Thoughts on P2P Lending

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krafty81
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Thoughts on P2P Lending

Post by krafty81 » Sat Jul 27, 2019 10:21 am

Read the Boglehead take on P2P lending. As an investor, it looks complicated with high fees. Any experiences here?

mjb
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Re: Thoughts on P2P Lending

Post by mjb » Sat Jul 27, 2019 10:38 am

I used lending club for several years. My net annualized return was barely 3% while my average coupon rate was 11% and my expected return should have been 7%. Why the discrepancy you might ask? Defaults and charge offs.

Lending club's numbers report notes held to maturity. Many notes are traded once there is a late payment and are excluded from the results. They aren't lying, but are a little misleading and this is a common way p2p lending make their returns look a few percent better. Additionally, due to the small value of loans that go delinquent, very rarely do recoveries happen, even in blatant cases of fraud.

I still invest in some P2P investments, but am much more selective and only in ones where the platform has skin in the game.

runner3081
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Re: Thoughts on P2P Lending

Post by runner3081 » Sat Jul 27, 2019 10:46 am

Used both Prosper and Lending Club in the past to make loans. Exited both. The "small guy" does not have a crack at many of the good loans.

Do a search for "Lending Club" here on the forum, tons of posts about it.

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nedsaid
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Re: Thoughts on P2P Lending

Post by nedsaid » Sat Jul 27, 2019 12:30 pm

I think this has potential but institutional money has flowed into this market so this has reduced potential return for individual investors. Also you wind up being, in effect, a credit analyst and an underwriter. Stone Ridge has an Alternative Lending fund but it requires an advisor to access.
A fool and his money are good for business.

jdilla1107
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Re: Thoughts on P2P Lending

Post by jdilla1107 » Sat Jul 27, 2019 1:08 pm

The main problem that I encountered was that:

- If you only put a small amount of money into P2P (eg: 1-2% of portfolio), then messing around with it became not worth my time and made no difference to my portfolio.
- If you do a part of your portfolio that actually makes a difference, (ie: 20%) then there are some unknown risks you have to make yourself comfortable with.

Other problems:

- The returns didn't seem any better than say a high yield bond fund.
- It's very messy on your taxes. I almost certainly reported the income incorrectly (not knowing how to do it), but it was a small enough amount I hoped the IRS wouldn't care.
- The loans constantly throw off money that needs to be reinvested. You can automate it, but then you wonder what sorts of leftovers you are getting.

I did lending club for a little while and then got out.

ohai
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Re: Thoughts on P2P Lending

Post by ohai » Sat Jul 27, 2019 1:16 pm

mjb wrote:
Sat Jul 27, 2019 10:38 am
I used lending club for several years. My net annualized return was barely 3% while my average coupon rate was 11% and my expected return should have been 7%. Why the discrepancy you might ask? Defaults and charge offs.

Lending club's numbers report notes held to maturity. Many notes are traded once there is a late payment and are excluded from the results. They aren't lying, but are a little misleading and this is a common way p2p lending make their returns look a few percent better. Additionally, due to the small value of loans that go delinquent, very rarely do recoveries happen, even in blatant cases of fraud.

I still invest in some P2P investments, but am much more selective and only in ones where the platform has skin in the game.
3% is the lowest number I have seen yet. Most people seem to write that they've earned something like 5% at minimum, even after fees, idle money to reinvest, and loan losses. What sort of loans did you buy, and are your numbers adjusted for taxes?

chevca
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Re: Thoughts on P2P Lending

Post by chevca » Sat Jul 27, 2019 2:41 pm

My thoughts about it are, I would never think of doing it. :happy

I am definitely not big time enough to be borrowing out my money.

garlandwhizzer
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Re: Thoughts on P2P Lending

Post by garlandwhizzer » Sat Jul 27, 2019 3:13 pm

I am not aware of any risk/return shortcuts in income/yield investing. Personally I am a total return guy, but for those who hugely prioritize income/yield it seems safe to assume that higher monthly income comes at the price of higher risk. So many investors and financial institutions with long term fixed financial obligations constantly scrutinize income producing assets. I suspect that this is a very efficient market at pricing risk and very hard/impossible for individual investors to find a diamond in the rough that provides much greater income without commensurate increases in risk. The standard return for 10 safe income return now is the 10 yr. Treasury which yields about 2%, rather pathetic by historical standards. This does not seem to be a historical market that promises juicy rewards for income investing. It was in the early 1980s but that was a long time ago. It's safe to assume that when someone offers you a considerably higher rate than 2%, increased risk is involved whether you see it or not. If you're going to stretch into risk for increased income the obvious question is why not take your risk by increasing your equity exposure a bit rather than things like P2P lending which I personally believe to be a high risk situation. The expected long term return for equity is IMO considerably higher now than the 2% nominal (0% real) return of safe fixed income at this time.

