By Peter Anderson15 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited February 10, 2012.
Lending Club had another great year in 2011, reaching a variety of milestones. They reached 400 million in loan originations in November (pushing 500 million now) – only a couple of months after reaching 300 million. They were also recognized as a World Economic Forum 2012 Technology Pioneer, a Forbes Top 20 Most Promising Company, 2011 Webby Award Winner, Top 300 Startups at 2011 fundedIDEAS and continued to receive great mentions in the mainstream media. They’re becoming more and more mainstream. The word is out!
While Lending Club had a good year, the returns I saw last year were good as well, better than I saw in my retirement or savings accounts. I think Lending Club and social lending in general are a great way to diversify your savings and investments especially in turbulent times like we’re going through right now. You can also open an IRA with Lending Club as well if you want to make this part of your retirement plan.
Interested in my original Lending Club Review? check it out below.
Check out my original Lending Club review
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Returns Increase To 11.23% Despite Charged Off Loan
As I begin preparing for my taxes and looking at my Lending Club taxable earnings for last year, it’s clear that Lending Club had another good year. Yes, my account had it’s first default and charged off loan this year, but it was the first since I started Lending Club a couple of years ago. I’m surprised I dodged that bullet as long as I did.
Net Annualized Return of 11.23%: Up from 11.03% in November, 10.93% in September, 10.76% in August and 10.53% before that. That puts me in the 62nd percentile. My returns are higher than 62% and lower than 38% of all investors. Note: The compare feature in Lending Club account is gone from your account page now because of some problems in how it’s calculated, but you can still find it here if you’re interested.
Number of defaults.. no longer zero: For the past two years I’ve defied the odds and I’ve never had a single loan default or get charged off. This past month, however, I had my first default and charged off loan. The funny thing is that the charged off loan was a Grade B loan for someone who originally had very good credit. Just goes to show that the higher graded loans aren’t always the best bet.
Twenty two loans have been paid off early: Nine were A grade loans, six were grade B loans, five were C grade, and one grade E and F. Looks like grade A loans, while they’re more likely to be paid back, may also be more likely to pay of early – reducing returns. Another reason to look at including more higher grade loans.
My account balance still going up: I currently have $2,663.59 in my account, with $231.14of that ready to invest.
I’m still diversified by investing across a large number of loans: I’ve had 148 loans, with no more than $25 in each loan. That way when you have defaults like I did this month, while my returns may go down somewhat, the risk is minimized.
NOTE: Did you know that 100% of investors who have invested in 800 notes or more had positive returns. Not too shabby, not everyone in the stock market can say that!
How Do You Measure ROI?
One thing that is often talked about in the peer-to-peer lending world is how you can determine a more accurate way of knowing your true return on investment (ROI). Some have complained that the numbers on the Lending Club and Prosper sites will give an overly rosy view of what your actual or projected ROI will be, and the ways that they calculate your ROI are not standardized. They don’t take into account future default rates of your loans, how young or old your portfolio is, and other things that may be a factor. It’s basically a take or leave it when it comes to accepting their stated ROI on your portfolio.
One site that tries to take into account more factors when calculating actual ROI is Nickel Steamroller’s Lending Club portfolio analyzer. Basically the analysis tool with give you an estimated ROI after you download all your notes from your Lending Club account and upload the .csv file. It will go through you notes and give sell recommendations, show duplicate notes and highlight notes that are below Lending Club’s average return (so you can sell them on the secondary platform). In looking at my returns on the analyzer, my actual return according to the site will be closer to 10.26%.
I think my returns are showing lower than in LC in part because I’ve had one charged off loan now, and a number of my loans are still relatively young. We’ll see how it pans out though.
Lending Club Strategy
Here’s the basic strategy I’ve been using with Lending Club over the past couple of years.
Less than $10,000: I believe I’ll still be sticking with mostly loans below $10,000. Lower amounts mean higher likelihood of payback of the loan.
Zero delinquencies: Again, I may fudge slightly on this one, but I still want it to be very few or zero delinquencies.
Debt to income ratio below 20-25%: I like to invest in loans where the borrowers have a lower DTI ratio, and preferably have higher incomes. I’ll try to keep this as is.
Good employment history: I like loans with a decent employment history of at least 2 years, and a decent income.
So that’s what I’m doing with my Lending Club portfolio right now, and how I’m investing.
Not ready to invest, but looking to consolidate debt or pay off a high interest credit card? You might want to consider borrowing from Lending Club. Check out my post on borrowing from Lending Club.
