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Old 01-01-2016, 03:51 PM
 
Location: Amongst the AZ Cactus
7,074 posts, read 4,971,206 times
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Anyone have any first hand experience to share, or just general conversation on the topic of course, on investing in peer to peer lending for income?

An article that I think provides good oversight on the topic.

Why income investors should consider peer-to-peer lending - MarketWatch

I did a bit of research on the topic in the past but shied away because of the diversification aspect but this article mentions the Lending Club allows one to buy "notes" in increments as low as $25 to spread one's investment between many different portions of loans.
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Old 01-01-2016, 03:54 PM
 
72,780 posts, read 72,607,792 times
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i looked in to it but decided not to . it is really the luck of the draw as far as your return .

the wild card will be if we slide back in to another recession . defaults may sky rocket .

i would stick to consolidation loans and home improvement loans .. lending folks money for weddings , student loans , and vacations , who already have demonstrated either an inability to pay or an un-willingness to pay is not a great idea in my opinion
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Old 01-01-2016, 05:21 PM
 
Location: Close to an earthquake
890 posts, read 685,354 times
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I had a client years ago who did hard money lending. He earned a lot of interest income doing it and he acquired some property when some loans defaulted.

His typical deal was to make a loan that was secured by real estate with no more than 60% loan-to-value (LTV). He would charge 8 to 10 points and the interest rate was 10 to 12% (rates were higher during this era). He'd collect a year's of prepaid interest upfront. Typical deal was interest only with a balloon payment in 3 years.

Typical borrower was a real estate guy who couldn't finance his deal with traditional financing.

So for a $500,000 loan with 10 points and a 12% interest rate, his cash out to make the loan was $390,000 and if he got his 60% LTV, he had collateral worth over $800,000.

This was high risk investing and you got to spend legal fees to do the tough work when the loan becomes non-performing but a ton of interest income and late fees can be paid and my client made a ton of money.

This is quite a bit different than what is probably considered mainstream peer-to-peer lending.

Oh, by the way, he had a couple losses along the way but the income he earned on all others, when blended, made for a still good rate of return on invested money.

Selling real estate via an installment sale is a good way to go and I've had clients earn good interest income. The risk is the borrower may refinance or sell the property thereby limiting the loan term crafted in the installment sale deal.
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Old 01-01-2016, 07:21 PM
 
14,330 posts, read 24,146,896 times
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Quote:
Originally Posted by stevek64 View Post
Anyone have any first hand experience to share, or just general conversation on the topic of course, on investing in peer to peer lending for income?

An article that I think provides good oversight on the topic.

Why income investors should consider peer-to-peer lending - MarketWatch

I did a bit of research on the topic in the past but shied away because of the diversification aspect but this article mentions the Lending Club allows one to buy "notes" in increments as low as $25 to spread one's investment between many different portions of loans.




IMO, the Lending Club is really NOT worth the effort. I invested $2500 in May 2013, investing in 70% A rates loans and 30% B loans and I think that I am getting a 4.5% return based on the way that I have calculated ROI over the years although my portfolio is supposedly has an annualized rate of 6.5%.


As I see it, here are several problems.


First, they are getting a lot of funding from larger institutional investors. It leads me to question whether I am getting access to the better loans. There have been several times where there has been less than 500 loans available to invest in.


Second, instead of offering you a portion of loans that are finalized, the are offering you shares of loans that may be finalized. For example, on December 3rd, I invested 25 loans at $25 each. I received an e-mail that eight of those loans were not approved. That means that about 10% of my money was not invested for the month.


Third, there is not a real correlation between a clients FICO score and the rate being offered in a particular loan.


Maybe it is because I am "old school", but there is a real lack of transparency that I do not like in my investments.


Gradually, I will be moving money out of Lending Club as it is more hassle than it is worth.
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Old 01-01-2016, 08:19 PM
ptt
 
414 posts, read 436,666 times
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Quote:
Originally Posted by jlawrence01 View Post
IMO, the Lending Club is really NOT worth the effort. I invested $2500 in May 2013, investing in 70% A rates loans and 30% B loans and I think that I am getting a 4.5% return based on the way that I have calculated ROI over the years although my portfolio is supposedly has an annualized rate of 6.5%.


As I see it, here are several problems.


First, they are getting a lot of funding from larger institutional investors. It leads me to question whether I am getting access to the better loans. There have been several times where there has been less than 500 loans available to invest in.


Second, instead of offering you a portion of loans that are finalized, the are offering you shares of loans that may be finalized. For example, on December 3rd, I invested 25 loans at $25 each. I received an e-mail that eight of those loans were not approved. That means that about 10% of my money was not invested for the month.


Third, there is not a real correlation between a clients FICO score and the rate being offered in a particular loan.


Maybe it is because I am "old school", but there is a real lack of transparency that I do not like in my investments.


Gradually, I will be moving money out of Lending Club as it is more hassle than it is worth.
^^^
This was exactly what i thought of it. I invested 10k when 'prosper' just newly founded. Never again.
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Old 01-02-2016, 02:05 AM
 
72,780 posts, read 72,607,792 times
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there is no point in going for A RATED loans .

imy research on it says start at d and e with a few f rated and buy 100-200 of them .

the interest rate you get is so much higher that even with defaults you should end up with 8-12% .

i would never bother with any loans rated better then that , not enough reward to bother .

i would filter it for those with jobs , d,e rated and consolidation loans or home improvement loans and auto select them .
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Old 01-04-2016, 06:07 PM
 
Location: Amongst the AZ Cactus
7,074 posts, read 4,971,206 times
Reputation: 7701
Thanks for the responses/sharing your experience.
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Old 01-05-2016, 07:33 AM
 
Location: Mound, MN
267 posts, read 461,735 times
Reputation: 149
I put $10k into Lending Tree about 2+ years ago. I've come to the conclusion that while my returns have been good it is too much work and too risky.

During my time I bought 487 - $25 loans. Most of them were C & D categories. According to LC they say my annualized return is 10.02% which is pretty good. Here's the actual data on the 487 loans -

277 - Current & Active
156 - Fully paid
5 - In Grace Period
2 - Late 16-30 days
12 - Late 31-120 days
35 - Charged off

So on the surface you look at it as a 10% return being quite good. That said, I'm well on my way to have 10%+ of them defaulting.

My biggest concern is that this level of default is happening when the economy has been quite good. If the economy were to go into recession again I think the returns may very well go negative.

As of right now I have about 1/2 of my funds pulled out but it will take up to 3 more years to get all of it out as the 5 year loans mature.
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Old 01-05-2016, 08:10 AM
 
72,780 posts, read 72,607,792 times
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exactly my reason for staying away . the current default rates are not in a recession . so you know those are likely to jump much higher if we are .

so with little to be made on higher quality rated loans and the potential for sky rocketing defaults on the lower rated ones basically i will stay out of it
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Old 01-09-2016, 01:18 PM
 
Location: Carmichael, CA
2,020 posts, read 3,060,711 times
Reputation: 3218
I've been with Lending Club for awhile now--I see it as a way to make some money, but not as an investment, like a mutual fund or something. Right now I have a hard limit of $500 investment, and I'm earning about 11% with a so-far 0% default rate. I don't consider it a safe investment.


I'd love to put in a ton of money and earn 11%--but I'd probably have better luck winning Powerball.
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