Garland Whizzer

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krafty81
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Re: Thoughts on P2P Lending

Post by krafty81 » Sat Jul 27, 2019 8:42 pm

Did a search on "Lending Club" on this site. Nothing came up.

Thanks all for the smart advice. If it was a great deal, everyone would be doing it!

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Nate79
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Re: Thoughts on P2P Lending

Post by Nate79 » Sat Jul 27, 2019 9:26 pm

krafty81 wrote:
Sat Jul 27, 2019 8:42 pm
Did a search on "Lending Club" on this site. Nothing came up.

Thanks all for the smart advice. If it was a great deal, everyone would be doing it!
Are you sure you searched? Here is one of the first results of tons of threads.
viewtopic.php?t=268459

NativeTxn
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Re: Thoughts on P2P Lending

Post by NativeTxn » Sat Jul 27, 2019 11:12 pm

I started using Lending Club several years ago. The first batch of loans I had to buy not the secondary market before Texas passed a law allowing P2P lending. After that I only bought original loans. My total combined return, according to Lending Club, is 4.60% net annualized (5.27% on the primary notes and -1.31 on the traded notes to reach that blended return).

I stuck with 3 year notes and most were A, B & C rated, though I had at least a few notes in all rating categories. The lowest interest rate of any of my loans was 5.32% and the highest was 25.83%, with the majority ranging from about 7.5% to 15%

Out of 70 total notes I've bought, there are 13 that are issued and current, 47 paid off, and 10 charged off. Of the 10 charged off, 8 were C or lower (5 C, 1 E, 1 F, and 1 G) and the other two consisted of 1 A and 1 B.

To me personally, locking my money up (for all intents and purposes, since you can sell them on the secondary market, but it's pretty illiquid) for 3 years for a 4-5% annualized return, particularly when you take into account the added risks, is simply not worth it. I've been pulling the cash out periodically and as soon as I have no more outstanding notes in my portfolio I'm done with P2P lending - at least as it relates to Lending Club or Prosper, etc.

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Watty
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Re: Thoughts on P2P Lending

Post by Watty » Sat Jul 27, 2019 11:37 pm

One observation on the low returns that other people posted about.

It has been around ten years since the last recession and they may have been getting low returns during the "good times" when unemployment has been very low.

I would think that in a major recession there is a lot of risk that P2P could do very poorly.

randomguy
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Re: Thoughts on P2P Lending

Post by randomguy » Sun Jul 28, 2019 12:03 am

runner3081 wrote:
Sat Jul 27, 2019 10:46 am
Used both Prosper and Lending Club in the past to make loans. Exited both. The "small guy" does not have a crack at many of the good loans.

Do a search for "Lending Club" here on the forum, tons of posts about it.
This is the opinion of most people. 10 years ago, you were making good money by taking on risk. But the market has adjusted and you are no longer getting outsized returns. A lot of people feel that large outfits are cherry picking out the good loans which hurts the average investor. If you google around you can read the blog history of a bunch of prosper/lending club investor. They are all gung ho in 2010-2011 but most of the ones after 2016 are all about why people are closing their accounts.

acebick
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Re: Thoughts on P2P Lending

Post by acebick » Sun Jul 28, 2019 10:43 am

I invested a substantial amount in Lending Club 5 year higher risk notes from Feb 2013 thru Apr 2016. I would log in 4 times every day when the new notes were released and do a very quick assessment of the notes to invest in ($25 each for the most of them; which is the minimum). The higher risk notes don't last for more than a minute or so before they're fulfilled. I've let the notes run their course since then and have been periodically withdrawing the principal and interest as the payments are made. I track my annualized rate of return quarterly since the first note and currently have an annualized return of about 6% (started as high as 14%). I stopped looking at all the write-offs early on because it was driving me nuts. I have an after-tax account so the capital losses have really accumulated and I'm still carry forwarding much of the losses. The frequency of the write-offs start off slowly and gradually accelerate to the point where the write-offs exceed the interest on the monthly statements. If I could go back in time, I would not invest in P2P unless I opened a Roth account. And even then, I probably wouldn't do it. My thinking was that it would assist in diversification, but it's not very liquid, not tax efficient, and not worth the hassle.

