One of my goals for 2015 was to open a Lending Club account and try to build up a loan portfolio of $10,000. I opened an account back in late December, transferred a few hundreds dollars over to LC to get started and to my disappointment I was informed that Texas residents could not invest in loans.
I have to admit that I was pretty bummed, but I had a feeling that eventually LC would become available to Texans. A couple of nights ago I checked my email and was pleasantly surprised to find a notice from LC informing me that Texas resident could now invest in loans. Again I made a transfer a few days ago and it should hit my LC account in the next day or so.
Fantastic!!!! After literally making hundreds of stock purchases over the last few years, it feels pretty good to add another form of passive income to my dividend machine. There certainly is nothing wrong with a stock only portfolio, but the thought of creating a new form of income that is unrelated to the stock market is awesome. Starting on a new journey can definitely rekindle the fire inside of me and who knows how this will play out.
I suppose this will be similar to investing in REITs. Higher income streams and obviously higher taxes as well at least while I still have my day job. I am ok with that. In a few years it will be nice to not only receive interest income to live off of, but I will also receive principal each month which could help with future cash flow needs if I choose not to reinvest the payments. For now, like my with my stock portfolio, I plan to reinvest everything that I receive to grow the snowball.
I started browsing through the endless number of loans and started thinking this is going to suck trying to come up with my own underwriting guidelines, check the loans throughout the day, and then attempt to accumulate many loans at $25 a piece. On top of that you then have to wait to see if the loans get fully funded which can take up to a couple of weeks to complete. Quite honestly, I am not a very patient person.
It only took me about fifteen seconds to realize that there is no fucking way that I am going to be dedicated enough to constantly check on new loans throughout each day, filter, and patiently hope to finalize a bunch of $25 loans.
For now, I have decided to take the automated approach and just let LC do the work. The Platform Mix looks pretty good to me and according to LC should return somewhere between 6-9%. The mixture includes mostly B and C type loans which is right up my alley as it is not too risky, but still has the potential to bring in solid returns.
I have to admit I am very stoked to add a new and unique component to my dividend pipeline. My first thought is that I may not be able to add $10,000 by the end of the year, but then again knowing me I can see myself getting there by the end of August. :-)
DEFY MEDIOCRITY
The taxes with peer to peer lending is a nightmare. Friday I added to SJM, EMR, MSFT and MCD using some of the dough I received from selling CB (which is being purchased by a Swiss corporation - so don't want to deal with foreign taxes). I would strongly suggest you still with an investment that has a favorable tax rate. Good luck.
ReplyDeleteAnonymous,
DeleteI can see how the taxes could be a real pain with interest payments and potential losses of capital. It looks like you added some good looking companies. I currently own MSFT and MCD. EMR looks like it is hitting new lows every week. I would mind buying EMR now that the yield is around 3.5%.
MDP
Glad to hear Lending Club finally allows Texas residents to invest in notes. We've been investing for a few years now and we are actually very close to reaching your goal of $10K in notes. In fact, we are close to reaching $10K in notes in Prosper as well. Not sure if you can invest in Prosper notes yet, but if you can, it is certainly worth looking into. Lately, we are finding more notes that meet our criteria in Prosper than in Lending Club.
ReplyDeleteAlso, you will eventually find that browsing through notes can sometimes end up taking up a lot of your time. Consider investing in notes through their automated system. We used to browse through notes as a daily ritual but have now automated both our Lending Club and Proper accounts. Couldn't be happier with our decision to automate.
Welcome to Lending Club as an official investor. Best wishes in building your account! AFFJ
AFFJ,
DeleteI really have no idea how investing in loans will pay off, but I am glad to add a new investment vehicle to the fold. I am even more interested in keeping things automated like you mentioned. I have looked at your lending criteria and it looks really solid!
MDP
MDP,
ReplyDeleteI've been investing with LC for more than 2 years now. Just wrote an updated post on my performance which is around 11%. I've recently set up some automation, so we'll see how that goes over the long- term. Automation should make it more passive, but will lower my return somewhat. It's an industry that's really growing and evolving. Good luck.
-RBD
RBD,
DeleteWOW!!!! 11% sounds very high. You must have a very low default rate. I would be ecstatic with 6-7%. I agree with you about automation. Spending all day chasing down loans sounds too cumbersome for me.
MDP
Nice to hear about this. I have been looking at investing at P2P lending for a while now, but never really pulled the trigger on it. For now, I will stick to the stocks and think about lending in a few months if possible.
ReplyDeleteDGJ,
DeleteI hope to start dipping my toes in the water sometime next week. It will be interesting to see how things go. I would love to have another passive income source especially one that is decoupled from the equity markets.
MDP
I have a LendingClub account, too. At the moment, my adjusted net annualized return is 9.55%. I think its a good idea to diversify some to P2P lending, as long as you understand that notes are not quite like stocks -- you can't get you hands on cash as quickly as with stocks. I believe you can sell notes, but I haven't done that and I don't know how liquid the market for notes are. Best of luck to you and I'm glad LendingClub is now available to Texans!
ReplyDeleteCheers
FerdiS
FerdiS,
DeleteThat is a fantastic return you are getting. I can't wait to jump and start accumulating some loans. My transfer first $500 should be available to invest tomorrow. I can't wait!
MDP
MDP,
ReplyDeleteI've thought about doing that myself, through either LC or Prosper, but I agreed with you 'no fucking way I am approving $25 trades'. Nice to hear their is an 'index loan' option. As of writing this I am currently in your state, in Austin to be exact. Getting a solid tour of Texas between 3 major cities, and 4 minor ones in 3 days for work.
- Gremlin
DG,
DeleteAustin is a fantastic city. I lived there in the early 90s when I was in college. It was much smaller then, but it still has a college feel to it. I am still waiting for the $500 I transferred to be available to invest. Hopefully I can get started in the next day or so.
MDP