Since I posted that I had gotten into peer-to-peer lending (P2P) as part of my financial freedom/retirement plan readers have been asking about my performance.
In this post I’ll get you all up to speed as far as what’s going on.
Summary
Remember that as of my last post I had invested $75,000 with Lending Club. Here’s what’s happened since:
- I received the $300 bonus from Lending Club that I noted in my first post.
- In late February I invested $25,000 with Prosper.
- In April I invested another $25,000 with Lending Club.
- For both Lending Club and prosper, I had the money automatically invested as soon as it was transferred to each account.
- I funded loans of $25 only. Yes, I have a gazillion loans all at $25 each.
Types of Loans
For Lending Club, I used a custom mix of loans that splits up as follows (“A” is the safest and thus lowest paying loan, “G” is the most risky and thus highest paying):
- A – 3%
- B – 5%
- C – 28%
- D – 33%
- E – 23%
- F – 7%
- G – 1%
This combination of loans is supposed to have the following expected results:
- Effective Interest Rate: 16.91%
- Expected Charge Off Rate: 8.78%
- Projected Return: 7.34%
- Historical Returns Range: 6.65% – 9.89%
For Prosper, I simply picked loans in the “B” to “HR” ranges that split up as follows (“B” is safer and thus low paying, while “HR” is the most risky and thus highest paying):
- B – 5%
- C – 28%
- D – 33%
- E – 23%
- HR – 7%
I can’t find all the other estimates like Lending Club has above (either they don’t have them or they do have them and it’s too hard to find — both of which are an issue).聽In fact it’s difficult to even find an estimate for what my loans should produce. This is one reason I like LC better — their site just seems more intuitive.
Loans I Have Now
For Lending Club, here are the loans I currently own:
- 4198 notes issued and current
- 28 notes in grace period
- 118 notes fully paid
- 2 notes not yet issued (waiting to be fully funded by other investors)
- 26 late 16-30 days
- 51 late 31-120 days
- 1 charged off
For Prosper, here are the loans I currently own:
- 1027聽current
- 25 late 1-30 days
- 3 late 31+ days
- 17聽paid in full
Results
For Lending Club, I have earned 10.87% to date after accounting for defaults. According to Lending Club, these returns normally have a return rate of 6.47% to 9.50%. Don’t know if my returns will come down or if I am doing better than average because I have my money spread among so many loans.
For Prosper, I have earned 11.74% to date after accounting for defaults.聽But these loans are still relatively young so I’d expect the rate to come down
Thoughts
Here’s my take on the results so for:
- I am thrilled with returns of 10.87% at Lending Club!!! If I could keep this up over time, I would pour as much money as possible into these. But I’m thinking the good times won’t continue given that Lending Club recently announced lower expected returns on their loans.
- Then right after that, their CEO ended up in tons of hot water.
- I initially suspended automatic investing at LC until the smoke had the chance to clear. Their investor relations department even called me and asked if I had any questions, how I was feeling about the company, etc. I told them I was waiting to see what happened.
- Then they sent me an offer — invest various amounts and get a bonus. Earlier this week I added $25k to my loans and will receive a $500 bonus for it.
- In the end, if I can get anywhere near 10% on my money, I’ll be adding more if they get their act together.
- I prefer Lending Club to Prosper. Their interface is easier to use and it seems like their loans get funded faster. That’s why I have invested more with them.
- That said, both of the sites are pretty easy to use, especially with the automatic investing. You simply set what you want, transfer the money, and they handle the rest.
- If I could get $250,000 earning 6%, that’s $15,000 in income each year. Combine that with what I’m earning from my rental real estate and I’m well on my way to earning the $100k I’d like to generate in passive income (or at least non-career income). Then I’m well on my way to financial freedom.
I’ll give another update towards the end of the year or so just to keep you all informed.
Any thoughts or advice for me as I dig deeper into this?
Chris Colter says
I was looking at Lending Club shares, and they have really tanked. Is that because of the trouble they were in? Thank you for the detailed post. Nice job.
ESI says
Yes, their shares fell dramatically when the CEO was let go. It was a big scandal.
Hrant says
Thank you as always for sharing your thoughts.
Even though Renauld Laplanche did indeed step down, (which you will be hearing more of him, as he is trying to line up investors to privatize LC), IMO LC model still goes on successfully, and is producing me a return of approx. 7.5%, and 9% in 2 different portfolios…former one being since ’08, and second for several years now.
Your returns will trail down after multiple full cycles, yet where else can one get above average yields these days? How much can we get in the bank again?
Believe all should also subscribe to Lendacademy.com, and follow the goings on, as there is a lot of info, by Peter Renton, a genuinely nice fellow, who also displays his quarterly results, and unselfishly, gives away all the info for free.
Good luck all…I am invested in thousands of loans, and just wish I had plowed more serious money way back then:)
ESI says
I’ll add a second endorsement for Lend Academy.
Greg says
LC sounds somewhat desperate to keep the money flowing in, to the point that they contacted you to dangle a carrot for your continued participation. I hope this isn’t a precursor to their implosion.