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Top99%
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Re: Thoughts on P2P Lending

Post by Top99% » Mon Jul 29, 2019 8:13 am

I invested some "play money" in LC about 3 years ago after reading about it on MrMoneyMustache.com and like several others have found the institutional money has crowded out the good loans in recent years. Or, to roughly quote Bill Bernstein, the umbrella shop has been discovered and the umbrellas are too expensive now. The salad days of 6-10% returns for individual investors seem over for good. I watched my returns drift down from ~6% to under 4% over the years. Not worth the hassle for me.
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Re: Thoughts on P2P Lending

Post by renue74 » Mon Jul 29, 2019 8:34 am

Top99% wrote:
Mon Jul 29, 2019 8:13 am
I invested some "play money" in LC about 3 years ago after reading about it on MrMoneyMustache.com and like several others have found the institutional money has crowded out the good loans in recent years. Or, to roughly quote Bill Bernstein, the umbrella shop has been discovered and the umbrellas are too expensive now. The salad days of 6-10% returns for individual investors seem over for good. I watched my returns drift down from ~6% to under 4% over the years. Not worth the hassle for me.
+1 Me too.

I slowly have been getting out of P2P. I turned of any reinvesting and monthly I will take my proceeds and invest back into the market.

I did P2P for about 3 years. Defaults haven't been too bad, but I would imagine that if the economy starts going south that P2P loans would be the 1st to be defaulted on. I don't want to tie my money up in that for the short term.

a5ehren
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Re: Thoughts on P2P Lending

Post by a5ehren » Mon Jul 29, 2019 8:43 am

Yeah, I dabbled small money in Lending Club in like 2009 or so. Even by the time I exited in ~2013, big money was crowding out the small guys on any of the loans where you could make real money. I pulled everything out as it expired and haven't had any desire to go back.

mjb
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Re: Thoughts on P2P Lending

Post by mjb » Mon Jul 29, 2019 7:42 pm

ohai wrote:
Sat Jul 27, 2019 1:16 pm
mjb wrote:
Sat Jul 27, 2019 10:38 am
I used lending club for several years. My net annualized return was barely 3% while my average coupon rate was 11% and my expected return should have been 7%. Why the discrepancy you might ask? Defaults and charge offs.

Lending club's numbers report notes held to maturity. Many notes are traded once there is a late payment and are excluded from the results. They aren't lying, but are a little misleading and this is a common way p2p lending make their returns look a few percent better. Additionally, due to the small value of loans that go delinquent, very rarely do recoveries happen, even in blatant cases of fraud.

I still invest in some P2P investments, but am much more selective and only in ones where the platform has skin in the game.
3% is the lowest number I have seen yet. Most people seem to write that they've earned something like 5% at minimum, even after fees, idle money to reinvest, and loan losses. What sort of loans did you buy, and are your numbers adjusted for taxes?
Sadly, it's know a fair number of people that have negative returns.

It is pretax. I invested in secondary b through d loans.

ohai
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Re: Thoughts on P2P Lending

Post by ohai » Mon Jul 29, 2019 11:02 pm

mjb wrote:
Mon Jul 29, 2019 7:42 pm
ohai wrote:
Sat Jul 27, 2019 1:16 pm
mjb wrote:
Sat Jul 27, 2019 10:38 am
I used lending club for several years. My net annualized return was barely 3% while my average coupon rate was 11% and my expected return should have been 7%. Why the discrepancy you might ask? Defaults and charge offs.

Lending club's numbers report notes held to maturity. Many notes are traded once there is a late payment and are excluded from the results. They aren't lying, but are a little misleading and this is a common way p2p lending make their returns look a few percent better. Additionally, due to the small value of loans that go delinquent, very rarely do recoveries happen, even in blatant cases of fraud.

