OK....I'll admit it........(P2P)

I'm solidly into P2P investing.

There's been a few threads about it, but I've never seen anything really serious. A few replies is all.

My history:
I thought it was a great idea a few years ago so I tried it. I took a small amount and "played" with it, using myself and some resources to be the guinea pig for the project I would either let my friends in on, or be the guy that says, "You'll lose your shirt".

I have to say, that I loved the idea of screwing the big banks and yes, actually helping people. I started with a small amount and picked my loans I would fund with what I thought at the time was prudent level of scrutiny. As time went by and research led to blogs, websites and contact with people who were heavily "in", I upped my stake in P2P lending.

I gave it two years and reviewed my results. I even took out a very small loan myself that will, of course, be paid back early without penalty, because I wanted to see how well they screen their borrowers. I said I would be the guinea pig for this project and what little that loan cost me (I have impeccable credit and got the loan at a great rate) I had to see first hand how they screen their loans aplicants.

I'm happy to say that 2.5 years later I have expanded to the two main players in the P2P game, Prosper and Lending Club, while also increasing my stake in both. I have loans that have been paid back in full already and have a steady record with just one default in 2.5 years.

I've learned a lot and run my filters. I have a target range for ROI (return on investment) and balance it by choosing loan parameters to keep me in my comfort zone.

Now.............I have another half a year, as I wanted to give it a full three years before committing big, but I can tell you already that you can, in fact make a nice little return for yourself. I tend to be on the cautious side and there are people doing way better than me (there are ways to track performance between investor returns), but I will not complain with the returns I'm seeing. The number of loans funded and the people willing to fund loans has grown exponentially in this economy.
So there you go Arfcom. Once again, we've got a guy on the inside.
I'd be happy to answer any questions for the little experience I have aquired ovr the past two and a half years. I've seen the threads and they've been brushed off. I can understand it. P2P is hard to wrap your head around, but the beautiful thing is that you can start with just a few bucks.

Ok...fire away and ask the guy who's been doing it a little while.

What kind of overall return are you getting?

As of today, in the top 500, I was ranked 230 for investors on Prosper at 14.6% and on LC, I'm holding 10.02%

Of course, this could all change, as loans tend to default at the 18 month range at an industry standard. But I feel that for the length I've held the majority of my notes, I'm over the hump and have been doing well for my "test portfolios".

I'm higher in prosper, because I'm investing in notes of previous borrowers with only good....make that great......credit history. These are people that will always make their payments or they will have to turn to sources that will demand higher interest. I love "blenders" (people who have taken out loans, built their credit back up, made payments and now want to lower monthly payments by refinancing at lower rates) , because they have a steady history and are getting an even better deal by paying those loans back at a lower payment and freeing up some cash. So, therefore,I'm more inclined to look at a little higher risk loan if they are "payment pounders", the people who always carry a balance on loans or CC type payments. So, if they have a history of making goood on the notes, I'm willing to take a little higher risk note.

That's fascinating stuff. I'm browsing the LC website right now and checking out their tools for funding loans.

As an investor, Is there any way to sell your loans to someone else or are you stuck with it for the term of the loan?

Yes, they both work off of a trading platform (Folio) but I have yet to use it. I plan on fully seeing these loans to the end.

I have to say, that the rate of defaults favor LC over Prosper, but I feel I pick better notes to fund at Prosper. They both have their pros and cons.

The beautiful thing is that with this......you can really start small and grow it gradually as you get comfortable with it.

(ymmv, of course)

You have my attention! I'm looking to diversify my investments and this is an option for sure.

If you don't mind me asking. How much $ did you put up initially? What is the most you have put up?

I started with $500 which gave me twenty loans to invest in (I did the minimum of $25 per loan) Then, I sat and watched the process for a very long time. I was either going to like it, or lose enough to make me look elsewhere for another type of investment. By spreading out the risk over many smaller loans, it would be absorbed by all the other loans paying out regularly if I were to take a hit. Principle and interest on your little piece of the note are paid back monthly. I have had only one note default on me, which is a great rate and left me hanging for $21.34, but I have made that up easily by the other notes that pay on time every time. The default rates are way better than traditional sources, say banks and my default rate is better than the "normal" default rate expected for P2P. I've been impressed.

After now a couple of years and adding another company and more cash to invest, I can regularly go in, run my filters, read the Q&A between investor and borrower, and manage my principal and interest payments to roll back into more notes. The most I have "put up" in any note so far has only been $50.

If you ever want to stop, you can take your payments back as it builds up in your account, or trade your notes on a trading platform and sell them off. I don't know much about the trading platform other than signing up for it and looking at it a little.

This isn't for everybody and I can understand the skeptics. As stated before, it's a hard concept to wrap your head around. I don't believe it will ever be a major part of my overall portfolio, but it does give it a little boost.

