Lending Club Investing

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Wezzley77
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Lending Club Investing

Post by Wezzley77 » Fri Apr 20, 2018 8:33 pm

I have been intrigued by this Lending Club investing. Has anyone here invested in this? Before I dug into this more I wanted to throw this out here to my fellow bogleheads to get what I know will be the most useful info I find. What are the pros and cons? or your thoughts and experiences with it weather you've invested in it or not. thank you.

ThriftyPhD
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Re: Lending Club Investing

Post by ThriftyPhD » Fri Apr 20, 2018 8:37 pm

Lots of threads on this, worth doing a search to see a lot of opinions. What stuck out to me reading was that many perceived an increase in defaults and decrease in returns. Many said they were winding down their positions as the notes matured. Haven't used it myself, but as I was also interested in LC I read a lot of those threads and then lost interest.

Topic Author
Wezzley77
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Location: Memphis, TN

Re: Lending Club Investing

Post by Wezzley77 » Fri Apr 20, 2018 8:40 pm

So does a default loan just get refunded back to you as original loan amount?

Jack FFR1846
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Re: Lending Club Investing

Post by Jack FFR1846 » Fri Apr 20, 2018 8:43 pm

Sorry, you've missed the boat on lending club. I've thankfully gotten out without a default. Most investors have not. Mr Money Mustache was an enthusiastic supporter and investor until the whole thing started going down the toilet. Note in the link, he's been losing money the last few entries. Stay away. https://www.mrmoneymustache.com/the-len ... xperiment/

A default means "you lose". You get zip back.
Bogle: Smart Beta is stupid

k3vb0t
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Re: Lending Club Investing

Post by k3vb0t » Fri Apr 20, 2018 8:49 pm

Wezzley77 wrote:
Fri Apr 20, 2018 8:40 pm
So does a default loan just get refunded back to you as original loan amount?
You are the lender. If someone defaults, any remaining principal and interest is written off.

LC started off as a good idea, then went full "we would make more money if we allowed really big financial institutions an opportunity to invest"... lots of loans, not enough true screening of loanees, defaults up.

I got out before it was bad, too. 8.93% average return on a very small amount of money spread over 93 loans. (And I wasn't the full $25 invested because for the longest time my state didn't allow direct funding of LC loans, so I purchased attractive ones off of the trading platform at a discount.)

Topic Author
Wezzley77
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Location: Memphis, TN

Re: Lending Club Investing

Post by Wezzley77 » Fri Apr 20, 2018 8:56 pm

Great responses. I guess since we on the topic, is there anything else such as this that people invest in that is away from the market. Something Similar to LC or any other options?

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Nate79
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Re: Lending Club Investing

Post by Nate79 » Fri Apr 20, 2018 9:54 pm

Lending club is a train wreck. Avoid!

jadedfalcons
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Re: Lending Club Investing

Post by jadedfalcons » Fri Apr 20, 2018 10:32 pm

Wezzley77 wrote:
Fri Apr 20, 2018 8:56 pm
Great responses. I guess since we on the topic, is there anything else such as this that people invest in that is away from the market. Something Similar to LC or any other options?
Been there, done that on LC. I'd offer the same advice you've already gotten. I'm intrigued by Fundrise, however I have read there's a conflict in interest with the managers getting a cut whenever a new loan is done, so they have an incentive to churn loans even if it's of no benefit to the investors. Also, I've read suspicions that they're paying out principal in order to keep their returns high.

Makes index funds so easy by comparison.

bberris
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Re: Lending Club Investing

Post by bberris » Sat Apr 21, 2018 7:52 am

k3vb0t wrote:
Fri Apr 20, 2018 8:49 pm
Wezzley77 wrote:
Fri Apr 20, 2018 8:40 pm
So does a default loan just get refunded back to you as original loan amount?
You are the lender. If someone defaults, any remaining principal and interest is written off.

LC started off as a good idea, then went full "we would make more money if we allowed really big financial institutions an opportunity to invest"... lots of loans, not enough true screening of loanees, defaults up.

