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  • PeerStreet

    Any thoughts on real estate P2P investing platforms such as PeerStreet, https://www.peerstreet.com/, for portfolio diversification? MMM posted an article about this platform ( http://www.mrmoneymustache.com/2016/05/02/peerstreet/#comments )

  • #2
    I read the MMM blog. I am currently an investor with Realty Shares, which rolls a little differently. I have been satisfied with the experience thus far.

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    • #3
      It looks like a great choice for that type of investment.  WCI has posted a blog on the topic in the past.  It is nice to have a business vetted by MMM.  Some of the others make me nervous since I can't tell how knowledgeable or dedicated or intelligent the team is.  I think MMM was impressed with this particular team.  It is a good way to get some diversification in your investments.  I personally am holding off for now because: the increased return comes with some increased risk; it takes some time to manage and keep track of; there are some tax consequence unless you put it in an IRA (which comes with some work and hassle too).  I'm a little overwhelmed with accounts and tax documents etc right now.  Also my philosophy is take only risk that you need to take.  I'm focused mostly on not losing.  Slow steady growth is nice, but not losing is most important to me.   For others who want rapid growth with some risk and don't mind managing and monitoring the investment a bit it looks like a nice option.

       

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      • #4
        Interesting, I have plenty of experience on the equity side of the table in commercial real estate, but have never been on the debt side. Thanks for bring it up as I will look into it. Sounds like they are short term mezzanine financing, which is a riskier position in the debt stack. Also, not sure about the tax considerations of debt vs equity ( sheltered  temporarily by depreciation). My gut impression is to go on the equity side with experienced large scale syndicators. IMHO  real estate is awesome, but has risk and everyone thinks they can do it. However, when another 2007/2008 comes along you will wish you did plenty of homework first.

         

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        • #5




          Interesting, I have plenty of experience on the equity side of the table in commercial real estate, but have never been on the debt side. Thanks for bring it up as I will look into it. Sounds like they are short term mezzanine financing, which is a riskier position in the debt stack. Also, not sure about the tax considerations of debt vs equity ( sheltered  temporarily by depreciation). My gut impression is to go on the equity side with experienced large scale syndicators. IMHO  real estate is awesome, but has risk and everyone thinks they can do it. However, when another 2007/2008 comes along you will wish you did plenty of homework first.

           
          Click to expand...


          This was exactly my take away when I looked at it, the debt is riskier and I believe has worse tax treatment for us.

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          • #6
            NJDoc, loans on PeerStreet aren't mezz loans, they are actually all 1st position liens.  Historic loans have averaged a 64% LTV, 8.2% net return to investors and a 9 month term.

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            • #7




              NJDoc, loans on PeerStreet aren’t mezz loans, they are actually all 1st position liens.  Historic loans have averaged a "64% LTV, 8.2% net return to investors and a 9 month term".
              Click to expand...


              An old thread resurrected, but I thought to revive it to share my Peer Street experience, especially as it related to "64% LTV, 8.2% net return to investors and a 9 month term".

              Most of my experience has been as expected, with the notes being paid on-timeish, and the principal eventually paid in full. Today, I had the first round trip of a defaulted note, one which took about a year to resolve, with no payments over the year, and a charge-off of 13%. I guess you expect an occasional note to go bust, and of my roundtrips, this is the first of 40 to default and pay back less than principle. The "cash-on-cash" return was 89.5% (accounting for the early interest payments), from June, 2017 to today.

              One thing that I found troubling was that the property, located in the relatively robust Palm Beach County market was appraised at $751k, and the initial loan was $562k, which would seem to be a reasonable margin of safety. However, in October, 2018, prior to being listed for sale, it was reappraised at $580k (!) - there goes the margin of safety! It eventually sold for $615k, and there were $65k in expenses, that came off the top. There is no way that I could intelligently ascertain whether the first appraisal was legit (it would appear that the second was closer), but if you cannot believe the appraisal, how can you possibly trust the LTV or any other metric to make an informed decision.

              About six months ago, I decided to not commit any more capital to Peer Street deals. I have a couple other deals that look perilous, and I increasingly had the sense that I was picking up nickels ahead of the steamroller. A chance meeting and conversation with a CFO of a real estate development company confirmed this for me. His opinion was that it is "dumb money" that supports these deals. Lesson learned.

               

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              • #8







                NJDoc, loans on PeerStreet aren’t mezz loans, they are actually all 1st position liens.  Historic loans have averaged a “64% LTV, 8.2% net return to investors and a 9 month term”.
                Click to expand…


                An old thread resurrected, but I thought to revive it to share my Peer Street experience, especially as it related to “64% LTV, 8.2% net return to investors and a 9 month term”.

                Most of my experience has been as expected, with the notes being paid on-timeish, and the principal eventually paid in full. Today, I had the first round trip of a defaulted note, one which took about a year to resolve, with no payments over the year, and a charge-off of 13%. I guess you expect an occasional note to go bust, and of my roundtrips, this is the first of 40 to default and pay back less than principle. The “cash-on-cash” return was 89.5% (accounting for the early interest payments), from June, 2017 to today.

                One thing that I found troubling was that the property, located in the relatively robust Palm Beach County market was appraised at $751k, and the initial loan was $562k, which would seem to be a reasonable margin of safety. However, in October, 2018, prior to being listed for sale, it was reappraised at $580k (!) – there goes the margin of safety! It eventually sold for $615k, and there were $65k in expenses, that came off the top. There is no way that I could intelligently ascertain whether the first appraisal was legit (it would appear that the second was closer), but if you cannot believe the appraisal, how can you possibly trust the LTV or any other metric to make an informed decision.

                About six months ago, I decided to not commit any more capital to Peer Street deals. I have a couple other deals that look perilous, and I increasingly had the sense that I was picking up nickels ahead of the steamroller. A chance meeting and conversation with a CFO of a real estate development company confirmed this for me. His opinion was that it is “dumb money” that supports these deals. Lesson learned.

                 
                Click to expand...


                What are the expenses? If Ozark has any grain of truth, construction, rehab, expenses, etc...easiest way to inflate costs and launder money, etc...that would be the most concerning to me, them inflating "expenses" to skim off the top and increase their take.

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