
Peer Street - up_and_up
http://www.peerstreet.com
======
baccredited
I have invested in 4 Peer Street loans. The appeal to me is the transparency.
All of their previous loans have been paid off. Compare to realtyshares.com
where it is impossible to judge the past performance of old loans.

I'm drawn to these kinds of investments because they (hopefully) aren't
tightly correlated to the stock market. And, unlike Lending Club, they are
secured loans that are tied to property that can be liquidated if the borrower
defaults.

Mr. Money Mustache had a writeup on Peer Street this week:
[http://www.mrmoneymustache.com/2016/05/02/peerstreet/](http://www.mrmoneymustache.com/2016/05/02/peerstreet/)

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chollida1
Here's the thing about this kind of loan. Its like the junk bond market for
corporate debt.

When things are good, as they have been from 2009 until today, then you can
roll debt over and these high risk, high return loans look like a goo
investment.

When things go bad, people stop having access to capital to roll their loans
and it isn't one loan that goes bad, its the entire sector that goes bad.

The problem with this lender is that they can't show data for a period like
2008, when there were defaults all over the place. That's not their fault as
they weren't around then but its something to keep in mind.

if you are getting above average return for loaning money then you are by
definition taking above average risk.

Ask banks in 2008 how having their loans secured by the property worked. When
someone defaults on their loan it isn't always because they can't pay, its
often because the property is worth less than the loan value on it.

~~~
brettpeerstreet
Great points, that's why conservative underwriting and low LTV (loan to value)
ratios matter so much. Look at PeerStreet deals, they are 75% LTV and under
with a site wide average of 63% LTV. Every deal that goes up is stress tested
against the last 20yrs of data in the sub market, then projected against the
term of the loan and that's posted with each deal that goes up. But you are
absolutely right that these things matter. In 2008, the banks were loaning at
100% LTV, that means the borrower has no skin in the game. And then lenders
had guaranteed take outs of their loans. Those are some of the of the big
reasons so much went wrong.PeerStreet is trying to take as many learnings from
the securitization market as possible, both positive and negative and factor
them in.

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d--b
How can they advertise "High quality loans" that pay 6%-12%? That sounds super
shady. Plus they take a 0.25%-1% spread on top of it!

This should be marketed as high yield, super risky investments, but they try
and make it sound that it is great and safe. It's one thing to have good
originators, and another to have bad credit loans that actually get repaid.

~~~
bko
My guess is that they are bridge loans (A “bridge loan” is basically a short
term loan taken out by a borrower against their current property to finance
the purchase of a new property) which are often much higher rate. That or
there is a leverage where there is some structure to the cashflow. So for
instance, a loan can pay 4% and can be separated into two pieces, one pays 2%
and the other pays 6%. When there is a loss, the 6% would take a bigger loss
that the 2% piece.

It's probably the former though since it appears to be very short.

Edit: It's neither:

> As an investor, you’re usually funding loans, which are then used to buy and
> improve real properties, and you get paid for doing so. But because you’re
> not competing in the well-developed 30-year residential mortgage market, you
> can expect to collect annual interest in the 7-10% range, rather than the
> 3-4% that mortgage securities pay their owners.

So essentially its more like a REIT.

[0]
[http://www.mrmoneymustache.com/2016/05/02/peerstreet/](http://www.mrmoneymustache.com/2016/05/02/peerstreet/)

~~~
Domenic_S
I don't get it, why not a HELOC at those LTVs? Any HELOC can beat 10%...

~~~
brettpeerstreet
These are first position liens on business purpose, non-owner occupied
properties. Often these are fix and flip or buy to rent properties.

~~~
Domenic_S
Ah, I see. Thanks.

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amalag
Not quite like Lending Club:

>The SEC requires all PeerStreet investors to be accredited investors

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jmuguy
I know that "accredited investors" is a pretty common thing and not something
the SEC cooked up but its really disheartening that you'd need 200-300k in
income to somehow verify that you know what you're doing with your money.

Funny they don't seem to have the same requirements for lotto tickets...

