Peer to Peer Lending/Investing

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
jbsmith05
Posts: 191
Joined: Fri Apr 01, 2016 2:01 pm

Peer to Peer Lending/Investing

Post by jbsmith05 » Thu Dec 20, 2018 10:10 am

Anyone here have any experience as an investor on sites like Lending Club? Looks interesting - investing/helping people at the same time, also little to no correlation to the stock market.

ny_rn
Posts: 458
Joined: Sun May 11, 2014 7:09 am

Re: Peer to Peer Lending/Investing

Post by ny_rn » Thu Dec 20, 2018 10:14 am

Tread lightly.

Read about RealtyShares: https://therealdeal.com/2018/11/07/crow ... s-layoffs/

Keep things simple.

Topic Author
jbsmith05
Posts: 191
Joined: Fri Apr 01, 2016 2:01 pm

Re: Peer to Peer Lending/Investing

Post by jbsmith05 » Thu Dec 20, 2018 10:21 am

ny_rn wrote:
Thu Dec 20, 2018 10:14 am
Tread lightly.

Read about RealtyShares: https://therealdeal.com/2018/11/07/crow ... s-layoffs/

Keep things simple.
understood - I wouldn't consider this as part of my portfolio so to speak - just something to toy with, I wouldn't stray from my investment plan or pull $'s from it for this. That said the RealtyShares is slightly different in that it's crowdfunding projects, like a kickstarter for RE. Lending Club looks to be more loaning $ to your "neighbor" to help them pay for whatever they need. Now I don't know yet what happens if the borrower defaults...

veggivet
Posts: 495
Joined: Sun Jan 25, 2015 1:07 pm
Location: New England

Re: Peer to Peer Lending/Investing

Post by veggivet » Thu Dec 20, 2018 10:26 am

I used Lending Club soon after they offered the platform for both an IRA and a taxable account. After a few years, I found the risk/return ratio wanting. I also found their collections system to be ineffective, at best. Cashed out both accounts a couple of years ago. I believe my returns were in the 9-10% range, after expenses and write-offs, but I wouldn't recommend P to P investing to most, unless you are willing to put a lot of time into selecting loans to invest in and watching their performance closely. It certainly isn't a 'set it and forget it' type of investment.

If the borrower defaults, Lending Club's collection system will kick in...but don't hold your breath for any results. Assume your remaining balance will be written off. Sometimes you can get lucky by selling those loans on the secondary loan platform, but you'll usually have to sell underperforming loans at a significant discount to get any interest from buyers.
If you watch your pennies, your dollars will take care of themselves.

renue74
Posts: 1824
Joined: Tue Apr 07, 2015 7:24 pm

Re: Peer to Peer Lending/Investing

Post by renue74 » Thu Dec 20, 2018 10:27 am

I put $10K into Lending Club about 3 years ago. (Actually, Lending Robot...which is a service that sits on top of Lending Club and allows for better filtering.)

I can't remember how many notes I have lended, but I've had ten of them charged off...where the note becomes non-performing.

I think if you stay on top of the filters and do your research on the types of people you loan to, it is OK. But, I also think that the larger institutions are still getting the cream of the crop and us individuals are stuck with the undesirables. You're still giving unsecured loans to people you don't know. Some of these folks on their customer snapshot make more money than I do and look to be pretty financially sound...but then boom...they default on a $28,000 unsecured loan? Maybe LC doesn't vet folks as much as we think.

Also...you've locked your money up for 3-5 years doing this.

As I receive payments out, I am slowly reinvesting back into Vanguard funds. It was a good experiment.

I feel like if there was any minor or major hiccup in the economy that the P2P loans would be the 1st ones that people start ignoring payments on.

bberris
Posts: 1345
Joined: Sun Feb 20, 2011 9:44 am

Re: Peer to Peer Lending/Investing

Post by bberris » Thu Dec 20, 2018 10:31 am

If the borrower defaults you don't get paid. What many investors don't realize, is that if Lending Club itself is insolvent, you don't get paid, even if your borrower is current. As a lender to LC you are the lowest subordinated claim on LC.

Most LC loans go to pay other loans. Then the borrower has to go find another loan to pay off the previous one, plus the interest. If LC can't find new money, this can't be sustainable.