ESI says
I don’t think it’s a bad sign. That’s what I would do if my business had an issue – reach out to my customers, listen to them, and send out an offer or two.
Just how bad (or not bad) it is is anyone’s guess.
In the end it could actually work out for the better. Time will tell.
BH says
Thanks for sharing. Great returns! What do you think is a good amount, as a percentage of your networth, to allocate to P2P lending? Would your answer be different based on age and distance from retirement, and if so, how?
ESI says
I think it all starts with your goals — what you want to accomplish.
For me, P2P is part of my retirement income strategy and I balance the great returns with what is admittedly a more risky investment.
I’m working on a post listing my current asset allocation (which will post in August or so). I don’t have it in front of me but think my amount in P2P is around 7% of investable assets.
Jon says
Thanks for the detailed post. Unfortunately, I live in Pennsylvania and don’t have access to P2P lending, at least not directly. I’m hoping the laws will change soon as the returns seem to be consistently solid from all accounts.
Hope you continue to do well!
George says
I’ve been waiting for this post (so thank you!) and as of today will have funds available in LC. I have a fraction of what you just invested, so I may try my hand at selecting the funds myself based on what I have read (other links you provided). I assume the primary impetus for you choosing automatic investing is you did not want to spend hours investing thousands of $25 investments!
ESI says
That is exactly the reason!
Can you imagine selecting all those loans manually? 馃檪
JC says
I thought I’d share my Lending Club experience for your readers. I originally placed $2,500 into my account with a portfolio risk profile a bit more conservative than yours in March of 2015, using their automated investing feature. Subsequently, I adjusted my profile to be even more conservative. Original target, current actual and revised target allocations look like this:
Grade – Original Target – Current Actual – Revised Target
A – 5% – 18.2% – 20%
B – 15% – 19.5% – 20%
C – 30% – 28.8% – 30%
D – 30% – 28.6% – 30%
E – 10% – 3.6% – 0%
F – 5% – 0.6% – 0%
G – 5% – 0.6% – 0%
A small amount of cash makes up the balance of the current target. So my current profile is not too far off from the revised target that I established.
Since I’ve started, I have not added any additional cash into the account, and I have reinvested all principle and interest received, less fees and write-offs.
My net (after fees and write-offs) is 3.26%. Over the 186 notes I have funded, here is the current breakdown on status:
2 – Not yet issued status
137 – Issued and current
6 – In grace period
26 – Fully paid
0 – Late 16-30 days
3 – Late 31-120 days
0 – Default
12 – Charged off
The profile of the charged off notes were B: 1, C: 2, D: 6, E: 1, F: 2., G: 0. The average write-off was about $21 of the original $25 principle. I was a bit surprised at 12 out of 186 loans over a 19 month period (about a 6.5% charge-off rate), but that’s why risk is spread across many loans.
Based on statistics shown in the Lending Club web site, it seems my performance is in the lower range of investors with similar portfolio risk. So, overall, while I’m happy to get better than bank interest, and will likely continue to invest (and over time, add additional funds), the actual performance was well below expectations. Perhaps having only about 100 loans funded lead to some concentration in lower performing loans. Additional statistics on the site show diversification benefits tend towards the median performance quickly after about 300 loans–basically confirming my 186 loan universe was a bit unlucky.
ESI says
Appreciate you leaving this here. It’s quite informative.
My return has gone down as well since I posted this. I’ll update everyone at the start of the New Year on where I stand.
Jef says
Interested to keep reading your updates on how this is going for you ESI, I’d see them as more of a diversified portfolio rather than one to move more than 20% of your invest-able assets into however it’s got to be about what an individual feels comfortable with 馃檪
Keep up the updates, enjoying them!
James says
ESI,
With your experience in real estate have you ever considered direct lending to other investors? I too am a real estate investor and while my partner and I have the cash to purchase our properties and then refinance them with the bank, we prefer to use private lenders so that we can keep our cash liquid for the purposes of making cash offers. The way the math works out we basically trade our first year of free cash flow to the private lenders in exchange for keeping out capital liquid. It’s a win-win for everyone since our investors are making similar returns to what you’re seeing with your P2P lending.
I know you’re going for a bit of diversification with the P2P strategy over your real estate investments, and I haven’t read through every blog post you’ve made…so perhaps you’ve already addressed this some place, but I would definitely be interested in why you’ve chosen to go down this route.
ESI says
I have considered it but have no clue where I’d find reliable investors to lend to…
James says
Two best places to consider would definitely be your local real estate investors group. Around me there are a few. You’ll be able to actually meet and network with active investors in your market and many of them will be looking for private investors.
Your other options is to check out BiggerPockets. It’s the largest real estate investors website and they have a top 100 podcast on iTunes. You can literally find every type of investor doing any thing on there. I am in no way affiliated with them for this reference (other than being an active contributor…less so recently due to job and real estate commitments of my own), but only to say the connections and experience I have made on this website have been truly invaluable to me. On top of that connecting with the founder Josh Dorkin and his partner Brandon Turner would be good for you as a finance blogger as well. They attend FinCon every year and love connecting with other personal finance bloggers.
ESI says
I’ll look for them at FinCon this year. Thanks!