Do you know the people you are loaning to (name, home address, phone numbers, etc.)?

If I had this info available when someone defaults I would get into this.

NO DEADBEATS, NO EXCUSES

And what exactly are you going to do if someone defaults?

The whole reason that interest rates even exist above simple time value of money is the fact that the risk of default is part of the game. You aren't going to get 10% on your money ANYWHERE with 100% security on your capital.

Here's a question for you. How many separate loans do you think you need to have in order to have a reasonable amount of diversification? I've seen the stats on lending clubs website but obviously 800 notes might not be practical for most people at $25 a pop minimum. You said you had 20, did you feel that was enough or is there a higher number required to really be in the sweet spot.

I know it's tough to answer this question but you might have some insight.

Well you can call them up, sue them, sic bill collectors after them or act as your own bill collector. If they want cash, they should have some skin in the game, not just a ding on their credit score so they can move on and get over on another person.

I've seen that 800 number and honestly, I don't think anyone should go in that big all at once. I grew into it slowly and felt really comfortable with 100 loans in each, which has now grown a lot with reinvesting principle and interest coming back. The beauty of these things is you can grow it at a very small pace. I figured with 100, I could absorb a default or two. Actually, I was counting on five to default. I did not see my first default until I held well over 200 notes. That default, although it sucks, is not even a blip on my radar anymore. So this means that filtering notes has been working.
This was a good question by the way, because it addresses risk tolerance and yes, there is always risk. However, both of these companies have defaults in ranges below banks. I believe that are just around 3%. Not too bad.

Like I've said. These are just my experiences with it. Yes it seems radical, but I've had a whole lot better luck with this than I have had from lending money to my own family.

This is clearly not for you. You should really look elsewhere because that risk is always there. Plain and simple. There is no way around it.

I am very interested, but if someone defaults they should be held accountable.

A bank can't stop a default, a Credit Union can not stop a default. It's part of the risk and that's a cold hard fact of this game. There are people who can live with shitty credit that has been damaged due to non-payment of obligations. These same people are everywhere.
I run filters as investors can see the credit reports. Within these filtered results, I have my own set of parameters to look for and what uses for the proceeds have the best probability of repayment. It's all I can do and why I grew this very slowly and cautiously.

Out of over 200 loans available (LC screens out 90% of their applicants), there's sometimes I return only 6 after my filters are run.

Lorax, I have been going through Prosper up to the point where they want my bank information. Any way to avoid this and send payment to these guys to get started? Also, which one would you recommend starting of the big ones?

You otta send that kid in your avatar to collect on the deadbeats. When someone defaults can't the debt be sent to bill collectors and such. I don't expect the lending company to do it, but if I had a phone number and home address I could follow up on the deadbeats and let them know who they are ripping off.

You would need to send your bank info in order to provide $ to your account and for the company (which acts as a middleman) to more importantly be able to shoot you back $ that you have made back in principle and interest. So set up a free simple account somewhere dedicated for just this purpose.. Problem solved

As far as collections, they are handled by the company (once again, middleman)through collection as a bank would do it. Due to the nature of where these investments fall under (high yield bond), you have no access to know the details of the actual person.

As stated before, I have gone through the process from the role as borrower for a small short term loan to see how well they screen. The company followed up accordingly as any bank would, my information was checked and verified and I was personally called before they would even list my loan.

Check out the lending club website. They have both an internal and external collections process. If neither of those recover your money, your own bill collectors aren't going to get it done either. Suing them isn't going to accomplish a thing as you can't get blood from a rock and what good is calling them going to do that the collections process hasn't already done?

You have to keep in mind that these P2P websites appear to be set up so that you can spread a $10,000 investment over a massive portfolio of loans making your exposure with any one person limited to as low as $25 a pop. It's not practical to think that you are going to be able to go after a guy for $25, especially when there are hundreds of other people in line who also funded that loan for $25.

There's a reason these loans have a double digit interest rate. Returns reflect risk, that's just how these kinds of things work. Anything that P2P sites did to put the borrower's skin in the game would be reflected by lower interest rates. This is the reason why secured debt like a home loan can be sold for 4%-6% where as unsecured credit card debt can be as high as 20%+.

OK, a few good points and good example of spreading the risk $25 at a time, but you do not need to start with $10,000. I know people who started with 100.

Also, The loans do not all have double digit interest rates. You can get loans, with good credit, low revolving debt and a good rating for in the 6% range. Yes, there are double digit rates for those with less than stellar credit, but for those with the best credit, why go to a bank for a 9-11% persona loan when you can get one at 5.7 or 6.4% rate?
You like risk? They have loans for you to pick that can easily expose you to that too. However, we know how that might end up.

I'm not a shill for these companies because this is NOT for everyone. It's just that I've been doing it a while and thought I could help out by answering some questions. Am I the best at it? Hell no! But I do find it interesting and I have had it work for me so far with decent results. Even institutional investors are putting assets here (a few at a mil a month!) which means they see something in this.