I got out before it was bad, too. 8.93% average return on a very small amount of money spread over 93 loans. (And I wasn't the full $25 invested because for the longest time my state didn't allow direct funding of LC loans, so I purchased attractive ones off of the trading platform at a discount.)
Actually, you are lending to LC. To be paid back in full you need both LC and your borrower to remain solvent and keep paying.

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Toons
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Re: Lending Club Investing

Post by Toons » Sat Apr 21, 2018 8:56 am

Stick To Index Funds.
Watch the paint dry,



:mrgreen:
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

lostdog
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Re: Lending Club Investing

Post by lostdog » Sat Apr 21, 2018 9:20 am

Toons wrote:
Sat Apr 21, 2018 8:56 am
Stick To Index Funds.
Watch the paint dry,



:mrgreen:
+1
Total World Stock and Total World Bond. The simple two fund diversified portfolio. "The burden of proof should be on the active bet, not the global market cap." -jhfenton

AlohaJoe
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Re: Lending Club Investing

Post by AlohaJoe » Sat Apr 21, 2018 9:24 am

Wezzley77 wrote:
Fri Apr 20, 2018 8:56 pm
Great responses. I guess since we on the topic, is there anything else such as this that people invest in that is away from the market. Something Similar to LC or any other options?
Crowdfunded real estate has seemingly taken the "new hotness" title.

grkmec
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Re: Lending Club Investing

Post by grkmec » Sat Apr 21, 2018 10:20 am

I started investing in Lending Club in August 2013 with $300k, and through additional capital infusions, my account peaked in the summer of 2014 at slightly above 500k. For a variety of reasons, the account has been in run-off for several years. As the portfolio ages, pre-tax profit declines and goes negative. The interest on remaining loans is not enough to offset loan losses. Right now my account has an average age of 47.9 months and Lending Club says my account has achieved an adjusted net annualized return of 8.69%.

Here are the actual cash flow metrics:

Total interest received = 184,050
Late fees = 31
Loan Losses = (60,961)
Total pre-tax profit = 123,121

Here are the issues with lending club:

1) It is a very tax inefficient investment. The account I started back in August 2013 was a taxable account. In my bracket I pay top rate federal + CT state + ACA tax. So, for me I was giving away half my return to taxes. So taking all this risk to make 4.0-4.5% after-tax didn't seem worth it. That being said, I moved some IRA money to Lending Club which contributed to my desire to run-off my taxable account. Making 8% in an IRA makes a lot more sense to me. That being said, my account has crushed Vanguard Total Bond (sub 2.24% annualized over same time period), but has done a lot worse than S&P500 (+12.3% annualized and way more tax efficient).

2) In a taxable account, there are other tax issues you should be aware of. Interest received on lending club loans is ordinary income, while loan lossed are capital losses. You can not net them against each other. For me it was not a big deal because I have capital gains elsewhere, but if you don't you might not be allowed to use more than 3k / yr in loan losses - and the accrued loan losses just carry over to offset future capital gains.

3) Lending Club returns have missed expectations. The whole reason I invested is because I was convinced the average lending club loan portfolio could do 7-8% and I would beat the "market" by 2-3 pts. Well, I was only partially right. The average return at lending club is more like 5-6% and I am doing low / mid 8% range. I am very particular on the loans I invest in and utilize about 6 markers that I screen for (eg. FICO and employment history are big for example).

4) The platform has not improved much at all. In my early days at Lending Club I gave all kinds of feedback to improve the website to multiple people at the company. Nothing really has changed. They are not innovating and they have had management issues. I don't really trust to allocate a meaningful amount to them. If Lending Club goes bust, I think you become an unsecured creditor of lending club.

Happy to answer any specific questions you have.