I still invest in some P2P investments, but am much more selective and only in ones where the platform has skin in the game.
3% is the lowest number I have seen yet. Most people seem to write that they've earned something like 5% at minimum, even after fees, idle money to reinvest, and loan losses. What sort of loans did you buy, and are your numbers adjusted for taxes?
Sadly, it's know a fair number of people that have negative returns.

It is pretax. I invested in secondary b through d loans.
Hmm. That's not good. It's also the strongest economy in a long, long time. I wonder how those returns would look in a 10% unemployment scenario.

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Re: Thoughts on P2P Lending

Post by alpine_boglehead » Mon Jul 29, 2019 11:44 pm

Watty wrote:
Sat Jul 27, 2019 11:37 pm
One observation on the low returns that other people posted about.

It has been around ten years since the last recession and they may have been getting low returns during the "good times" when unemployment has been very low.

I would think that in a major recession there is a lot of risk that P2P could do very poorly.
I've also considered dabbling with P2P lending and that exact thought prevented me from jumping in. If/when times get rough again, the low quality loans would likely default at rates largely exceeding the current risk estimates implied by the interest rate. And nowadays, I also tend towards the crowd with the "risk in equities, safety in bonds" attitude.

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Re: Thoughts on P2P Lending

Post by White Coat Investor » Mon Jul 29, 2019 11:53 pm

krafty81 wrote:
Sat Jul 27, 2019 10:21 am
Read the Boglehead take on P2P lending. As an investor, it looks complicated with high fees. Any experiences here?
I did it directly at Lending Club and Prosper. 2 1/2 years ago I decided I would rather do hard money loans. Just this week I liquidated the last of my Lending Club investments (they allow you to sell on a secondary market). I still have $36.50 invested at Prosper and will for 2 more years.

My returns weren't terrible (double digit most of the time I had significant money invested) but I lost faith in the platforms. The illiquidity has been far more than it seemed when I started investing.

You can use funds now for additional fees, but I dropped the asset class as I felt there were better alternatives. Why make 10% (or more likely 6% these days) with no security when you can make 10% with the ability to foreclose on a property?
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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Re: Thoughts on P2P Lending

Post by willthrill81 » Mon Jul 29, 2019 11:57 pm

I started with Lending Club in 2014, and I carefully researched which criteria were associated with high returns and was very selective in which notes to buy. My returns were almost 10% nominal for the first three years. I then opened a Roth IRA through Strata Trust to put more into LC, and using the same criteria, my returns were around 4%. This seems to have been the trend that others experienced as well. I made the decision to liquidate both accounts late last year and have finally done so. The P2P space appears to have become dominated by commercial entities. I'm no longer interested in this asset class.
“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

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Re: Thoughts on P2P Lending

Post by willthrill81 » Mon Jul 29, 2019 11:59 pm

White Coat Investor wrote:
Mon Jul 29, 2019 11:53 pm
You can use funds now for additional fees, but I dropped the asset class as I felt there were better alternatives. Why make 10% (or more likely 6% these days) with no security when you can make 10% with the ability to foreclose on a property?
Once I reach accredited investor status, I too wish to allocate some of my portfolio to hard money loans. FundThatFlip seems the most intriguing to me right now.
“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

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Re: Thoughts on P2P Lending

Post by White Coat Investor » Tue Jul 30, 2019 12:03 am

willthrill81 wrote:
Mon Jul 29, 2019 11:59 pm
White Coat Investor wrote:
Mon Jul 29, 2019 11:53 pm
You can use funds now for additional fees, but I dropped the asset class as I felt there were better alternatives. Why make 10% (or more likely 6% these days) with no security when you can make 10% with the ability to foreclose on a property?
Once I reach accredited investor status, I too wish to allocate some of my portfolio to hard money loans. FundThatFlip seems the most intriguing to me right now.
I started with some of the crowdfunded companies due to their low minimums, but as soon as I could moved to funds. Much less hassle, more diversification, more liquidity, and they're frankly better at it than I am, probably more than their fees. The tricky part is the high minimums, but if you're becoming accredited based on investable assets, perhaps that won't be a problem by then.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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Re: Thoughts on P2P Lending