If you want to help people, give to a real charity.

mrc
Posts: 1410
Joined: Sun Jan 10, 2016 6:39 am

Re: Peer to Peer Lending/Investing

Post by mrc » Thu Dec 20, 2018 10:34 am

I did this for a while several years ago. Not worth the time or risk in the long run. For a meaningful gain (dollar-wise) you must risk too much principle for the effort. The only party to reliably and safely gain here is the lending company itself. They get paid either way.
Macs are for those who don’t want to know why their computer works | Linux is for those who do | DOS is for those who want to know why their computer doesn’t work | Windows is for those who don’t

User avatar
KlingKlang
Posts: 853
Joined: Wed Oct 16, 2013 3:26 pm

Re: Peer to Peer Lending/Investing

Post by KlingKlang » Thu Dec 20, 2018 10:38 am

I've looked at P to P several times and concluded that it's not for me. Basically you are lending money to people that professionals at financial institutions have concluded are not worth lending money to. What could go wrong?

chw
Posts: 748
Joined: Thu May 24, 2012 4:22 pm

Re: Peer to Peer Lending/Investing

Post by chw » Thu Dec 20, 2018 10:38 am

Started with LC about 10 years ago. Was intrigued by their model initially, but have wound down a mid 5 figure position to under $100 today. LC hasn't been consistently profitable, and investors in their notes can be wiped out in a bankruptcy- make sure to read their prospectus closely regarding this. Returns on my investment have been about 8%, but I noticed a huge drop off in the quality of notes offered to the retail investor when the institutional investors started investing in LC about 5-6 years ago.

Not familiar with Realty Shares to a great degree. Even though you nay have real estate as collateral, I would hesitate to lend on a real estate project that can't get traditional bank financing. The current bank lending market is reasonably strong, so I would question why the project is seeking financing through realty shares. Bottom line- real estate does not write or guarantee loan payments, a live person does. I suspect many of the projects on this website have some defect with the real estate that may not be fully disclosed, or the managing member that is seeking the loan may be deficient in some way.

Jack FFR1846
Posts: 11083
Joined: Tue Dec 31, 2013 7:05 am
Location: 26 miles, 385 yards west of Copley Square

Re: Peer to Peer Lending/Investing

Post by Jack FFR1846 » Thu Dec 20, 2018 10:41 am

Go to Mr. Money Mustache and read his blog on Lending Club and look at his spreadsheet. You can see the point where the toilet was flushed and all prior profits disappeared and the bleeding started. You're 3 years too late on this. I'd suggest lottery tickets. You'll get a better return on them then on LC at this point. Note that I did play with LC for a few years in only A and B loans and got out when the water started swirling.
Bogle: Smart Beta is stupid

Topic Author
jbsmith05
Posts: 191
Joined: Fri Apr 01, 2016 2:01 pm

Re: Peer to Peer Lending/Investing

Post by jbsmith05 » Thu Dec 20, 2018 10:51 am

And this is exactly why you ask questions first!

Seems like a cool idea...but then you get the real experiences and it's likley not worth it! Thanks!!!

Austintatious
Posts: 878
Joined: Thu Sep 13, 2012 7:01 pm

Re: Peer to Peer Lending/Investing

Post by Austintatious » Thu Dec 20, 2018 1:37 pm

jbsmith05 wrote:
Thu Dec 20, 2018 10:10 am
Anyone here have any experience as an investor on sites like Lending Club? Looks interesting - investing/helping people at the same time, also little to no correlation to the stock market.
That concept of "helping people" sounds great but I just can't bring myself to think of gouging gullible or desperate borrowers with 35% interest loans as helping them. Then again, it does help them dig themselves deeper into debt. And another term besides "investor" come to mind when I think of someone who would knowingly engage in such practices.

dcw213
Posts: 163
Joined: Sun Dec 16, 2012 3:04 pm

Re: Peer to Peer Lending/Investing

Post by dcw213 » Thu Dec 20, 2018 3:46 pm

I have posted on this topic in the past, I would not recommend it. I have used PeerStreet for real estate backed loans. The platform is nice and the reps are friendly but I agree with posters above that if the economy or housing market hiccups, these are the first to default. All in all I lent about 30 loans and I’d say 7 of them went 60 or more days DLQ at one point. While they all have cured, the reps were nice but not that helpful when I called to ask about foreclosure and disposition process. Additionally, with yields around 8%, I found the risk worthwhile when risk free returns were 1.5%. Now that rates have risen and the note rates available through PeerStreet have remained flat, the risk premium is not there. I am divesting as my loans pay off.

senex
Posts: 352
Joined: Wed Dec 13, 2017 4:38 pm

Re: Peer to Peer Lending/Investing

Post by senex » Thu Dec 20, 2018 7:41 pm

In addition to the many significant problems noted above, there is another: the effective tax rate on Lending Club income is even higher than ordinary income rates, and can theoretically can get up into the 70% range.