Are you currently investing in Lending Club? How are your returns looking? Tell us in the comments!
By Peter Anderson15 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited February 10, 2014.
I‘ve been investing with Lending Club for a couple of years now, and I’ve gone from a skeptic when I first started investing with the service, to someone who is convinced that Lending Club can be an integral piece in any person’s investing strategy. I’ve seen good returns since I started, and despite warnings from a variety of sources about how the site was a flash in the pan and not something you’d probably want to put your money in, I’ve stuck with it. Over the years I’ve used the site I’ve only had one loan get charged off. Since I was diversified, however, I’m still getting 11.44% returns. Not too bad.
This past week Lending Club announced that they had reached $500 million in loans originated since inception (2007), further showing just how strong the platform is.
Lending Club, the leading platform for investing in and obtaining personal loans, today announced that $500 million in loans have been originated via the platform since inception. Lending Club serves the needs of prime consumers who choose the lower interest rate loans available through Lending Club over more expensive credit cards.
The San Francisco-based company commenced operations in 2007 and has exceeded 100 percent growth in loan volume each year since. More than a quarter-billion dollars in loans were originated on the platform in 2011, more than doubling the previous four years combined. Lending Club now averages more than $1 million in loan originations per day, with an average loan size of $10,945. The majority of borrowers (66.7 percent) say they use Lending Club’s fixed-rate personal loan platform to pay off their high-interest credit cards.
So Lending Club according to their site is originating more than $1 million in loans per day. I would say that they’re here for the long haul, and if you haven’t checked them out yet, you should give it a shot!
Interested in my original Lending Club Review? check it out below.
Check out my original Lending Club review
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Returns Increase To 11.44% And Another Late Loan
This past week I started looking at my taxes and figuring out how much interest I earned last year with Lending Club – as it is taxable income. If most of your loans are smaller ones with Lending Club like me, you won’t be getting any tax forms, and it can be quite a confusing process figuring out your interest earned. If you’re as confused as i was when I started looking at it, check out my post on Lending Club and taxes.
This past month my Lending Club account had it’s first charged off loan in over 2 years of using the site. While it was disappointing, thankfully I didn’t lose much on the deal because the loan was over 1/2 paid off already. Despite the charged off loan, my returns increased this month again to 11.44% as I added more “high risk” loans. Unfortunately I had another loan go into the “16-30 days late” category. We’ll see if they get back on track, it shows that they have scheduled a payment.
Net Annualized Return of 11.44%: Up from 11.23% in December, 10.93% in September, 10.76% in August and 10.53% before that. At last check my returns were higher than 62% and lower than 38% of all investors on Lending Club’s compare feature. Unfortunately the compare feature in Lending Club account is now gone completely, so I can’t keep up on those numbers anymore. I understand the numbers weren’t completely accurate, but it was still a fun to compare.
Number of defaults.. one and counting: Last month I had my first charged off loan, a Grade B loan. Go figure. Just goes to show that it isn’t always the high grade loans that peform as well. I’ve seen quite a few Grade A and B loans either pay off early, or as in this case – get charged off.
Twenty two loans have been paid off early: Nine were A grade loans, six were grade B loans, five were C grade, and one grade E and F. Looks like grade A and B loans are more likely to get paid back early, reducing returns. Another reason why I’ve started investing in more higher grade loans.
My account balance still going up: I currently have $2,690.24 in my account, with $195.47of that ready to invest. I’ll be finding some loans later today.
I’m still diversified by investing across a large number of loans: I’ve had 153 loans, with no more than $25 in each loan. In other words, I’m diversified across a large number of loans, lessening my risk from any one loan going into default or getting charged off.
NOTE: Did you know that 100% of investors who have invested in 800 notes or more had positive returns. Not too shabby, not everyone in the stock market can say that!
What’s Your Actual ROI?
When you’re looking at the numbers on the Lending Club and Prosper sites, it has been pointed out time and again that their numbers are overly rosy view of what your actual return on investment will be. The ways that they calculate the ROI isn’t really standardized, and they don’t take into account how old your loans are, possible future default rates, or other things that may become a factor. The numbers they show are just something you have to take or leave.
A site that I discovered a while ago that gives what I think is a better picture of the actual ROI you can expect is Nickel Steamroller’s Lending Club portfolio analyzer. Basically the analysis tool with give you an estimated ROI after you download all your notes from your Lending Club account and upload the .csv file. It will go through you notes and give sell recommendations, show duplicate notes and highlight notes that are below Lending Club’s average return (so you can sell them on the secondary platform). It will even give you a fun little map showing where your loans are (see mine above).