Can I keep up my pace? Maybe.....maybe not. I do hope that it sticks around and over time, these companies refine what they are doing to better serve investors and borrowers.

If you have good credit and are low risk, could you get a loan on one of these sites at like 5-6% and loan it to other people who are higher risk on those same sites and make a few % points?

http://www.ar15.com/forums/t_1_133/1043319_Prosper_com___Personal_Loan_Investing.html

Yes, you could and I know it has been done before. But is taking a loan, paying interest and taking additional risk worth it? I can't speak for someone who would do that because I know what my risk tolerance is. I'm more conservative having about 50% in highest rated notes.

I'm sure everyone who has ever done this has at least thought about doing that though.

I think I've about covered everything in this thread. A few closing thoughts though.
1. I do not ever expect this to be a major part of my overall portfolio. not even close.
2. Look at the notes as a business decision. Every single one of them
3. Use the filters.
4. Look for high quality, in loans and in people's professions in order to pay those notes back.
5. In consolidations, make sure those numbers add up and that the borrowers will benefit in freeing up cash by refinancing those credit cards.


Good luck Arfcom. PM me for any other questions.

I started investing in Prosper last January with about $2000 and gradually added more during the year for a total of $10,000 invested in 2011 and an ending balance of $11,000. After that one year trial I can say that I'm a believer and I'm going full steam ahead this year.

Here is my loan allocation on the left and my return for each loan rating on the right. After a year I can say that my sweet spot seems to be C and D loans.


This is the status of the the notes in my portfolio, after one year I've been pretty lucky to have a relatively low number of charge offs as well as a low rate of people who are late at paying their bills.


This is the total number of notes that I have out there, breaking it down by status as well as the charge offs and people who paid early.


I'm very picky about the loans I fund, I spend about 20-30 minutes each day going over applications and I've only had 6 go into default on me so far, well below what I expected. This is a screenshot of the loans that did go into default on me.


Prosper should not be your only means of investment, you should really max out your 401k and ROTH contributions first, but if you have spare money around and take your time picking the loans you fund you'll get a far better return than the shameful rate you'll get from CDs or Money Market.

Glad to have you in on this thread.
I don't know what kind of filters you run and I personally have yet to see one default on Prosper, but my portfolio as it pertains to the grade of notes looks totally different than yours. I hold way more AA-C notes. I am glad that you are happy with your returns.

Ever go to lendstats? or the lendstats forum? check it out!

31.99% interest on a loan? Are these people brain dead?

Some are, and others are smart. Most loans are for consolidation of other debt that runs at perhaps 19-29%.

Let's say they have great credit and they get a loan at either one for around 6%. Hell, let's say it's at 12%, it's still a huge savings. They now have one manageable payment instead of several and the monthly payments they were making to revolving credit accounts add up to more than the new loan at 6-12% would be in a monthly payment.
If the numbers add up and it makes sense, the borrower has a good credit history, good steady job, low debt to income ratio, no public records and no delinquencies, is a homeowner and meets my other criteria, chances are I'll be looking at that note.

How hard would it be to gain funding for a REIT on prosper/LC versus the traditional means?

I would imagine you would list it as raising capital for a business start-up. A lot of businesses get their funding from P2P.

If you got the scores and have the numbers to back it, you would find people willing to fund it.

Numbers aren't difficult, I already manage a few cashflowing properties. The problem is right now I can't get banks to finance me due to having enough cash to put down on new properties. They want 30% down to finance properties and are not offering anything for rehab. That becomes 30% + 35% really quick. They then want me to re-fi the property after repairs to effectively roll in rehab costs to the final loan, thus creating significantly more paperwork and effectively 50% to buy anything.

What happens if LC or Prosper close their doors? Legally, they're the holders of the loans. Your thoughts?

They had problems they first encountered when they needed to be classified for regulation (there was a year they were almost shut down entirely in I believe it was 2008) and shut it down to new investors and additional investments where they were self funding and bleeding cash while trying to find big money investors to carry them through this.
While this doesn't answer you question and I don't know all the details of those days (called the "dark ages" by some in the P2P game) I do know that these loans are held actually through Wesbank and both sites do in fact give some insight as to how the loans will go on in case something happens to see them all the way through. look in the Q&A section for investors on the websites.

If you were to look at the exponential growth of this, I don't see it being a problem for them both. There are institutional investors making some very big moves as a place to diversify their portfolios.

How is the income handled on your taxes?

1099 form.Yup......it's "income"

If it's income couldn't you start a home based business or corp doing this and write off any losses incurred?

That's what I'll be doing here shortly.

Unfortunately Ohio doesn't allow P2P lending, so I'll have to set up a out of state LLC to get it done.

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