (I still have no affiliation with the company, but figured having the only site where this better offer is available might bring more people to my blog.) – here’s the URL for that:

http://www.peerstreet.com/join?ref=1tnupvu

  • Kevin B October 18, 2019, 6:46 am

    Hi Pete. Any updates on how your Peer Street experiment is going? Thanks!

    Reply
  • Dennis Johnson January 10, 2020, 9:05 am

    Kind of lost faith in peerstreet and have let my account liquidate. Have defaults 3-4 years old that have not been resolved. I think that is unacceptable.

    Reply
  • William S February 13, 2020, 2:32 pm

    I started investing with PeerStreet the end of 2017. I wanted to do my own test so I dipped in with 10K. Minimum loan is 1K so 10 active loans at a time.

    The only way to get higher yield loans is to turn on the automated investing feature. Another poster addressed this, so I will not. Yes you can place a few parameters on the loans you deem acceptable investments. Emphasis on few.

    In the time frame I have had 14 loans. 11 paid out. Of the 11 paid out there were 17 loan “problems” of various kinds.
    The remaining 3 loans are in trouble with no resolution in sight. One loan in particular did not make one single payment – ever. 17 months of no payment. Repeat – No resolution in sight for the three remaining loans.

    Mr. MM shows 9% and 10% loans. I have never seen anything over 8% and my average is 7%. I stopped investing and started pulling my money out as the loans matured.

    Communication with PeerStreet is met with canned answers, period. Good luck trying to reason with anyone you get to visit with.

    Here is the meat – I have only realized $1,200.62 interest in the entire experiment and I still have over 2K tied up in legal proceeding. One of the three remaining bad loans was partially resolved and part of my principle returned. No matter, the end result is the same. As it stands today I am in the hole, and I do not expect to see a dime from the remainder of the 3 bad loans. I will likely lose over 2K in principle, a net loss of over $1,000

    In my opinion, the biggest problem with the PeerStreet model is they do not require the loan generators to have any skin in the game. None. Nada. And they do not want to require it either. From their perspective, why would they? They are playing a volume game. That requirement would lessen the number of loans generated. They have enough of our money in play they can make it work even with losses. Those are our losses – not theirs.

    4 years ago they might have been worth the risk. Today the risk to return is not worth investing with PeerStreet. Far better other investments in 2020. You will make more money looking for lost wallets down on Main Street.

    My opinion, don’t just run, run fast.

    Reply
    • William S June 4, 2020, 12:23 pm

      June 2020 update.

      Of the three loans in trouble, the loan that had partially paid out was finally resolved and I got all of my money back. Of the remaining two loans, the loan with no payments made is still in Texas Bankruptcy court and the second was finally filed with the court for foreclosure. (Took forever. Kinda like they were buddies or something.)

      I don’t ever expect to be made whole with this PeerStreet test. So glad I did not jump in with the 500K I had originally earmarked for this investment.

      There are several things that could be implemented by PS to protect the individual lenders. PeerStreet refuses to do this. They are obviously tied more to the loan originators than the investors. Does not make sense but my opinion.

      My very, very, conservative Simple IRA is kicking the crap out of this PeerStreet clown-show.

      In the end PeerStreet will always get theirs through sheer volume. You, …….well good luck with that, and they won’t miss you one bit.

      Reply
  • Ignacio L January 13, 2021, 4:57 pm

    I have been investing in Peerstreet since 2016 but I have not invested in any new loans since the beginning of 2019. I have about 20% of my original invested tied in late notes and REOs. A lot of the appraisals (especially on the commercial side) were very aggressive and did not reflect market conditions. What I am finding is that it takes Peerstreet a very long time to go through the foreclosure process especially with Commercial properties. There are games that borrowers play (bankrupcy, etc…) to slow the process. My oldest property is from 2016 (REO) and they have not sold it yet. Today, I got a notice that one of my REO properties was sold in Homestead FL for 980K and we only got 50% of the proceeds back. I reached out to Peerstreet to get a breakdown on the cost and will post. Needless to say that I would stay away from this type of invesment. It is not worth the risk and tying your capital for years.

    Reply
  • Ignacio L January 13, 2021, 6:43 pm

    Quick update: PeerStreet got back to me with more detail on my short pay loan. Bottom line: property costs and foreclosure fees with a lower selling price wiped half of my loan. The company is response but make sure you vet thr appraisal of the property and understand all the risks before investing.

    Reply
    • DownHomeDave May 8, 2021, 4:16 pm

      Notice that PeerStreet founder “Brew” Johnson was replying to a lot of these posts several years ago on this thread and the other one on money mustache. Now, like quality service at peerstreet, he is nowhere to be found.
      AVOID PeerStreet!

      Reply

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