In looking at my returns on the analyzer, my actual return according to the site will be closer to 10.33%.
Those are still better than the returns I’ve seen in the stock market this year, or in my savings account.
Lending Club Strategy
Here’s the basic strategy I’ve been using with Lending Club over the past couple of years. I’ve fudged on this a bit in the past few months due to the fact I’m buying more low grade loans, but it still holds mostly true.
Less than $10,000: I believe I’ll still be sticking with mostly loans below $10,000. Lower amounts mean higher likelihood of payback of the loan.
Zero delinquencies: Again, I may fudge slightly on this one, but I still want it to be very few or zero delinquencies.
Debt to income ratio below 20-25%: I like to invest in loans where the borrowers have a lower DTI ratio, and preferably have higher incomes. I’ll try to keep this as is.
Good employment history: I like loans with a decent employment history of at least 2 years, and a decent income.
So that’s what I’m doing with my Lending Club portfolio right now, and how I’m investing.
Not ready to invest, but looking to consolidate debt or pay off a high interest credit card? You might want to consider borrowing from Lending Club. Check out my post on borrowing from Lending Club.
Are you currently investing in Lending Club? How are your returns looking? Tell us in the comments!
Last Updated on February 24, 2022 by Mark Ferguson
Paying cash for rental properties may seem like a safe bet, but it may actually be costing you a lot of money. I am trying to buy as many rental properties as I can because I feel they are one of the best investments available. Many people feel paying cash is the best option because you don’t have to pay any interest, but I make more money when I use loans. I can buy more rentals, which means I have more tax advantages, more equity, more cash flow, and more appreciation. So should you pay cash or get a loan on rental properties?
The key to my strategy and obtaining great returns is being able to leverage my money. Leveraging is using other people’s money for investments so you use less of your own money. By using other people’s money, you can buy more properties and increase your returns on the total cash invested. If you pay cash your returns decrease dramatically, and all the benefits of owning rental properties decrease as well.
How can debt be a good thing?
Many people assume all debt is bad but debt can be an amazing tool if used correctly. Some of the largest companies in the world have used debt to grow faster and bigger as have some of the richest people in the world. If you have an investment or business that makes more money than the interest rate costs you on the debt, it might make sense t0 get a loan to multiply your returns.
If you have too much cash and nothing to invest in, debt will not do you any good. If you want to make a lot of money very quickly, debt can help you. With real estate, you can control an asset that is worth hundreds of thousands of dollars (or more) with 20 percent down or less as an owner occupant. If you have a house worth $100,000 and it increases in value 10 percent it is now worth $110,000. You made a 10 percent return paying cash or a 100 percent return if you put 10 percent down and only has $10,000 invested into the property.
Now, real estate is not that simple and there are many more costs than just the down payment, but I wanted to start with a straight forward example to show how debt can make you money.
Is it riskier to pay cash or get a loan and go into debt?
Many people shy away from debt because it is risky. I tend to think that using all cash to buy rentals can be risky as well. The problem with real estate is that it is not very liquid. If you need to take money out of a property you can get a loan against it (refinance or line of credit) or you can sell it. It can take 30 days to get a loan if all your finances are in order. If you have a high debt to income ratio, don’t have an income, or have bad credit you may not be able to get a loan at all even if you have a property completely paid for.
If you need to sell a property it can take 30 days under the best of circumstances when you price it very well. If you want top dollar it may take months to sell. If you sink all of your money into a property so that you can pay cash it is very hard to get that cash out. If you have an emergency or lose your job, you will be in trouble will all your money tied up in real estate.
I would rather use a loan to buy a property so that I have cash in reserves and readily available than spend all my money to buy with cash. I also believe that is is better to have more cash flow with multiple rentals than less cash flow with one paid off property.
Do you make more money from cash flow with loans?
I am going to use some basic figures to outline the benefits of leveraging your money. If you buy a $100,000 house with cash that makes $500 a month in cash flow, you are making about a 6 percent return from the cash flow alone. Cash flow is the profit you make after paying all expenses on a rental property.
If you buy a $100,000 house and put 20 percent down, you will have a mortgage payment, but the return on your money increases. If you are paying a 4 percent interest rate, your principal and interest payment will be about $382 (check out the bank rate mortgage calculator for calculating mortgage payments). You are only making $118 a month cash flow after subtracting the mortgage payment, but you are making a 7 percent return on your money due to the lower cash investment.
