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We think a lot about diversification at PeerStreet. Part of the reason we took on the challenge of opening up this asset class, that of privately originated real estate backed loans, was to provide more investors access to investments, while also significantly improving how they are able to diversify across the asset class. If you look at how people historically invested in this sector, there was a select “club” of high-net-worth and institutional investors that would invest with a single lender and make very concentrated investments in a loan. To use a phrase most people will recognize, it was the concept of “putting all your eggs in one basket.” So not only was there a large capital commitment involved, but investors were limited to the geographic markets in which the lender operated. Typically, private lenders are very localized – which is to their advantage as it enables them to build strong borrower relationships and become experts in the market – but this used to limit options for investors.

Smaller Investment Minimums for Greater Diversification

PeerStreet’s low investment minimum of $1,000 and our national lender network help change this dynamic. The small dollar increments make it easy for investors to take smaller positions across many investments. For example, if you have $100,000 you want to deploy, you can allocate it across up to 100 investments on PeerStreet. With the old model, you would typically have had to put that entire $100,000 into a single loan. If that one deal went well, great. But if it went bad, you had to suddenly become an expert on the loan, lender, property and your legal options. That potential loss of time and money was a big “gotcha” that made this otherwise great asset class a poor fit for the feint of heart. PeerStreet works with lenders across the country to source loans and has already offered investments across half of the U.S. This brings the benefit of geographic and lender diversification, as well as the ability to gain exposure to loan investments of different sizes, term, LTV, etc.  

PeerStreet also takes the hassle out of building a portfolio of real estate backed loan investments. We give you the choice of either hand-picking loans yourself or activating our Automated Investing tool. Automated Investing customizes the investment process for you, with the tool placing you into loan investments that fit your predetermined parameters.

Why Is Diversifying My Portfolio Important?

Almost anytime people discuss investment portfolios, the concept of diversification comes up. It’s not just PeerStreet. Whether the conversation is centered around diversification across asset classes or across various securities within a single asset class, it’s a concept that’s extremely important to investors and investment professionals.

Diversification can serve as a risk mitigant. If you have a basket of securities that each have different characteristics and risk profiles, the likelihood of you losing your entire investment decreases significantly through that diversification. If you use the “all eggs in one basket” approach, you could be exposing yourself to more risk because if that one investment declines in value, the impact is magnified because it’s the only holding in your portfolio.

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