For an explanation, see my note in this thread: viewtopic.php?f=2&t=247842&p=3896494#p3896494

User avatar
willthrill81
Posts: 16051
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Peer to Peer Lending/Investing

Post by willthrill81 » Thu Dec 20, 2018 7:47 pm

I opened a taxable account with LC back in 2014 with just $1k and have gotten 10% returns on that money, which I reinvested until last year. It's turned out to be a major tax headache, and I wouldn't invest another dime in P2P lending outside of a tax-advantaged account. I used Nickel Steamroller's data to determine my investment criteria, which was a major factor in my returns being in the top 1% of all LC investors.

Seeing this very good performance, I decided to open a Roth IRA with LC with more money, but still only a single digit percentage of our total portfolio. Using the same criteria as my taxable account, my returns have been 5%. Given the illiquidity of this type of investment and the platform risk involved (i.e. what if LC goes bankrupt?), I'm no longer interested in investing anything with LC. I've been winding down the taxable account for over a year now, and I'm slowly doing the same with the Roth IRA, although that's turning out to be a pain because the money has to be transferred to STRATA, the Roth IRA custodian, and then to another custodian, a process which takes at least four weeks and a $25 fee every time.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

User avatar
willthrill81
Posts: 16051
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Peer to Peer Lending/Investing

Post by willthrill81 » Thu Dec 20, 2018 7:48 pm

Austintatious wrote:
Thu Dec 20, 2018 1:37 pm
jbsmith05 wrote:
Thu Dec 20, 2018 10:10 am
Anyone here have any experience as an investor on sites like Lending Club? Looks interesting - investing/helping people at the same time, also little to no correlation to the stock market.
That concept of "helping people" sounds great but I just can't bring myself to think of gouging gullible or desperate borrowers with 35% interest loans as helping them. Then again, it does help them dig themselves deeper into debt. And another term besides "investor" come to mind when I think of someone who would knowingly engage in such practices.
Do you avoid investing in all of the major banks, who do the same thing with credit cards, for this reason?

I think that the highest rate on any of my P2P notes was around 25%. And given the credit risk associated with such borrowers, I think that's fair.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

desiderium
Posts: 866
Joined: Sat Jan 04, 2014 11:08 am

Re: Peer to Peer Lending/Investing

Post by desiderium » Thu Dec 20, 2018 10:50 pm

willthrill81 wrote:
Thu Dec 20, 2018 7:47 pm
I opened a taxable account with LC back in 2014 with just $1k and have gotten 10% returns on that money, which I reinvested until last year. It's turned out to be a major tax headache, and I wouldn't invest another dime in P2P lending outside of a tax-advantaged account. I used Nickel Steamroller's data to determine my investment criteria, which was a major factor in my returns being in the top 1% of all LC investors.

Seeing this very good performance, I decided to open a Roth IRA with LC with more money, but still only a single digit percentage of our total portfolio. Using the same criteria as my taxable account, my returns have been 5%. Given the illiquidity of this type of investment and the platform risk involved (i.e. what if LC goes bankrupt?), I'm no longer interested in investing anything with LC. I've been winding down the taxable account for over a year now, and I'm slowly doing the same with the Roth IRA, although that's turning out to be a pain because the money has to be transferred to STRATA, the Roth IRA custodian, and then to another custodian, a process which takes at least four weeks and a $25 fee every time.
This has been almost precisely my own path
For reasons noted above, I have let my Roth account ride, continuing to collect 7% this year, 8% overall. This is a good business, the major consumer banks have had this locked up for many years, and Lending Club is competitive rate-wise. They are not stupid and the difficult collection issues are part of the business model, representing a known discount from the face interest rate. The type of investment has done surprisingly well in terms of not losing big in a recession, at least in theory and probably in practice when you look at big banks (lots of posts on this by Larry Swedroe). Knowing what I know, I wouldn't invest in this now mainly because of the platform risk and IRA custodian hassle/fees noted above; but I am sticking with my allocation for the time being

limeyx
Posts: 280
Joined: Wed Sep 07, 2016 5:34 pm

Re: Peer to Peer Lending/Investing

Post by limeyx » Fri Dec 21, 2018 12:20 am

jbsmith05 wrote:
Thu Dec 20, 2018 10:10 am
Anyone here have any experience as an investor on sites like Lending Club? Looks interesting - investing/helping people at the same time, also little to no correlation to the stock market.
Doing my best to get out of this entire area as fast as possible!

Post Reply