Even though the cash on cash return is 7 percent, you are actually making much more than a 7 percent total return in the above scenario. You are also paying down the principal on the loan by an average of $118 each month. That $118 equals another 7 percent return on your money that you would not have on a cash purchase! You have more than doubled your return by getting a mortgage instead of paying cash.
The exciting part about using leverage is when you get a higher cash flow, the returns increase even more. If you can make $800 a month cash flow without a mortgage, you will be making 9.6 percent cash on cash return. With 20 percent down on the same property, you would cash flow $418 a month after the mortgage payments and make over 25 percent cash on cash return just from cash flow! The way to make big money in rental properties is finding properties that will give you big cash flows and buying as many as possible while leveraging your money.
Below is a video that goes over this topic as well:
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How does debt allow you to buy more rentals?
The best part about leveraging your money is it allows you to buy more properties. You can buy three or four homes with $100,000 instead of just one home paid for with all cash. Using the cash flow figures from above and buying three properties instead of one, you are now making $1,254 a month cash flow instead of just $800 a month. Not only does your cash flow increase by purchasing more properties, but the equity pay down increases, the tax benefits increase and the appreciation increases. If you can purchase homes below market, then every time you buy a home, your net worth increases as well!
Tax benefits
Rental properties have many tax benefits including depreciation. The IRS allows you to depreciate a percentage of your rental properties every year and write that off as an expense. You can depreciate a rental over 27.5 years, which means you can deduct 1/27.5 of the value of the structure every year from taxes. You can also deduct the interest paid on the loan and most expenses. If you have three houses instead of just one, you can get triple the tax deductions.
Appreciation
If you have three properties instead of one and the market appreciates, you also have the benefit of triple the appreciation. It is the same situation if rents go up, the more properties you have, the more money you will make. I never count on rents to go up or appreciation, but it is a nice bonus. I live and invest in Colorado where we have seen crazy appreciation. Some markets may not see any appreciation at all.
Equity pay down
With multiple rental properties, you are also paying down the loans on three properties, which increase your returns as well. Most of the payment will go to paying interest at the beginning of the loan, but as time passes a larger portion will go to the principal of the loan.
Buying below market
One of the biggest advantages of real estate is being able to buy below market value. I can buy a house for $100,000 that is worth $120,000 or even $150,000 today. I did 26 flips last year and I used the same concept. There are many ways to get great deals but it is not easy. If I buy one house with cash I would gain $30,000 in equity if I bought it $30,000 below market (this assumes it needs no repairs). If I buy 3 houses with a loan, I would gain $90,000 in equity!
When you think of the tax savings, possible appreciation, buying below market, and equity pay down the returns shoot through the roof. With leverage, I can buy three properties for every one property with cash. I am making more money per month, plus paying off loans, plus saving money on taxes and creating a ton of equity.
How can you be safe using a loan?
When you use leverage, do not blindly get a loan for as much money as you can. Make sure you have enough cash flow as we have already discussed. You also need to make sure you have reserves in place. Reserves are extra cash you have available in case a problem comes up. If you have an eviction, someone stops paying rent, or repairs to make you need cash available to cover those expenses. Most banks will want 6 months of reserves for every mortgage payment you have including a new purchase. If you have one or two mortgages I would suggest having even more cash ($10,000 would be ideal).
How can debt be bad?
There is a downside to more properties. You will have to pay more for repairs and improvements since each property will need repairs, not just one. You will also have three rental properties to manage instead of one. However, if you are able to cash flow $400 or more with a mortgage, you will still be way ahead of the game by leveraging your money. You will also have more total cash flow coming in, which can pay for a property manager. We accounted for the repairs and maintenance when we figured the cash flow, so it won’t be an added expense with more properties, but it will be more work if you manage the properties yourself.
Some people think it is less risky to buy with cash than with a loan, but I would also disagree. Here are some reasons why cash may be riskier than getting a loan.
Diversification
When you buy with cash you have fewer properties. The fewer properties you have, the fewer sources of income you will have, and the more a loss of an income will hurt. If you have 1 property paid for with cash, it really hurts when it goes vacant. But if you have three rentals that have loans on them, one may go vacant, but you have two more that are bringing in money. When you have multiple rentals, you also have more diversification. If you happen to have one rental, you are more susceptible to neighborhood changes, storm damage etc. With multiple rentals, you have less of a chance of all your properties being damaged or hurt by other factors.
Market Crash
You actually lose less money when prices go down with multiples properties. I know that may not make sense at first, but consider this. If you buy three houses below market value for $100,000 (they are worth $125,000 when you bought them) and the market goes down 20 percent. Your houses would be worth $100,000 so you are not losing any money if the market goes down since you bought below market value. If you bought one house with cash below market value you would be in the same position, no loss or gain.
