Loans made on PeerStreet are usually first liens secured by real estate. The deals are put together by “originators” who represent the principal parties in the transaction. The loans are funded by investors on the platform. Those investors must be accredited investors.
Investments made through PeerStreet are on real estate loans, not on the real estate itself. It’s also important to understand that although the loans that are made through PeerStreet are secured by real estate, the notes themselves that you invest in are not. That’s because the note represents a slice of the loan, and not the loan itself. You do however have the option to invest in an entire loan.
PeerStreet can include loans made on single-family residences, either to rent the property or to do a rehab on it to increase the value.
The loans are usually short-term in nature, typically running from six months to 24 months, and have loan-to-value ratios that are usually below 75%. The loans are made across the country, on different types of real estate projects, with different originators and different property types, in order to create a wide diversification of potential investments.
Real estate loans are underwritten by PeerStreet’s team of finance and real estate experts. They underwrite each loan using advanced algorithms, big data analytics and manual processes to make sure that loans are high-quality investments.
They also carefully evaluate originators and allow only highly experienced private lenders with strong track records onto the site. Investors and originators are required to do their own due diligence process in order to select the borrowers and loans that they want to invest in.
For originators, PeerStreet reviews track records, financial statements, licensing and adherence to state usury laws, background checks and review of legal and underwriting processes.
For loans, they perform independent underwriting of all loans using a combination of manual processes as well as big data analytics, order-independent valuation (BPO/Appraisal), ensure that each loan complies with PeerStreet underwriting guidelines, and also perform a review of legal documentation.
For income tax purposes, PeerStreet will issue IRS Form 1099, which could be issued for interest income, original issue discount (for notes with terms longer than one year at the time of issue), cancellation of debt, or for miscellaneous income, such as incentives and late fees, if they exceed $600.