Topic Author
Wezzley77
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Location: Memphis, TN

Re: Lending Club Investing

Post by Wezzley77 » Sat Apr 21, 2018 11:51 am

AlohaJoe wrote:
Sat Apr 21, 2018 9:24 am
Wezzley77 wrote:
Fri Apr 20, 2018 8:56 pm
Great responses. I guess since we on the topic, is there anything else such as this that people invest in that is away from the market. Something Similar to LC or any other options?
Crowdfunded real estate has seemingly taken the "new hotness" title.

Has anyone here tried this out, or have any opinions about it?

Topic Author
Wezzley77
Posts: 53
Joined: Wed Dec 06, 2017 7:17 pm
Location: Memphis, TN

Re: Lending Club Investing

Post by Wezzley77 » Sat Apr 21, 2018 11:51 am

grkmec wrote:
Sat Apr 21, 2018 10:20 am
I started investing in Lending Club in August 2013 with $300k, and through additional capital infusions, my account peaked in the summer of 2014 at slightly above 500k. For a variety of reasons, the account has been in run-off for several years. As the portfolio ages, pre-tax profit declines and goes negative. The interest on remaining loans is not enough to offset loan losses. Right now my account has an average age of 47.9 months and Lending Club says my account has achieved an adjusted net annualized return of 8.69%.

Here are the actual cash flow metrics:

Total interest received = 184,050
Late fees = 31
Loan Losses = (60,961)
Total pre-tax profit = 123,121

Here are the issues with lending club:

1) It is a very tax inefficient investment. The account I started back in August 2013 was a taxable account. In my bracket I pay top rate federal + CT state + ACA tax. So, for me I was giving away half my return to taxes. So taking all this risk to make 4.0-4.5% after-tax didn't seem worth it. That being said, I moved some IRA money to Lending Club which contributed to my desire to run-off my taxable account. Making 8% in an IRA makes a lot more sense to me. That being said, my account has crushed Vanguard Total Bond (sub 2.24% annualized over same time period), but has done a lot worse than S&P500 (+12.3% annualized and way more tax efficient).

2) In a taxable account, there are other tax issues you should be aware of. Interest received on lending club loans is ordinary income, while loan lossed are capital losses. You can not net them against each other. For me it was not a big deal because I have capital gains elsewhere, but if you don't you might not be allowed to use more than 3k / yr in loan losses - and the accrued loan losses just carry over to offset future capital gains.

3) Lending Club returns have missed expectations. The whole reason I invested is because I was convinced the average lending club loan portfolio could do 7-8% and I would beat the "market" by 2-3 pts. Well, I was only partially right. The average return at lending club is more like 5-6% and I am doing low / mid 8% range. I am very particular on the loans I invest in and utilize about 6 markers that I screen for (eg. FICO and employment history are big for example).

4) The platform has not improved much at all. In my early days at Lending Club I gave all kinds of feedback to improve the website to multiple people at the company. Nothing really has changed. They are not innovating and they have had management issues. I don't really trust to allocate a meaningful amount to them. If Lending Club goes bust, I think you become an unsecured creditor of lending club.

Happy to answer any specific questions you have.

Thanks so much for the informative response. Helps a lot.

Scrapr
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Re: Lending Club Investing

Post by Scrapr » Sat Apr 21, 2018 11:57 am

grkmec wrote:
Sat Apr 21, 2018 10:20 am

Happy to answer any specific questions you have.
What is the exit strategy. You just have to wait for your loans to mature? So all the good loans pay off on time and the losses are left to you at the end? Good way to pump the returns in the short term. Is there a way to exit early? Call the loan

k3vb0t
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Re: Lending Club Investing

Post by k3vb0t » Sat Apr 21, 2018 12:09 pm

Scrapr wrote:
Sat Apr 21, 2018 11:57 am
grkmec wrote:
Sat Apr 21, 2018 10:20 am

Happy to answer any specific questions you have.
What is the exit strategy. You just have to wait for your loans to mature? So all the good loans pay off on time and the losses are left to you at the end? Good way to pump the returns in the short term. Is there a way to exit early? Call the loan
Only option is to sell it on the secondary note market platform.