If you are able to get better deals and bought the houses for $90,000 that were worth $125,000 you would be in good shape if the market goes down 20 percent. You would have three houses worth $100,000 that you bought for $90,000. You would have $30,000 in equity from buying below market value. If you only bought one house for $90,000 with cash and the market went down 20 percent, you would only have $10,000 in equity from buying below market value.
If the market went down even more or you bought with properties with less equity you would lose more money using loans. It can be riskier to use loans if the market crashes, but not always. The main thing to remember is that you don’t have to sell in a market downturn. If you have plenty of cash reserves in the bank, and the houses are rented, there is no reason to sell them. Ride out the bad market.
Over-leveraging
The riskiest move using loans is when you over-leverage. That means loan values are very high compared to the rents or the value of the property. When I buy a property with 20 percent down and below market value I have a lot of equity. On the example above the loan would be $80,000 and the value $125,000 when I buy a house for $100,000 that is worth $125,000.
If you have a loan of $100,000 on a house that is worth $110,000 you may be asking for trouble. You are asking for more trouble if you are only making $50 a month in cash flor or losing money every month. Almost all the horror stories from the last housing market crash came from investors who were breaking even or losing money on their rentals every month. Most of the investors who were making money every month made it through okay.
Conclusion
If you are wondering if it is smart to pay cash for a rental, consider the returns you may be giving up. In my opinion, it is better to use other people’s money and increase your returns versus paying cash. Some people are very averse to any risk and do not want any debt at all. If the idea of debt makes you sick to your stomach, maybe paying cash versus getting a loan is the best route for you. I will continue to get as many loans as I can and to buy as many rental properties as I can because of the incredible benefits rental properties offer.
By Peter Anderson7 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited April 9, 2012.
My Lending Club account continues to show improvement month over month as my returns are now up to 11.61%. I’ve been extremely happy with my returns since starting with the site, and as my strategies evolve, my returns have continued increasing. I’d highly recommend adding Lending Club to any person’s diversified portfolio of investments.
This past week Lending Club announced on their blog that they were improving the downloadable file that is available for investors to prospect and view available notes in the system. They’ve added additional information to the file, as well as removing some that was no longer needed.
We strive to provide a comprehensive set of information to assist you in your investment analysis and be responsive to your feedback to continuously improve your experience with our platform. Recently, we’ve received requests to augment and improve our Browse Notes downloadable file, which led us to create the new version we have now made available.
The additional data includes loan details and status, third-party reported credit attributes, and information reported by the borrower. This detailed information can be downloaded by logged in users from any page of our Browse Notes section by clicking on the “Download All” link on the bottom right corner of the page.
So the downloadable “browse notes” file will now have even more details available for lenders to peruse. Most of the new additions have to do with the borrowers credit history including number of accounts opened in the past 24 months, months since most recent delinquency, number of mortgage accounts and more. Check out the blog post linked above for a more detailed look at what has been added.
Interested in my original Lending Club Review? check it out below.
Check out my original Lending Club review
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Returns Now At 11.61%
A week or two ago I started looking at my Lending Club account for 2011 tax purposes. Trying to figure out your taxes when it comes to Lending club can be extremely confusing as the reporting processes can vary depending on how much you’re investing in each loan, how your interest income will be reported, etc. If you’re as confused as i was when I started looking at it, check out my post on Lending Club and taxes.
A couple of months ago I had my first charged off loan. It was disappointing to see my perfect record of no charged off loans go down the tubes, but it wasn’t completely unexpected. With as long as I’ve been investing with Lending Club I would have expected at least 1 or 2 charged off loans a while ago. Here’s a look at my account to date:
Net Annualized Return of 11.61%: Up from 11.44% in February, 11.23% in December, 10.93% in September, 10.76% in August and 10.53% before that. It is showing steady progress over time.
Number of defaults.. one for now: A few months ago now I had my first charged off loan, a Grade B loan. It’s interesting that the loans I’ve had either go late or get charged off have been the higher grade loans. The lower grade ones have so far been on time for the most part. I did have another late loan earlier this month, but that borrower has gotten back on track. Let’s hope they stay that way.
Twenty four loans have been paid off early: Nine were A grade loans, seven were grade B loans, five were C grade, two grade E and one F. Looks like grade A and B loans are more likely to get paid back early, reducing returns. Another reason why I’ve started investing in more higher grade loans.
