As I indicated in a prior post, I’ve decided to experiment with Equity Crowdfunding to determine if it’s a viable passive income stream. I narrowed the field down to 3 online platforms, each with their own particular twist on equity crowdfunding.
The plan is to invest $10,000 with each platform over the next 12-18 months to get some hands-on experience with how they operate. The ultimate goal of course is to turn the experiment into a permanent investment strategy to help fund my Freedom Years.
This review covers PeerStreet, the first online platform I funded earlier this year.
I intend on updating this post throughout the experiment, by adding sections to it based on different milestones and events.
I actually signed up for the PeerStreet account almost a year ago, and passively watched it prior to funding. It was interesting to see the various opportunities that were available. It helped me get a feel for the platform.
Upon registration, I completed some questions to confirm accreditation and other details. A welcome e-mail was sent with some introductory information, and someone from PeerStreet reached out to offer an intake call.
I wasn’t quite ready to fund at that time, so I deferred the call to later. Once I was ready though, the process was surprisingly easy. I simply linked my bank account, and had the account funded within a few days.
I did schedule an intake call afterwards which I thought was useful.
PeerStreet focuses exclusively on real estate debt, with senior debt positions. This means that as an investor, I would be first in line in case of default. Here’s the graphic from my prior post to help illustrate…
The investments are more conservative than other real estate investments which may be higher up the capital stack.
As a result, most of the opportunities I’ve seen on PeerStreet have ranged from 7-10% interest roughly speaking. The Loan to Value (LTV) ratios have generally been less than 70% LTV, which demonstrates their conservative approach.
The majority of the investments tend to be Single Family Residences, with terms of 12 months or less. They also offer a considerable amount of opportunities in California, since many of their experts specialize in that market. The offerings in other states are beginning to grow though.
My PeerStreet Strategy
I decided to split my funds into 4 equal parts for this particular experiment.
I made the first investment “manually”, which means I selected the exact property I wanted from the available ones at the time.
I received an interest rate bump of 1% as an introductory offer from PeerStreet which I applied to that first investment.
The other 3 properties were selected using PeerStreet’s “Automated Investing” option. This option allows you to specify investment criteria ahead of time. They will use your criteria to automatically invest your available funds into matching properties.
This is the criteria I initially applied on mine…
After a couple of weeks with no hits, I moved the Interest Rate down to ‘9%+’, and the LTV to ‘up to 75%’.
Once I made those changes, it took a month before the automated option found me enough properties to satisfy my criteria. They will rotate investors in the automated option based on available properties and their position in line.
I set up my investment criteria fairly aggressively to see how often those types of investments come around. Had I been more conservative, I would have been invested within the first week.
Some people may not like using this option since it prevents you from being selective with the properties. I personally like it because it helps to automate the investment process and supports my passive income goal.
In case you’re curious here’s a brief summary of the first property…
The other properties are also “Fix N Flip” properties, which is pretty typical of hard money lending loans.
In the example above you’re betting that in a worst case scenario, the ~30% in equity will keep your principal protected in case of default.
Based on the investment returns anticipated, and assuming borrowers don’t default or pay back their loans early, here’s what I should be expecting about a year from now:
Calabasas, CA Loan: $2,500 Investment @ 9.49% for 12 Months = $237.25 in Interest
Los Angeles, CA Loan: $2,500 Investment @ 9.99% for 12 Months = $249.75 in Interest
Scottsdale, AZ Loan: $2,500 Investment @ 9.00% for 12 Months = $225.00 in Interest
Kissimmee,FL Loan: $2,500 Investment @ 9.00% for 12 Months = $225.00 in Interest
My initial investment of $10,000 should return $937 total, or a blended interest rate of 9.37%.
Of course the timing on these loans wasn’t perfect, so depending on when they actually funded, my actual returns may be slightly lower.
The first three are already paying interest, so it’s nice to see that the money is being put to work. It will be interesting to see how they end up at maturity.
I’m a few months into my PeerStreet experiment, and as promised, here’s my first of many updates…
Based on my previous analysis, I should be expecting about ~$78 in interest per month as a result of my “bundled” portfolio of 4 properties.
Here’s a snapshot of how they’ve each performed over the past 4 months or so:
I’ve earned a total of $259.62 across all investments. This is about on-pace with what I would expect given the different start dates of each loan, with one exception.
PeerStreet recently added a new feature which highlights the status of each investment. Unfortunately not all of my investments are performing as I would hope.
Three of the four have had no issues, and are performing well with no missed interest payments so far.
One of the four has been put on notice for a late payment in July. PeerStreet is working with the borrower to “cure” the loan, which basically means they are trying to collect past late payments and any associated penalties.
This is of course concerning since that’s normally how defaults start. I’m keeping an eye on it, and hoping they will be able to bring the loan back to performing. Should they not be able to do so, it will be interesting to see how their process works.
In theory, since this is a senior debt loan, my principle should be covered given the LTV ratio of the investment. Of course how long it takes to recover the principle is the real question.
I’m glad I split my investment across 4 different properties. I’ll give PeerStreet the benefit of the doubt until the end of the experiment. They claim that 95% of their loans have never reached “Late 60” status.
I hope I’m not that unlucky 5%…we shall see on my next update.
I like this approach to real estate investing because it allows me to build a passive income stream without having to directly manage a property. Of course the downside is I don’t get to reap the rewards of any appreciation in the property.
This investment approach may be a practical way to accomplish those goals.
So far, PeerStreet gets a Thumbs Up! Benefit of the doubt and all
I plan on publishing future updates such as this one every few months, in the meantime you can check out some of PeerStreet’s current offerings by registering on their site.
Readers, anyone else use PeerStreet? How’s your experience been, and what’s your strategy? Would you consider Equity Crowdfunding as part of your strategy? Ever had a non-performing loan? Share your thoughts and comments below!