limeyx
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Re: Lending Club Investing

Post by limeyx » Sat Apr 21, 2018 12:10 pm

Wezzley77 wrote:
Fri Apr 20, 2018 8:33 pm
I have been intrigued by this Lending Club investing. Has anyone here invested in this? Before I dug into this more I wanted to throw this out here to my fellow bogleheads to get what I know will be the most useful info I find. What are the pros and cons? or your thoughts and experiences with it weather you've invested in it or not. thank you.
Been in for 10 years in various ways (direct, Prosper, Colchis etc) and getting out as fast as I can

1. Lower returns
2. A hassle to manage & want to simplify

Many of the automated investors and funds will snap up the best loans and I don't see that getting better. One account is around 5.5% return and the other was down to 2.5% (of the two remaining) and its just not worth it to me

grkmec
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Joined: Wed Jun 22, 2016 8:46 am

Re: Lending Club Investing

Post by grkmec » Sat Apr 21, 2018 10:49 pm

Scrapr wrote:
Sat Apr 21, 2018 11:57 am

What is the exit strategy. You just have to wait for your loans to mature? So all the good loans pay off on time and the losses are left to you at the end? Good way to pump the returns in the short term. Is there a way to exit early? Call the loan
My exit strategy was just to let the loans run-off. I invested in a mix of 3yr and 5yr loans, so all of the 3yr loans either paid off or defaulted. The 5yr loans remain and average remaining life of portfolio is about 15 months or so.

Losses are incurred in real time as loans default and become uncollectable. You are correct, loan performance metrics look inflated in the 1st year as defaults are minimal. As the portfolio ages, defaults tick up and losses are incurred. The average coupon of my portfolio is 13.33%, but performance today is 8.69% annualized. The difference between coupon is servicing costs + loan losses. Most of my loan portfolio has run off so I would be surprised if my IRR drops below 8% at this point.

The only way to exit early is to sell the loans. I never tried doing this because I believed in my loan selection process. There is no way to call the loan.

GibsonL6s
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Re: Lending Club Investing

Post by GibsonL6s » Sun Apr 22, 2018 12:21 am

Much like real estate deals as I have said before I would never under any circumstances invest in these things. When there are problems and there always is control is everything and in these you have none on top of the illiquidity.

chw
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Re: Lending Club Investing

Post by chw » Sun Apr 22, 2018 5:39 am

bberris wrote:
Sat Apr 21, 2018 7:52 am
k3vb0t wrote:
Fri Apr 20, 2018 8:49 pm
Wezzley77 wrote:
Fri Apr 20, 2018 8:40 pm
So does a default loan just get refunded back to you as original loan amount?
You are the lender. If someone defaults, any remaining principal and interest is written off.

LC started off as a good idea, then went full "we would make more money if we allowed really big financial institutions an opportunity to invest"... lots of loans, not enough true screening of loanees, defaults up.

I got out before it was bad, too. 8.93% average return on a very small amount of money spread over 93 loans. (And I wasn't the full $25 invested because for the longest time my state didn't allow direct funding of LC loans, so I purchased attractive ones off of the trading platform at a discount.)
Actually, you are lending to LC. To be paid back in full you need both LC and your borrower to remain solvent and keep paying.
This nuance is lost on many LC investors. I am nearly out of a 45K investment that started 10 years ago - balance is down to $175. I have received an 8.33% annualized return for my trouble... As someone has mentioned, this type of investment is highly tax inefficient in taxable account. I will mention the tax reporting improved dramatically when LC started allowing importing of tax info to Turbo Tax. In spite of the defaults (they were expected), I would probably still be a LC investor if I was able to hold a direct investment in the notes, and not have to deal with the possibility of LC becoming insolvent (they have struggled to be profitable, and have had significant management issues, including a scandal that involved the founder resigning).

