Peerstreet – Crowd Investment in Real Estate Mortgages by Alexander Gornyi

The post was originally published in Russian on Startup of the Day. Alexander kindly agreed to republish what we think is of great value to our readers.

Many perceive that real estate is the most reliable thing in the world, loaning on the security of a house is a pleasure. But only banks and rich folks can afford such pleasure, a simple everyday person doesn’t have the money to loan so much, and there’s a lot of paperwork involved, too. The situation asks for a crowdfunding platform, and it exists.

Peerstreet, the American startup of the day, finds house owners in need of a loan offline, and then collects investor money online. The user sees lists of available options, basic info on the house, the amount, the interest and the term of the loan. A couple of clicks, – and their share goes to the common amount. Those willing to diversify or not willing to choose, switch on the autopilot mode, you adjust it once – and no more need for considerations, Peerstreet will distribute the budget itself.

The amount is sufficient, the lender gets their loan, then they pay the interest, and the startup distributes the payments among the investors and deducts its commission at that. The platform doesn’t take any financial risks, the creditor will pay for the possible default. Peerstreet will sell the real estate under the mortgage and do the paperwork, but if it will be insufficient – you should be prepared for it, this is an investment and not an all-prize lottery.

The maths looks like this: a typical loan comprises USD 500K for 12-20 months with 7.5% annual interest minus 0.5-1% Peerstreet’s commission. A residential home with a price of about USD 650K is under the mortgage. The rates seem amazingly high for the USA, unfortunately it wasn’t possible to figure out where the loaners come from. The startup’s PR includes the regular sophistry about ‘super professional team with extensive experience finding exciting ideas.’ The investor’s risk consists of fraud, Peerstreet’s lack of professional skills to evaluate the real estate, and the next crisis that will dramatically drop the real estate prices – roughly it will be a lot less than 7%, investment is possible.

So the clients invest, a lot at that, the average check of one loan participant is about three thousand dollars. Altogether, the company processed 900 million in 4 years – this is roughly one deal a day and revenue of several million a year. The startup raised USD 50M of investment, 30M of which in the recent round.

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This is a rerun from 2018. The company didn’t grow into a unicorn yet, but it did occupy its niche, it’s thriving and throbbing. Without overthinking, it seems like stock market problems represent a good time for Peerstreet, the investors are forced to take a good look at something other than the stock. It’s probably possible to launch something similar for commercial real estate in Russia.

Translation: Kostiantyn Tupikov