Post by minimalistmarc » Tue Jul 30, 2019 1:59 am

willthrill81 wrote:
Mon Jul 29, 2019 11:59 pm
White Coat Investor wrote:
Mon Jul 29, 2019 11:53 pm
You can use funds now for additional fees, but I dropped the asset class as I felt there were better alternatives. Why make 10% (or more likely 6% these days) with no security when you can make 10% with the ability to foreclose on a property?
Once I reach accredited investor status, I too wish to allocate some of my portfolio to hard money loans. FundThatFlip seems the most intriguing to me right now.
I’ve been doing hard money P2P in the 10 - 16% range for about 5 years now. Initially it was great and I enjoyed it. I’ve done well enough but I’m very jaded with it now. It is not passive as you need to research the properties you fund extensively and then watch them carefully, trying to sell out at a whiff of a problem.

A lot of the borrowers are very good at weasling out of their debts. This is in the U.K.

Ultimately, I’m wanting to unwind my position and get back to my minimalist routes with just equities (and maybe a little cash/FI)

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Re: Thoughts on P2P Lending

Post by hifive » Tue Jul 30, 2019 10:22 am

Like many others I put a few grand into LendingClub several years ago to see what the fuss was about, mostly in their C-G grade notes. Here's my XIRR at the end of each year calculated based on my actual cash flows, not the % on their home page (though to be fair it's quite close).

2013 = 9.3%
2014 = 10.1%
2015 = 9.1%
2016 = 8.8%
2017 = 7.0%
2018 = 6.6%

I started pulling money out in 2H2016 after the CEO was fired. I didn't record the weighted average rates of the notes I was invested in but right now it's 14.05%. Wouldn't do it again for the hassle and in my opinion mediocre risk-adjusted returns.

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Re: Thoughts on P2P Lending

Post by willthrill81 » Tue Jul 30, 2019 10:28 am

minimalistmarc wrote:
Tue Jul 30, 2019 1:59 am
willthrill81 wrote:
Mon Jul 29, 2019 11:59 pm
White Coat Investor wrote:
Mon Jul 29, 2019 11:53 pm
You can use funds now for additional fees, but I dropped the asset class as I felt there were better alternatives. Why make 10% (or more likely 6% these days) with no security when you can make 10% with the ability to foreclose on a property?
Once I reach accredited investor status, I too wish to allocate some of my portfolio to hard money loans. FundThatFlip seems the most intriguing to me right now.
I’ve been doing hard money P2P in the 10 - 16% range for about 5 years now. Initially it was great and I enjoyed it. I’ve done well enough but I’m very jaded with it now. It is not passive as you need to research the properties you fund extensively and then watch them carefully, trying to sell out at a whiff of a problem.

A lot of the borrowers are very good at weasling out of their debts. This is in the U.K.

Ultimately, I’m wanting to unwind my position and get back to my minimalist routes with just equities (and maybe a little cash/FI)
My understanding is that the hard money loans secured by real estate, at least in the U.S., have lost little to no money for any of their investors yet. FundThatFlip, for instance, secures all of their loans with a first lien position on a property with more than enough equity to cover the loan, TMK.
“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

minimalistmarc
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Re: Thoughts on P2P Lending

Post by minimalistmarc » Tue Jul 30, 2019 5:28 pm

willthrill81 wrote:
Tue Jul 30, 2019 10:28 am
minimalistmarc wrote:
Tue Jul 30, 2019 1:59 am
willthrill81 wrote:
Mon Jul 29, 2019 11:59 pm
White Coat Investor wrote:
Mon Jul 29, 2019 11:53 pm
You can use funds now for additional fees, but I dropped the asset class as I felt there were better alternatives. Why make 10% (or more likely 6% these days) with no security when you can make 10% with the ability to foreclose on a property?
Once I reach accredited investor status, I too wish to allocate some of my portfolio to hard money loans. FundThatFlip seems the most intriguing to me right now.
I’ve been doing hard money P2P in the 10 - 16% range for about 5 years now. Initially it was great and I enjoyed it. I’ve done well enough but I’m very jaded with it now. It is not passive as you need to research the properties you fund extensively and then watch them carefully, trying to sell out at a whiff of a problem.