Valuethinker
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Re: Lending Club Investing

Post by Valuethinker » Sun Apr 22, 2018 6:57 am

chw wrote:
Sun Apr 22, 2018 5:39 am
bberris wrote:
Sat Apr 21, 2018 7:52 am
k3vb0t wrote:
Fri Apr 20, 2018 8:49 pm
Wezzley77 wrote:
Fri Apr 20, 2018 8:40 pm
So does a default loan just get refunded back to you as original loan amount?
You are the lender. If someone defaults, any remaining principal and interest is written off.

LC started off as a good idea, then went full "we would make more money if we allowed really big financial institutions an opportunity to invest"... lots of loans, not enough true screening of loanees, defaults up.

I got out before it was bad, too. 8.93% average return on a very small amount of money spread over 93 loans. (And I wasn't the full $25 invested because for the longest time my state didn't allow direct funding of LC loans, so I purchased attractive ones off of the trading platform at a discount.)
Actually, you are lending to LC. To be paid back in full you need both LC and your borrower to remain solvent and keep paying.
This nuance is lost on many LC investors. I am nearly out of a 45K investment that started 10 years ago - balance is down to $175. I have received an 8.33% annualized return for my trouble... As someone has mentioned, this type of investment is highly tax inefficient in taxable account. I will mention the tax reporting improved dramatically when LC started allowing importing of tax info to Turbo Tax. In spite of the defaults (they were expected), I would probably still be a LC investor if I was able to hold a direct investment in the notes, and not have to deal with the possibility of LC becoming insolvent (they have struggled to be profitable, and have had significant management issues, including a scandal that involved the founder resigning).
I think there is some peculiarity of US securities regulation in this.

The UK platforms are genuinely peer-to-peer.

The American one is not. You've nailed it. Your credit risk is to Lending Club *not* to the underlying borrowers.

And that means that at some point, when it hits the fan, investors in at least one of these platforms are going to get very hurt.

It is abundantly clear that a lot of investors in these platforms don't seem to understand this (I certainly didn't; in my defence I don't live in the USA).

petulant
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Re: Lending Club Investing

Post by petulant » Sun Apr 22, 2018 7:19 am

Valuethinker wrote:
Sun Apr 22, 2018 6:57 am
chw wrote:
Sun Apr 22, 2018 5:39 am
bberris wrote:
Sat Apr 21, 2018 7:52 am
k3vb0t wrote:
Fri Apr 20, 2018 8:49 pm
Wezzley77 wrote:
Fri Apr 20, 2018 8:40 pm
So does a default loan just get refunded back to you as original loan amount?
You are the lender. If someone defaults, any remaining principal and interest is written off.

LC started off as a good idea, then went full "we would make more money if we allowed really big financial institutions an opportunity to invest"... lots of loans, not enough true screening of loanees, defaults up.

I got out before it was bad, too. 8.93% average return on a very small amount of money spread over 93 loans. (And I wasn't the full $25 invested because for the longest time my state didn't allow direct funding of LC loans, so I purchased attractive ones off of the trading platform at a discount.)
Actually, you are lending to LC. To be paid back in full you need both LC and your borrower to remain solvent and keep paying.
This nuance is lost on many LC investors. I am nearly out of a 45K investment that started 10 years ago - balance is down to $175. I have received an 8.33% annualized return for my trouble... As someone has mentioned, this type of investment is highly tax inefficient in taxable account. I will mention the tax reporting improved dramatically when LC started allowing importing of tax info to Turbo Tax. In spite of the defaults (they were expected), I would probably still be a LC investor if I was able to hold a direct investment in the notes, and not have to deal with the possibility of LC becoming insolvent (they have struggled to be profitable, and have had significant management issues, including a scandal that involved the founder resigning).
I think there is some peculiarity of US securities regulation in this.

The UK platforms are genuinely peer-to-peer.

The American one is not. You've nailed it. Your credit risk is to Lending Club *not* to the underlying borrowers.

And that means that at some point, when it hits the fan, investors in at least one of these platforms are going to get very hurt.

