Passive investing with peer street
CouchFI is all about making money no matter where you are in the world, so a big part of my financial independence strategy is passive investing i.e. making money regardless of where I am and what I'm doing - in my case sitting on a couch. Online crowd funded real estate investing recently caught my attention and one of the first platforms I tried was PeerStreet.
Peer street is a peer-to-peer lending platform for short term realestate backed loans. Because the loans are backed by a physical property, I consider it safer than other types of peer to peer investing such as lending club. Most peer street offerings are first lien loans which means that if the lender defaults and their property is sold as collateral, you as an investor are first in line to be paid back, ahead of other borrowers as well as the lender.
That's not to say that it's risk free. There are a few risks to keep in mind if the borrower defaults:
- You can lose money if the value of the underlying asset is worth less than the loan value.
- It can take a while before peer street is able to recover your funds, leaving you without earnings for some time.
- Peer street was founded in 2013, so it has not been tested in real estate recession.
However, being a first lien loan holder mitigates some of the risks of losing money, and PeerStreet has some qualities that I really like:
- Their loans typically have an LTV (load to value ratio) of less than 75% meaning that a property has to lose more than 25% of its value for you to have a chance of losing money, and even then, the borrower can still pay back the loan in full if he or she is able to secure other sources of funding and avoid bankruptcy.
- They're the only reale state p2p lending platform that let's you set up automatic investing based on some simple parameters you pick. This allows you to be truly passive investing where you don't even have to pick your own loans.
- Loans are typically uncorrelated with the stock market, so this is an "alternate" investment class that can help stabilize a portfolio from the more volatile stock market.
- You get paid every month, which feels great when you're building passive income.
As of today (Nov 5, 2018) I've invested $5000 into peer street to test out the platform. I might put another 5 - 10k in a few months when I have more cash available and don't find investments with better risk adjusted returns. Check back here in a year and I'll tell you how my investments are doing.