A lot of the borrowers are very good at weasling out of their debts. This is in the U.K.

Ultimately, I’m wanting to unwind my position and get back to my minimalist routes with just equities (and maybe a little cash/FI)
My understanding is that the hard money loans secured by real estate, at least in the U.S., have lost little to no money for any of their investors yet. FundThatFlip, for instance, secures all of their loans with a first lien position on a property with more than enough equity to cover the loan, TMK.
Yes, that is what it appears like to those that haven't been doing it long.

Many of the properties actually end up selling for far less than their loan amount, even when the LTV is 50-60%.

What I have come to learn, is that there is a good reason why these borrowers have to borrow at stupendously high rates rather than something much more reasonable from the bank, they are high risk.

I'm not saying definitely don't do it, I've done pretty well, but I have seen some apparently safe secured loans go really bad,

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Re: Thoughts on P2P Lending

Post by chw » Tue Jul 30, 2019 5:58 pm

Don’t do it. As you state- It seems complicated...

Generally speaking, some money was reasonably earned in the early days of some the platforms (think Lending Club). Institutional money has since bloated the market, and changed the dynamics for the average investor. Simply speaking, the better loans to lend to aren’t available to the average investor. Also, your investments in the underlying notes will likely be wiped out if the lending platform should fail.

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Re: Thoughts on P2P Lending

Post by MoneyMarathon » Tue Jul 30, 2019 6:24 pm

It could make sense if you:

(a) Have an itch to go for high risk / high yield fixed income
(b) Enjoy researching less liquid alternatives, hoping to harvest some liquidity premium ... e.g. if Lending Club is played out, find the next hot thing
(c) Limit your total exposure, e.g. to 5% of the portfolio
(d) Limit your individual note exposure, e.g. equal investments across 100 or more notes
(e) Understand that default risk, counterparty risk, liquidity risk, and lack of transparency are why you might be able to do more than 6% yield, net of defaults

If that's not you, regular liquid junk bond funds (e.g. HYG or JNK) will pay 5% yield with no hassle, with already-diversified risks of default, and with the ability to liquidate during any trading day ... and if you wouldn't buy a junk bond, you won't have a good time with P2P lending. In which case, you might just prefer investment-grade bonds, treasuries, or to stick with the stock market.

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Re: Thoughts on P2P Lending

Post by larryswedroe » Tue Jul 30, 2019 9:08 pm

First, I was a chief credit officer for the largest mortgage company at one point and have deep knowledge of consumer credit risk as result.
Second, I would NEVER buy loans directly as you don't know enough about the individual loans or the credit processes because you have not done the due diligence on the lenders to know if processes are good and you cannot build a diversified enough portfolio, should own hundreds of loans to minimize idiosyncratic risk just like with stocks. So only way to do that is a fund. Which is what I do, and willing to pay the expense if they can add value. I personally have had a very significant allocation to LENDX after long period of due diligence on SR. And those looking only at the fund's ER fail to understand the full picture. It's hard to explain all that is going on but the "true" expense ratio relative to what an individual could do themselves is really under 1%, and by not even a small margin. One reason is the fund has scale allowing them to negotiate much lower servicing fees (so that is a savings, or net expense reduction over another fund with higher servicing costs). Another is the fund's ER applies only to invested assets but fund uses leverage, and doesn't charge on the levered assets. That alone reduces effective ER to under 1.4%. And they also have ability to piggyback on securitizations, adding value as they capture the liquidity premium when the lenders issue securities. That has added to returns as well (so could think of it as lower ER, effectively, relative to a fund that did not have this capability because it did not have scale to get that benefit.