My account balance increasing, re-investing returns: I currently have $2,723.64 in my account, with $246.49 of that ready to invest. I’ll be looking to invest that dormant cash shortly here.
I’m still diversified by investing across a large number of loans: I’ve had 157 loans, with no more than $25 in each loan. In other words, I’m diversified across a large number of loans, lessening my risk from any one loan going into default or getting charged off.
NOTE: Did you know that 100% of investors who have invested in 800 notes or more had positive returns. Not too shabby, not everyone in the stock market can say that!
What’s Your Actual ROI?
When you’re looking at the numbers on the Lending Club and Prosper sites, it has been pointed out time and again that their numbers are overly rosy view of what your actual return on investment will be. The ways that they calculate the ROI isn’t really standardized, and they don’t take into account how old your loans are, possible future default rates, or other things that may become a factor. The numbers they show are just something you have to take or leave.
A site that I discovered a while ago that gives what I think is a better picture of the actual ROI you can expect is Nickel Steamroller’s Lending Club portfolio analyzer. Basically the analysis tool with give you an estimated ROI after you download all your notes from your Lending Club account and upload the .csv file. It will go through you notes and give sell recommendations, show duplicate notes and highlight notes that are below Lending Club’s average return (so you can sell them on the secondary platform). It will even give you a fun little map showing where your loans are (see mine above).
In looking at my returns on the analyzer, my actual return according to the site will be closer to 10.64%. Still nothing to sneeze at.
Evolving Lending Club Strategy
Here’s the basic strategy I’ve been using with Lending Club over the past couple of years. I’ve fudged on this a bit in the past few months due to the fact I’m buying more low grade loans, but it still holds mostly true.
Less than $10,000: I believe I’ll still be sticking with mostly loans below $10,000. Lower amounts mean higher likelihood of payback of the loan.
Zero delinquencies: Again, I may fudge slightly on this one, but I still want it to be very few or zero delinquencies.
Debt to income ratio below 20-25%: I like to invest in loans where the borrowers have a lower DTI ratio, and preferably have higher incomes. I’ll try to keep this as is.
Good employment history: I like loans with a decent employment history of at least 2 years, and a decent income.
So that’s what I’m doing with my Lending Club portfolio right now, and how I’m investing.
Not ready to invest, but looking to consolidate debt or pay off a high interest credit card? You might want to consider borrowing from Lending Club. Check out my post on borrowing from Lending Club.
Are you currently investing in Lending Club? How are your returns looking? Tell us in the comments!
By Peter Anderson26 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited November 17, 2017.
My Lending Club account has continued to show good returns despite the fact that this month I had another loan go late. My net annualized return is still above 12% (which was my goal to reach a year or so ago), and thankfully the loans that have gone late have already repaid more than 3/4 of their loan principal, so I wouldn’t be losing as much as some other loans if they do in fact default.
Lending Club has continued their growth and they have now issued $775,060,475 in loans to date. Others have mentioned that they think they will have originated in excess of 1 billion in loans by the end of the year. I think that might be possible.
So just what are people using the loans from Lending Club for? Mainly for debt consolidation, as over 70% of people are reporting that they are using the loans to pay off debt or consolidate credit cards. I can get behind a goal of paying off debt or credit cards – as long as people are actually getting their situations under control.
Returns Down Slightly At 12.02%
Over the past month or so since my last Lending Club report, where I surpassed 12% net annualized returns for the first time, I’ve seen my returns show a slight dip from 12.06% to 12.02%. The reason? I think it’s because I’ve had another loan go late, and the two loans already late are still working out payment options. Hopefully they’ll get back on track.
Net Annualized Return of 12.02%: Down from 12.06% in June, but still up from 11.98% in May, 11.61% in early April, all the way back to 10.53% in July of last year. My returns remain above 12% as I add new higher risk loans to my portfolio.
Number of defaults.. one, with 3 new late: I’ve got one charged off loan on my account. Over the past couple of months I’ve had two loans that have been a bit behind, a grade A loan, and the other a grade D loan. They’re still late this month but have made arrangements for payments. Unfortunately there is one more new late loan this month, a grade B loan. Once again the few issues I’ve had have tended to be on higher graded loans. Go figure.
Thirty two loans have been paid off early: Eleven were A grade loans, ten were grade B loans, seven were C grade, three grade E and one F. Looks like grade A and B loans are more likely to get paid back early, reducing returns. Another reason why I’ve started investing in more higher grade loans.
My account balance increasing, re-investing returns: I currently have $2,851.14 in my account, with $80.15 of that ready to re-invest.
