Peerstreet Foreclosure Case Study #2 (Real Estate Crowdfunding)

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I’ve invested in multiple real estate crowdfunding sites, and the one that I’ve put the most money into ($50,000+) is the PeerStreet real estate loan marketplace. If I had to give one tip about this type of real estate investing, it is that you need patience. Yes, the notes are secured by the property, and thus even if the lender defaults you should recover most if not all of the money owed to you. However, what is this process like? How long does it take? What are the possible outcomes? This is the kind of information that I would have liked to see before investing myself, so I wanted to share my experiences.

See also: Peerstreet Foreclosure Case Study #1

Initial investment details.

  • Property: Commercial property in New Jersey.
  • Target Net Investor Rate/Term: 9.25% APR for 17 months.
  • Amount invested: $1,133 out of $1,700,000 loan.
  • Appraised at $4M = 43% LTV.
  • Loan secured by the property in first position.
  • Bridge loan to redevelop into a 179-unit apartment building.

Timeline.

  • May 2018. Loaned out $1,133, my share of $1,700,000 total.
  • June 2018. One single interest payment was made.
  • August 2018. No more payments.
  • September 2018. Legal notices sent.
  • November 2018. PeerStreet and the borrower agree to a forbearance agreement. The terms of the forbearance include, the borrower paying $8,500 and in return, PeerStreet will not file the foreclosure complaint until the end of November. The borrower states that they are in the process of refinancing the loan.
  • December 2018. The forbearance agreement has expired and the borrower has not cured or paid off their loan. The loan file has been sent to a local law firm to initiate legal proceedings against the borrower. Foreclosure counsel filed the foreclosure complaint on December 13, 2018. The complaint has been sent out for service.
  • February 2019. All parties have been Served. Once the time to answer expires, we will move for defaults.
  • June 2019. Foreclosure counsel filed the final judgment package and are waiting on the court to enter the same. Judgment should be entered in the next 3 to 6 weeks
  • July 2019. The foreclosure process continues and PeerStreet is in negotiations to sell the note back to the lender. On 7/31/2019, PeerStreet provided the originating lender with an updated payoff statement as repurchase discussions continue. PeerStreet continues to wait for the Court’s ruling on its Motion for Final Judgment in the foreclosure.
  • September 2019. The Escrow Agent advised that it has received the bulk of the funds for the repurchase of the loan at $1,850,000.00.
  • October 2019. PeerStreet has completed its sale of the note, and final proceeds have been distributed to investors. Proceeds from the sale were $1,815,227, net of costs and fees associated with the foreclosure. The cash-on-cash return on this investment, after taking into account interest and fees paid to investors, was positive at 107.7%.

Final numbers. I invested $1,113 in May 2018 and got paid $87.52 of interest and $1,113 of principal for a total of $1,265.27 as of October 2019. (This was an automated reinvestment which included whatever cash was in my account, thus the odd numbers.) This works out to a 7.86% total return over 17 months, which is roughly a 5.5% annualized return. My overall annualized return across my entire portfolio is 7.3%. These numbers are net of all PeerStreet fees.

My commentary. This loan is an example of Peerstreet negotiating a settlement, in this case getting my principal back and even a a small positive return. This loan was initially concerning because the lender made a single payment and then stopped. While you have collateral, if the loan goes into default, it takes a very, very long time to seize and sell that collateral. This is why you need to diversify your notes and never invest money you need anytime soon.

I can only assume that Peerstreet negotiated with the lender here because they just didn’t want it to drag out any further. They might have gotten more money if they foreclosed, but they would also have had to finish the foreclosure, prep it for sale, market it, and then wait for a sale of the property. The lender still took advantage of the situation, as they basically didn’t have to pay any interest for 17 months and then they ended up paying less interest than they initially promised. The borrower also likely had a bad mark on their credit report, which should hurt their ability to get future loans.

I’ve read many reviews of real estate crowdfunding sites done by new investors who haven’t had the chance to experience how it all works out. Some are overly positive because they haven’t had any late payments yet, while others are too negative because they have some really late loans and assume the worst. With Peerstreet, both of my loans that went “bad” took over a year to sort out, but in the end they had positive returns. Of course, that is not always the case and I have lost some principal on a single note from another now-defunct real estate site.

Bottom line. Out of the $50,000+ I’ve now invested into 51 loans at PeerStreet over 3+ years, 48 were paid back in full in a timely manner, while three have reached various stages of the foreclosure process. This is one example where we went pretty deep into the foreclosure process, but PeerStreet negotiated directly with the borrower to settle the debt and thus avoided another several months of waiting and selling the property. The annualized return for this loan was 5.5%, while my overall annualized return across my entire portfolio is 7.3%.

If you are interested and are an accredited investor, you can sign up and browse investments at PeerStreet for free before depositing any funds or making any investments. If you already invest with them, they now sync with Mint.com.

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Comments

  1. Did I read $50K+ ? Wow. You’ve shown your portfolio and you are on track, why this? Maybe it works for you but not my kind of investment.

  2. I think you have a typo, and it might make a difference to the numbers: “51 loans at PeerStreet over 3+ years, 4 were paid back in full in a timely manner, while three have reached various stages of the foreclosure process.”

    Were 48 paid back fully (to make the math work out) ?

  3. I’m glad your loans were at least paid. I had a bad experience wrt RealtyShares and in fact lost my principal as well.

    I am now more cautious and was an expensive learning lesson. My experience is here https://financialfreedomcountdown.com/how-to-evaluate-real-estate-deals-that-will-help-you-avoid-losing-money/

    • I lost some money on a Realtyshares loan as well. RealtyShares basically admitted that they didn’t know what they were doing regarding residential debt (they started out on the commercial equity side) and are now out of business. Meanwhile, PeerStreet only does RE-backed debt and just closed a $60 million Series C round.

      • Yes. I am part of a FB group consisting on investors who have lost on lots of RealtyShares deals. I never thought RE debt deals would result in losses. And this is in a bull market which makes it harder to swallow. Thanks for being open and sharing details of losses as well.

  4. They have been able to connect to personal capital for a while.

  5. Thanks for posting updates on this. I started investing in PeerStreet in late 2017, when risk free rates were low and the PeerStreet yields looked attractive enough to take on the risk. My experience has been odd. I invested in a total of 20 loans around the same time (I recognize this is a relatively small sample size in the grand scheme of things). Things were going well, until I started divesting my account when market rates increased. I received several notices asking why I was pulling money out, and I responded that their yields have not increased with all other fixed income investments so I was no longer interested. The first 15 loans paid off with minimal missed payments.

    Pretty much right when they contacted me, all of my remaining active loans passed their maturity dates with no principal payments. All I get is an update “PeerStreet has reached out to the lender who is contacting the borrower”. There are vague references to extension fees but I don’t believe I received any as the investor. No substance behind the updates at all. At this point a year has passed, and 4 of the 5 loans are now delinquent or in default, and one remains making payments but is a year passed its maturity date with no clarification of when I will get my principal back. At the end of the day, 4 of my 20 loans went seriously delinquent, with one being a commercial property involved in a foreclosure and lawsuit. Small sample size, but 20% serious delinquency rate with poor communication is a huge red flag for me. Another thing I don’t like is the fact that they remove delinquent loans from their listings of active investments. Very little visibility. I have called a few times and service is friendly but not informative. I am looking forward to getting my principal back.

    Thanks as always for your updates.

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