Cruising Kitty - Social Lending

[zboss]

Hi folks - thought I would add my 2 cents on lending club. This will be the end of the fourth year I have been investing at LendingClub.

I highly recommend this service. My net annualized returns (after all fees and defaults but not before taxes) is 11.87% yoy with almost zero volatility.

This is not a scam at all - LendingClub simply replaces big banks for lending. As to who uses to lending club... all sorts of people including myself (I was a borrower and now I am an investor). My credit rating is over 800 and I took out a loan that was cheaper than what the banks were offering. The biggest cohort seeks a lower interest rate to pay off credit card debt. Lots of people with good credit still have credit cards that charge 28% or more interest, so taking out a loan and paying down the credit card, and turning that 28% interest into %18 percent interest is pretty appetizing.

RISK: I have had 4 loans default. Each loan was $25... so my total loss could have been $100. However, since all of the loans had made some payments I only lost about $46. One loan was collected on and I got an additional $6 so my loss is now about $40. One loan was written off completely and the other two remaining are in collections. I might still get a few bucks out of them.

Again, that's 11.87% after defaults and fees. Over 4 years. No volatility really (only when a loan defaults).

[Wavewacker]

High yiels can be had through a good motgage broker. Inquire about transactional funding for investors buying real estate. Due to current regulations concerning real estate buying and selling, investors may only need funds for minutes to close a transaction and then resell. They must close with thier own funds now instead of using the funds from an end buyer. This can be zero risk as the closing agent can have certified funds on the table before using the transactional funding!

Think velocity of money, with points paid. A busy broker could use the same funds 3 or 4 times a day or week, say at 3 points for you!

Brokers also need money to buy discounted notes which they inturn sell, another aspect with great yields.

[zboss]

I concur with the velocity of money. We apply the same principle (sic) to the velocity of processes in order to increase efficiency and it also makes a great metric for governance.

However, the LendingClub is almost completely hands off. When I start with withdrawal I will only need to send a request to them to shave some money of the interest and forward to my checking account. I did ask if they could do this automatically but they will not (I'm sure to keep you invested).

Once you invest it simply goes. If you have their PRIME service, they reinvest the principle and interest automatically for a very effective compound interest. In fact, that's the only way I got to my returns.

When I first funded my "fun" account I was very careful to select just the right creditors but ironically, it was 2 of those creditors that had good credit ratings and low interest rates that defaulted.

[Wavewacker]

That may be great too, with RE funding, you are secured by the broker as a loan to them and is used for stated funding transactions, you need to due your due diligence on the brokerage, not the deals, so it's hands off on auto pilot for as long as agreed. The yileds will make your BAII financial calcultor smoke when discounted notes are flipped, these don't happen everyday or even every week, but a 30, 40% discount is not uncommon, I have done 50% and in 30 days the property can be refinanced at par value. So, you buy a 80k mortgage for say 55k and get 80k or if you pay costs, say 75k in 30 some days, figure the annualized yield from that money being out for 45 days......keep a fire extingusher handy, LOL.

[zboss]

Originally Posted by Wavewacker

That may be great too, with RE funding, you are secured by the broker as a loan to them and is used for stated funding transactions, you need to due your due diligence on the brokerage, not the deals, so it's hands off on auto pilot for as long as agreed. The yileds will make your BAII financial calcultor smoke when discounted notes are flipped, these don't happen everyday or even every week, but a 30, 40% discount is not uncommon, I have done 50% and in 30 days the property can be refinanced at par value. So, you buy a 80k mortgage for say 55k and get 80k or if you pay costs, say 75k in 30 some days, figure the annualized yield from that money being out for 45 days......keep a fire extingusher handy, LOL.

Not to remain off-topic but here is the big problem I see with this... you are still putting all your eggs into one basket. You have one big egg and one basket. There are a million things that could go wrong with a complex transaction like this and frankly, most investors are not sophisticated enough to grasp the concepts or rationalize the tax consequences. For those that can and have the right resources available to them (accountants and attorneys) the pool is further culled by the time required to develop and complete those type of real estate transactions. IMO.

P2P Social Lending is not difficult to grasp, takes very little time, and counts as ordinary income so the taxes are easy to figure. despite the ill-informed posters that have never ventured into this type of investment, a few simple rules provides lower risk coupled with higher returns than most investments.

With that said... I would not pile all of my cash into an single category of investment. Although P2P lending doesn't count as active investment unless you are carefully reviewing each and every loan, it is wise for most people to avoid active investing and to diversify across a broad class of investments such as P2P lending, real estate, personal ventures, jobs, stocks, muni bonds... whatever, so P2P lending is just an additional leg of income.