So my advice to DYIers, don't do it without a fund you can due diligence on. This is not like index investing. It's running a bank in effect

I hope that is helpful
Larry

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abuss368
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Re: Thoughts on P2P Lending

Post by abuss368 » Tue Jul 30, 2019 9:22 pm

I believe institutional funds have moved into this asset class over time. In addition, one has to also function as a credit analyst.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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willthrill81
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Re: Thoughts on P2P Lending

Post by willthrill81 » Tue Jul 30, 2019 9:22 pm

minimalistmarc wrote:
Tue Jul 30, 2019 5:28 pm
willthrill81 wrote:
Tue Jul 30, 2019 10:28 am
minimalistmarc wrote:
Tue Jul 30, 2019 1:59 am
willthrill81 wrote:
Mon Jul 29, 2019 11:59 pm
White Coat Investor wrote:
Mon Jul 29, 2019 11:53 pm
You can use funds now for additional fees, but I dropped the asset class as I felt there were better alternatives. Why make 10% (or more likely 6% these days) with no security when you can make 10% with the ability to foreclose on a property?
Once I reach accredited investor status, I too wish to allocate some of my portfolio to hard money loans. FundThatFlip seems the most intriguing to me right now.
I’ve been doing hard money P2P in the 10 - 16% range for about 5 years now. Initially it was great and I enjoyed it. I’ve done well enough but I’m very jaded with it now. It is not passive as you need to research the properties you fund extensively and then watch them carefully, trying to sell out at a whiff of a problem.

A lot of the borrowers are very good at weasling out of their debts. This is in the U.K.

Ultimately, I’m wanting to unwind my position and get back to my minimalist routes with just equities (and maybe a little cash/FI)
My understanding is that the hard money loans secured by real estate, at least in the U.S., have lost little to no money for any of their investors yet. FundThatFlip, for instance, secures all of their loans with a first lien position on a property with more than enough equity to cover the loan, TMK.
Yes, that is what it appears like to those that haven't been doing it long.

Many of the properties actually end up selling for far less than their loan amount, even when the LTV is 50-60%.

What I have come to learn, is that there is a good reason why these borrowers have to borrow at stupendously high rates rather than something much more reasonable from the bank, they are high risk.

I'm not saying definitely don't do it, I've done pretty well, but I have seen some apparently safe secured loans go really bad,
Thanks for the note of caution. It will be several years out before investing in any of these options is possible for me, so hopefully time will tell which, if any, is worthy of my hard-earned capital.
“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

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willthrill81
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Re: Thoughts on P2P Lending

Post by willthrill81 » Tue Jul 30, 2019 9:25 pm

abuss368 wrote:
Tue Jul 30, 2019 9:22 pm
I believe institutional funds have moved into this asset class over time. In addition, one has to also function as a credit analyst.
I did that before I put a penny into P2P lending on Lending Club. A site called Nickel Steamroller that was free at the time but is no longer had all of the payment history and credit factors from all Lending Club notes up to that point in time. I carefully researched criteria that were associated with high return notes and only purchased those notes. For the first three years, my returns were close to 10%, and I was very pleased. But then, almost on a dime, my returns plummeted to barely 4%, certainly not worth the platform risk and illiquidity. So not only do you have to be credit analyst, the target is constantly moving, potentially by a wide margin, and you don't know when or by how much.
“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

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abuss368
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Re: Thoughts on P2P Lending

Post by abuss368 » Tue Jul 30, 2019 9:28 pm

I am curious, is year end tax reporting a simple Form 1099 INT?
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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willthrill81
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Re: Thoughts on P2P Lending

Post by willthrill81 » Tue Jul 30, 2019 9:43 pm

abuss368 wrote:
Tue Jul 30, 2019 9:28 pm
I am curious, is year end tax reporting a simple Form 1099 INT?
If you're referring to P2P lending on a site like Lending Club, no. The short answer is that it's a royal pain in the aft end. The long answer is that there are multiple schedules that have to be completed, and any notes that are written off must individually be included in one of them with all pertinent information.

I would never recommend that anyone put a penny into this form of P2P lending in a taxable account.
“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

chw
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Re: Thoughts on P2P Lending

Post by chw » Wed Jul 31, 2019 5:18 am

abuss368 wrote:
Tue Jul 30, 2019 9:28 pm
I am curious, is year end tax reporting a simple Form 1099 INT?
No it is not. Platforms like LC have made it much easier to report tax info with a Turbo Tax interface. As Will mentions, preferred accounts to hold these assets are in tax free or tax deferred accounts if you move forward with investing (I would not).

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abuss368
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Re: Thoughts on P2P Lending

Post by abuss368 » Wed Jul 31, 2019 4:17 pm

Thanks! More complexity than initially expected.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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