If you are close to the real estate market, you know that there are many ways to invest in real estate. Traditionally, one would think of real estate investing as going out and buying real estate assets such as single family homes or commercial real estate buildings.
With advancements in technology though, more real estate investment opportunities have come to light. One popular example is that investors can invest in REITs. REITs are real estate investment trusts that allow investors to participate in real estate investing by purchasing unique real estate stocks.
In addition to REITs, investors now have access to real estate deals through a process called crowdfunding. A definition of crowdfunding is that organizations use the internet to raise small amounts of capital from a large number of people. These funds are then used to support organizational projects that hopefully result in profits (although there is no guarantee).
Crowdfunding is revolutionary because it enables a large number of investors to supply capital through small investments rather than a small number of investors providing high amounts of capital. In essence, this allows more investors to play in the game rather than just venture capitalists!
Companies like PeerStreet have enabled crowdfunding investors to profit from loaning money to real estate investors. Rather than collecting rent or profiting from real estate asset appreciation, PeerStreet investors receive interest payments from the capital they loan. These debt investments still carry risk but are typically safer than other real estate investments.
To learn more about all of the advantages of PeerStreet, head to our PeerStreet Summary. While this article will cover some of the advantages of using PeerStreet, the main purpose is to cover all of the fees associated with the PeerStreet platform.
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PeerStreet is a real estate crowdfunding platform that focuses on the debt side of investments rather than equity and appreciation. The company is headquartered in Los Angeles, California and was created in 2013. The company proudly states that since 2013, it has transacted over $4B in real estate deals that have returned over $225M in interest to platform investors.
The PeerStreet website states that "PeerStreet introduced the first and largest two-sided marketplace for investing in real estate debt. On one side, we source loans from our nationwide network of private lenders and brokers, then aggregate, service, and manage those loans for individual and institutional investors on the other."
A detailed view of the entire PeerStreet process can be found on the official PeerStreet website. Additionally, a great summary is provided below.
As with any investment, these debt investments on PeerStreet still carry risk. Fortunately, investing in debt is considered to be a safer investment than other equity offerings. However, it is important to realize that money can be lost in the event of loan default.
The first step to see and analyze any deal on PeerStreet is to create a PeerStreet account. Creating an account with PeerStreet is absolutely free!
Investors have the ability to pick the term of the loan, max loan to value, and minimum yield for any deal. Once a deal is agreed upon, you are not able to liquidate your funds prior to the agreed loan term.
PeerStreets is relatively open about its main fee schedule. However, there are a couple of other fees that investors have to be aware of when investing in PeerStreet. The two high-level buckets of fees are listed below.
PeerStreet’s rate fee is the typical fee that PeerStreet will charge for any deal. This is the bread and butter for how PeerStreet makes its money. Compared to competitors, this fee schedule is quite competitive.
To best understand the PeerStreet rate fee, you have to understand some of the terminology used on the PeerStreet platform. The terms PeerStreet uses when describing its fees are PeerStreet note purchase rate, PeerStreet fee, interest rate spread, and net investor rate.
The PeerStreet note purchase rate is the rate that PeerStreet acquires the loan for. In essence, when PeerStreet is first given the investment opportunity, the platform has a rate of return that it will receive immediately for accepting the loan.
The PeerStreet fee is closely associated with the interest rate spread. This PeerStreet interest rate spread accounts for the servicing fee for the loan. It pays for all of the work that PeerStreet does in the background to make the platform successful for all investors.
This servicing fee includes the price for keeping payment records, making and collecting escrow payments, paying principal, distributing interest payments to investors, and even more. Typically, this PeerStreet fee/servicing fee ranges from 0.25% and 1.00%.
The interest rate spread is the difference between the PeerStreet note purchase rate and the net investor rate. The net investor rate is the rate of return for the debt loaned for PeerStreet investors.
An example using the above terminology is used below to demonstrate a normal fee schedule for PeerStreet investors.
Unfortunately, there are a few more complicated fees within the PeerStreet platform. Since these fees are not as common, the platform is not as open about sharing rate examples. As you find investments on PeerStreet that you want to invest in, confirm all of the potential fees that can limit your earnings before signing all paperwork.
An example of an additional fee that PeerStreet may charge is when an originator sells a seasoned loan. Typically seasoned loans carry less risk. This type of loan would result in an additional fee (since it is considered less risky) but PeerStreet confirms that all fees would be disclosed in the rate details or investment overview sections of the platform.
The final fee that is important to outline is the asset management fee. This is an additional fee that can take shape once a loan becomes delinquent (i.e. falls behind on payments). PeerStreet elects to handle these situations internally to negotiate potential solutions with the obligors (these solutions may include foreclosure).
Since these loans require more time and work, PeerStreet starts to charge an additional fee. Since these fees differ vastly in any situation, check out this article published by PeerStreet to learn more about the potential asset management fee.
To get another summary of all of the above mentioned fees, feel free to cross reference on the official PeerStreet website.
PeerStreet has changed the game of real estate investing. This crowdfunding platform opens the door of investment to investors looking for debt investments in the real estate market. One point of pride for the PeerStreet marketplace is that debt investors can play a part in improving American communities, one investment at a time.
While creating a PeerStreet account and browsing the PeerStreet marketplace is absolutely free, there are fees associated with each and every deal. The common fee in all investments covers PeerStreet’s servicing fee. This fee basically buckets up all of the work that PeerStreet does to make an investment work and to have the platform running.
This fee is also known as the PeerStreet rate fee and is typically 0.25% to 1.00% of the investment.
There are a few other fees that PeerStreet makes apparent to all investors. Whatever the potential fee is, it will be disclosed in the rate details or investment overview sections of the platform. If you ever have questions about the potential of hidden fees, you can always contact the PeerStreet support team.
If you are interested in investing in debt and participating in real estate investing, PeerStreet may be right for you. Remember that signing up and browsing deals is absolutely free so if you are interested, sign up today!