It is abundantly clear that a lot of investors in these platforms don't seem to understand this (I certainly didn't; in my defence I don't live in the USA).
Correct. It is very likely that the notes are securities once Lending Club goes out and markets them. Under U.S. law, every security has to be registered with the SEC or, if it's excluded for a reason like size, it has to go through each state. Lending Club tried to keep the notes small and go state by state, but a few years ago they switched to the new model so they could just file one registration with the SEC and have it carry through all the states. Much simpler on their part (and opened it up to the remaining states), but really a different security.

I would also point out it's not that the credit risk is LC *not* the underlying borrowers, it's that it's *both* LC and the underlying borrowers. A lot scarier.

bberris
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Re: Lending Club Investing

Post by bberris » Sun Apr 22, 2018 8:33 am

The real problem with the model of PTP is that it requires increasing investments in order to work. The main reason for borrowing at LC is to pay off other loans. LC is probably the second to last resort for these borrowers. In order to refinance the loans plus interest, more lenders need to be acquired by LC. So the house of cards collapses if LC can't attract new lenders, which will happen as defaults increase.

You might argue that the same applies to a bank. Aside from the fact that banks generally exercise more diligence in screening borrowers, banks are able to loan money by creating it, rather than obtaining it from depositors.

mjb
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Joined: Sat Nov 30, 2013 11:43 am

Re: Lending Club Investing

Post by mjb » Sun Apr 22, 2018 8:49 am

I have been using lending club for 5 years. Returns have consistently dwindled and for the past two years I have let my account spend down and should be finished by next year.

My return has dropped from 13% the first year to 2.5%. when the robo institutions jumped in, the best loans would get bought up instantly. To meet demand, they relaxed standards and defaults rates rose.

Additionally, they really don't go after people that default. I have seen some loans that fully default after a month. That is fraud, but LC just gives it to a collection agency. Once the fact that they don't go after fraud, the defaults skyrocketed.

It is really a shame because P2P lending had the chance to lower borrowing costs for those that need it and get higher returns for average investors. Sadly this outcome is very doubtful at this time.

I have friends that use Fundrise and it seems to work for them. However, I question how well it will work in a recession as there is a decent chance of properties rapidly losing value. Also, many real estate crowdsourcing investments have low liquidity.

Valuethinker
Posts: 39078
Joined: Fri May 11, 2007 11:07 am

Re: Lending Club Investing

Post by Valuethinker » Sun Apr 22, 2018 11:36 am

mjb wrote:
Sun Apr 22, 2018 8:49 am
I have been using lending club for 5 years. Returns have consistently dwindled and for the past two years I have let my account spend down and should be finished by next year.

My return has dropped from 13% the first year to 2.5%. when the robo institutions jumped in, the best loans would get bought up instantly. To meet demand, they relaxed standards and defaults rates rose.

Additionally, they really don't go after people that default. I have seen some loans that fully default after a month. That is fraud, but LC just gives it to a collection agency. Once the fact that they don't go after fraud, the defaults skyrocketed.

It is really a shame because P2P lending had the chance to lower borrowing costs for those that need it and get higher returns for average investors. Sadly this outcome is very doubtful at this time.

I have friends that use Fundrise and it seems to work for them. However, I question how well it will work in a recession as there is a decent chance of properties rapidly losing value. Also, many real estate crowdsourcing investments have low liquidity.
All very useful.

I have heard too many horror stories about being a minority investor in private real estate investments to want to play in that market. If you don't have control of the asset and its management, you are just someone else's victim.

Topic Author
Wezzley77
Posts: 53
Joined: Wed Dec 06, 2017 7:17 pm
Location: Memphis, TN

Re: Lending Club Investing

Post by Wezzley77 » Sun Apr 22, 2018 7:11 pm

Well I think this concludes my decision on investing in this. Thanks for all the input. Does not sound like a wise investment with the feedback. I knew this forum would sway me the correct direction. Sounds like id be better off buying some Voo or Vt with my money instead

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