~~~
vinceguidry
Things that are perfectly fine when only a few people are doing them often
become a real problem when hundreds or thousands or millions of people are
doing them. That's why investors need to be accredited. Otherwise legions of
hopefuls will throw their nest eggs into overly-leveraged positions sold by
the unscrupulous. That's what happened in the early days of stock markets.

But take a step back and think about it for a second. You can put 'ways to
make money' on the axis of 'conscious involvement'. On the left you'd have
'keeping a job', then on the right you'd have 'hiring a professional money
manager'.

As you traverse the scale, returns on investment vs. conscious attention
devoted tends to decrease. You need no money to get started on a job, but
investing in the stock market requires large amounts of cash to generate
significant returns.

Until you have a quarter of a million dollars net worth, it just doesn't make
sense to do more than slow-growth passive investment over time to fund a very
specific event, retirement. Even there it's a hard sell for many people. You
need to make a lot more than the average for retirement investment to really
work for you.

In the middle of the scale, between having a job and investing, is running a
business. If you want to move up the economic ladder, the move isn't from
salaried professional worker straight to investor, it's to hanging out your
shingle and carving out an economic niche. In business, it's much easier to
earn the kind of money you need to make investing work.

Over time, you can learn your niche to the point to where you can direct
others to exploit it rather than do it yourself. This is where the line blurs
between business and investment, where you have a working system turning
inputs to revenue, and all you have to do is watch the numbers to make sure
they keep going up. And you don't need to be accredited to do it.

You might think, "oh, but I could day trade and earn a ton of money if the SEC
would just let me!" If you don't know the principles, the market is going to
burn you badly. If you know the principles, then you'll know it's not a fast
road to riches. Business will get you there much quicker.

The SEC is aware that the accreditation limitations are somewhat onerous, so
what they're doing is opening up some Series A rounds to unlimited numbers of
unaccredited investors. If you want to bet on an emerging market, this would
be the best way to do it:

[https://www.seedinvest.com/](https://www.seedinvest.com/)

I considered investing in Virtuix, but decided I needed the money accessible
right now more than I needed a lottery ticket, no matter how much I believe in
the potential of VR. What did I need the money for? Tiding me over while I get
my startup off the ground.

Don't shy away from learning or starting a business. It'll make you a better
investor when the time comes.

~~~
jmuguy
I admittedly (probably obviously) don't know much about investing. I have some
of my savings in Betterment but kind of want to get into something more
active. But you make a lot of sense here, thank you.

~~~
vinceguidry
Before you start looking for investment positions to take, you need to get
your personal finances straight. This means, in order:

No credit card debt. You can have credit cards, just don't run up the balance.
This should be the first place your disposable income goes to. You can let the
balances run up if you're saving for a down payment for your house, that might
be the only real way to save it up on a salary. Pay it back down immediately
after the close.

A paid-off vehicle. Paying off your car loan frees up that money for the rest
of the list. You can buy a home while you're making car payments, but you need
to be making enough to pay down your credit card debt incurred from saving the
down payment, your mortgage, and your car loan all at the same time. A car
loan doesn't look expensive until you stack it up with everything else, just
drive a used car unless you really need a new car for some reason and are
willing to pay the significant premium.

A house. You should be making double your monthly payment on your mortgage.
The equity you're building up will be an asset worth more than most financial
instruments you have access to. Buy a house before you start investing, it
gets you situated in your community and helps to provide a safety net in case
of a sudden loss of income.

An emergency fund of perhaps $20K. Pick a comfortable number, this is an
essential part of your safety net, not so much because you'll actually need
it, but because it will give you a nice inner psychological cushion that will
let you really relax. It's the next best thing to actually being rich, don't
neglect it.

Finally, you need a side project, something that will eventually turn into
your business. Start doing this while you're holding down a job, rather than
quitting and living on credit cards / savings unless you are a masochist or
are in your early twenties. (pardon me for repeating myself) You need your
mistakes to be cheap and not lifestyle-threatening.

A fully-funded retirement account. I think this is the least important part of
your safety net if you're planning on going into business. Very important
though if you're not. Best play it safe and put the maximum amount the
government will let you. The tax-deferral makes these accounts far more
lucrative than day-trading.