I’m diversified by investing small amounts across multiple loans: I’ve had 185 loans since joining (148 issued and current loans, 32 paid off), with no more than $25 in each loan. In other words, I’m diversified across a decent amount of loans, lessening my risk from any one loan going into default or getting charged off. Of course to be fully diversified I believe Lending Club recommends 800 or more notes. I’m not there yet.
NOTE: 83.17% of Lending Club investors with 100+ Notes earn returns between 6% and 18%. 100 Notes can be purchased with a minimum investment of $2,500.
What’s Your Actual ROI?
When you’re looking at the numbers on the Lending Club and Prosper sites, it has been pointed out time and again that their numbers are overly rosy view of what your actual return on investment will be. The ways that they calculate the ROI isn’t really standardized, and they don’t take into account how old your loans are, possible future default rates, or other things that may become a factor. The numbers they show are just something you have to take or leave.
A site that I discovered a while ago that gives what I think is a better picture of the actual ROI you can expect is Nickel Steamroller’s Lending Club portfolio analyzer. Basically the analysis tool with give you an estimated ROI after you download all your notes from your Lending Club account and upload the .csv file. It will go through you notes and give sell recommendations, show duplicate notes and highlight notes that are below Lending Club’s average return (so you can sell them on the secondary platform). It will even give you a fun little map showing where your loans are (see mine above).
In looking at my returns on the analyzer, my actual return according to the site will be closer to 10.96%. It also gives me quite a few sell recommendations, particularly on some of my older lower interest loans that I did when first starting out. Those particular loans tend to be grade A or B, and have interest below 8%.
Evolving Lending Club Strategy
Here’s the basic strategy I’ve been using with Lending Club since I started investing. The strategy has changed a little bit over time to include more low grade loans and a few loans with higher balances.
Less than $10,000: I believe I’ll still be sticking with mostly loans below $10,000. Lower amounts mean higher likelihood of payback of the loan.
Zero delinquencies: Again, I may fudge slightly on this one, but I still want it to be very few or zero delinquencies.
Debt to income ratio below 20-25%: I like to invest in loans where the borrowers have a lower DTI ratio, and preferably have higher incomes. I’ll try to keep this as is.
Good employment history: I like loans with a decent employment history of at least 2 years, and a decent income.
So that’s what I’m doing with my Lending Club portfolio right now, and how I’m investing.
Not ready to invest, but looking to consolidate debt or pay off a high interest credit card? You might want to consider borrowing from Lending Club. Check out my post on borrowing from Lending Club.
Are you currently investing in Lending Club? How are your returns looking? Tell us in the comments!
By Peter Anderson9 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited November 17, 2017.
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My Lending Club account has been kind of hands off the last couple of months, with no new loans being bought or sold. The good news is that my returns are continuing to improve. My returns are now up to 11.93%, getting close to the 12% I said I was looking for a while back. By moving away from purchasing only A and B grade loans, and selectively choosing more C, D and F grade loans I’ve been able to boost my returns significantly. Hopefully next month I’ll be over that 12% hump.
Lending Club continues their steady growth, as they added an another 42.1 million in new loans for April 2012. From SocialLending.net
When you look at the numbers Lending Club issued almost $42.1 million in new loans this month. The total number of new loans was up substantially (over 10%) from last month with 3,230 loans issued. This meant for the second month in a row their average loan size reduced – in April it was $13,019. The total loans issued since inception is now around $612 million and with eight months left in the year it is clear that Lending Club will cross over $1 billion in total loans before the end of the year.
Lending Club has continued to show strong growth, and should be able to cross $1 billion in total loans by the end of the year. I think that goes to show that they aren’t just a flash in the pan. Peer to peer lending is here for the long haul! Prosper has also continued to show growth as well, and may be worth a second look by investors.
Social Lending Video Course
Also this month Peter Renton of SocialLending.net has relaunched his peer to peer lending training video course. The course goes over the social lending sphere in depth, talks about how to maximize returns and gives some of Peter’s best investment strategies to help you succeed. The course is well worth the cost, and worth a look if you’re interested in maximizing your returns with P2P Lending.
More Details + Video Overview Of Peer to Peer Lending Wealth System
Returns Now At 11.93%
A week or two ago I started looking at my Lending Club account for 2011 tax purposes. Trying to figure out your taxes when it comes to Lending club can be extremely confusing as the reporting processes can vary depending on how much you’re investing in each loan, how your interest income will be reported, etc. If you’re as confused as i was when I started looking at it, check out my post on Lending Club and taxes.
