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Downside for PeerStreet

Started by Peter, March 12, 2017, 11:00:00 PM

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I have been pretty impressed with PeerStreet lately. It is not too hard to average 7-8% interest rate on hard money loans with maximum 75% loan to value ratio. My question is - what is the likely downside. I do not know a ton about funding real estate, but I have my ideas on how to estimate. Here are my thoughts. Let me know if any of this sounds off.

First, the good times. It seems reasonable to expect 1-2% foreclosure rates during the good times. This is what I have found at a couple web sites. It also matches PeerStreet's relatively short history. With a 75% loan to value ratio, I would expect to lose very little principle. I would still expect to make about 7-8%.

Second, the recession times. About every 4-5 years, expect a recession with loss of jobs, regional areas of high unemployment, and higher foreclosures. Maybe expect 10% foreclosure rate each year? With a 75% loan to value ratio, expect to lose a fair amount of interest and some principle. Maybe lose 4% of my investment for a total of 7%-4% = 3% gain during these years. Does this seem reasonable?

Then there are the major correction years. These are the 2006 - type years. These occur roughly every 16 years. Real Estate prices across the country would drop 10% - 50%. With a 75% loan to value ratio, expect to lose maybe 10% on my investment for the year.

If all this is true, then I would stand to make 5-6% or so long term. This sounds pretty good to me. This assumes the quality in the loans do not degrade. Does any of this look way off base?

Thanks for your thoughts.


Update from PeerStreet about their one foreclosure (Venice Beach):

"Yes, the Venice property was paid in full last week. We were able to recover all principal balances as well as pay some accrued interest over the time period."

1% yield bump link for anyone to use on their 1st investment:" class="bbc_link" target="_blank">


If you start with a 75% LTV then you can afford a 25% drop with no loss.


OK, how come that is not how it plays out? Because things take years to sort out the foreclosure, etc.?



Thanks for the clarification!

NEW LOANS:   | 5417.eth 0.179 Ξ | venusaur.eth 4.099 Ξ | oddish.eth 2.000 Ξ | ALL