If you have all of these things fully funded with your current income, then
you can start playing around with trading. Take a percentage of _excess_
emergency funds, (do not jeopardize your safety net, it's way more important
than gambling) and start making expensive mistakes, oh I mean day trading.
Trade only after you've done all you can for your side project that day.

Does this look impossible to achieve? It is. You need a yearly income of
perhaps $150K to do all this, and still retain a healthy lifestyle. This
assumes you're not in a ridiculous real estate market like New York or San
Francisco. It assumes you're living a "Millionaire Next Door" lifestyle and
not trading financial security for expensive psychological self-medication
like a coke habit or worse, retail therapy. Get a real therapist instead, it's
way cheaper and far more effective.

This doesn't mean "ignore me and do whatever you want." This means "don't day
trade." Any gains you'd make from day trading don't outweigh the risks, they
can't even cover the opportunity cost of not doing everything else on the
list. If you day trade without a safety net, then you are mortgaging your
future on bad bets. If you think your bets aren't bad, then you don't
understand how betting or investing works and you will lose a lot of money.

If financial security is one of your goals, the above list is how to get it.
It's the shortest path that is still reliable. If getting rich is your goal,
then you can move your side project up the list to between house and vehicle.
But the list is still valid because the things on it are going to be the first
things you're going to want to buy once you actually get rich, and besides,
very few people get rich overnight, so you're still dealing with climbing each
rung individually over time. Even if you won the freaking lottery then the
list, minus the side project is the first thing you need after the immediate
short-term necessity of a good lawyer. You're just buying them all at once
rather than working up to each step.

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r0fls
This is reminding me of the Big Short. Hopefully it's a false alarm.

Anecdotal hypothesis: I found it very easy to be approved for a house I could
hardly afford, so if there is another recession on the job market, I could see
a lot of mortgages defaulting again. On the flip side, that's why Mortgage
insurance is there. However, will we bail out the insurers next time, instead
of the banks?

~~~
slackpad
They've got Dr. Michael Burry as one of their advisors so hopefully they won't
go the way of the Big Short -
[https://www.peerstreet.com/about](https://www.peerstreet.com/about). There's
a pretty good post from MMM about how it works -
[http://www.mrmoneymustache.com/2016/05/02/peerstreet/](http://www.mrmoneymustache.com/2016/05/02/peerstreet/).

~~~
zenkat
"The short story is that I’ll be collecting interest on this loan at a rate of
10%, until 11 months from now when the loan is suddenly repaid in a balloon
payment."

Sounds a whole lot like subprime. In a rising market, it's not a bad deal. In
a flat/down market, expect a lot of these to crater.

~~~
josephpmay
The difference (I believe) is the people taking out these loans are
professional real estate investors with good credit.

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jgorn
How can they advertise 6 to 12% annual returns (12%!!!) for lenders when 1)
PeerStreet have to take out their 0.25-1% fee && 2) All of the Big Banks are
offering home mortgage rates of <4%?

When the numbers are this far apart, I can't help but be suspicious.

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mac01021
Isn't the idea that each loan is high risk (hence high interest) but you can
still expect a good return if you issue hundreds of such loans and each loan
is tiny?

~~~
zenkat
Such was the logic behind subprime CDOs. We all know how that one turned out.

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andrewfromx
i know the CTO. Great guy. Super happy to see this on front page of HN.

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andrewfromx
this comment keeps getting down voted. Let me explain. The year was 1999. I
was working at bizrate.com in Marina del Rey California. A young 17 year old
kid accepts a job as a programmer intern and I teach him java. He teaches me
about napster. We stay friends over the years. Now he's a big time CTO. And I
see this on the front page of hacker news. I wrote the comment and it was
authentic and real. Why the downvotes?

~~~
rm_-rf_slash
Good explanation but without it we don't know the difference between vouching
and shilling.

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ollybee
A UK company with a slightlly different but related business model
[https://propertymoose.co.uk](https://propertymoose.co.uk)

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liveoneggs
how did this scam + spam make it here?