A couple of months ago I had my first charged off loan. It was disappointing to see my perfect record of no charged off loans go down the tubes, but it wasn’t completely unexpected. With as long as I’ve been investing with Lending Club I would have expected at least 1 or 2 charged off loans a while ago. Here’s a look at my account to date:
Net Annualized Return of 11.93%: Up from 11.61% in early April, 11.44% in February, all the way back to 10.53% in July of last year. It continues showing progress.
Number of defaults.. one, with 2 new late: A few months ago now I had my first charged off loan, a Grade B loan. It’s interesting that the loans I’ve had either go late or get charged off have mostly been the higher grade loans. I’ve now got two more late loans, one of them a grade A loan, and the other a Grade D loan. The grade A loan is thankfully almost all paid off already, so even if it gets charged off my losses would be minimal. The grade D loan that’s late is about 1/2 paid off by now, and is already on a payment schedule to hopefully get them back on track. We’ll see.
Twenty seven loans have been paid off early: Ten were A grade loans, eight were grade B loans, six were C grade, two grade E and one F. Looks like grade A and B loans are more likely to get paid back early, reducing returns. Another reason why I’ve started investing in more higher grade loans.
My account balance increasing, re-investing returns: I currently have $2,777.11 in my account, with $170.87 of that ready to invest. I’ll get around to re-investing that money soon.
I’m still diversified by investing across a large number of loans: I’ve had 169 loans, with no more than $25 in each loan. In other words, I’m diversified across a large number of loans, lessening my risk from any one loan going into default or getting charged off.
NOTE: Did you know that 100% of investors who have invested in 800 notes or more had positive returns. Not too shabby, not everyone in the stock market can say that!
What’s Your Actual ROI?
When you’re looking at the numbers on the Lending Club and Prosper sites, it has been pointed out time and again that their numbers are overly rosy view of what your actual return on investment will be. The ways that they calculate the ROI isn’t really standardized, and they don’t take into account how old your loans are, possible future default rates, or other things that may become a factor. The numbers they show are just something you have to take or leave.
A site that I discovered a while ago that gives what I think is a better picture of the actual ROI you can expect is Nickel Steamroller’s Lending Club portfolio analyzer. Basically the analysis tool with give you an estimated ROI after you download all your notes from your Lending Club account and upload the .csv file. It will go through you notes and give sell recommendations, show duplicate notes and highlight notes that are below Lending Club’s average return (so you can sell them on the secondary platform). It will even give you a fun little map showing where your loans are (see mine above).
In looking at my returns on the analyzer, my actual return according to the site will be closer to 10.74%. It also gives me quite a few sell recommendations, particularly on some of my older lower interest loans that I did when first starting out. Those particular loans tend to be grade A or B, and have interest below 8%.
Evolving Lending Club Strategy
Here’s the basic strategy I’ve been using with Lending Club since I started investing. The strategy has changed a little bit over time to include more low grade loans and a few loans with higher balances.
Less than $10,000: I believe I’ll still be sticking with mostly loans below $10,000. Lower amounts mean higher likelihood of payback of the loan.
Zero delinquencies: Again, I may fudge slightly on this one, but I still want it to be very few or zero delinquencies.
Debt to income ratio below 20-25%: I like to invest in loans where the borrowers have a lower DTI ratio, and preferably have higher incomes. I’ll try to keep this as is.
Good employment history: I like loans with a decent employment history of at least 2 years, and a decent income.
So that’s what I’m doing with my Lending Club portfolio right now, and how I’m investing.
Not ready to invest, but looking to consolidate debt or pay off a high interest credit card? You might want to consider borrowing from Lending Club. Check out my post on borrowing from Lending Club.
Are you currently investing in Lending Club? How are your returns looking? Tell us in the comments!
This is another guest post from Joe Plemon from Plemon Financial Coaching. Joe is the Money Columnist for The Southern Illinoisan. Q: Joe, I have been reading about low mortgage rates. How can I know whether I should refinance my mortgage? A: Because interest rates are down, this is a great time to consider refinancing. […]
The post Is It Time To Refinance Your Home? appeared first on Good Financial Cents®.
House flipping is my primary business, although I am also a real estate broker, blogger, and landlord. I flip from 20 to 30 houses per year, and there is no way I could do that without great financing. Many people ask me why I do not just pay cash for all of my flips. The … Read more
Lending Club returns over the past 5 years have shown better average returns, higher minimum returns and more stable returns than the S&P 500 and the representative index.