Has anyone try PROSPER as a passive investment?

Question

Has anyone tried PROSPER as a passive investment for earning interest income?  It sounds like a nice concept, better than earning 0% with my bank.   Also, no tenant headaches.

Wonder if anyone has tried this before.

Mitchell Jaworski · Answer

@Mary Joe & @Eva Salas

There are two sites.  Prosper and Lending Club.  They are P2P (Peer to Peer) Lenders.

Correct - you are basically acting like the bank and the P2P site is essentially a broker/loan servicer that takes a small %.   You are funding everyday folks that are looking to consolidate debt at lower interest rates.

The way the site mitigates your risk is by diversifying you over hundreds of these loans, so if one borrower defaults it does not destroy your investment.

You can literally put as little as $25 spread across hundreds of borrowers.

Like anything else you can in invest in lower risk borrowers and get 5-7% I believe, or higher risk and get 8% or so.

Man, these P2P sites should pay me for this post...lol.  Free advertising!

Brandon Hopkins · Answer

I've been buying with Prosper since 2006 and Lending Club for the last few years. I love them both. I've never taken out a loan, only been on the lending side. Here is some hard data from what I consider an aggressive portfolio.

Prosper Notes:

• Total active notes:   423  Current:   406  Past due (1-30 days):   9  Past due (31+ days):   8  Payoff in progress:   0Total charged-off notes:   53Total notes paid in full:   226Total notes sold:   8

Prosper Returns:

• Overall 8.50%2015 11.79%2014 8.98%2013 10.07%2012 10.08%2011 (Prosper Dark)2010 4.13%2009 7.79%2008 7.91%2007 1.68%2006 6.86%

Lending Club Notes:

• Total notes 413Not Yet Issued 14Issued & Current 282In Grace Period 3Fully Paid 76Late 16 - 30 Days 2Late 31 - 120 Days 7Default 2Charged Off 27

Lending Club Returns (NET Adjusted):

• Account 1 - 11.29%Account 2 - 7.53%

You can see that Prosper has proven itself in my mind and my returns have increased as I've learned what types of buyers I prefer. While Prosper and LC have liquidation options, they're not great in my experience. There will definitely be a delay between the time you need the money and the time it takes the sell the loans, receive the proceeds and transfer the money to your account. I would imagine that process is 1-3 weeks.

I would consider it semi-liquid, but nothing like a bank account.

@Mary Joe to answer your initial question, I think it's a great investment and I like multiple investment methods that are independent of each other. You can see the Prosper returns weren't impacted very much by the housing decline in 2008-2010.

For a nearly 100% hands free approach, check out BlueVestment.com. They will automatically invest in loans that match your criteria. Prosper has a built in feature that I use, and I've used a few other site like BlueVestment in the past and they have all worked very well if I can pick the right criteria.

Hope that helps!

Dawn Anastasi · Answer

I have been both a lender and a borrower on Prosper and Lending Club.  I've used both sites to acquire single family homes in 2012.  It does work, but sometimes there could be defaults.

The benefits are that you can invest a low amount of money and try it out. The downside is that the loans are "unsecured" which means that if someone defaults, there is no collateral to back up the loan.

If you invest $25 each in many loans, and a few default, then you're only out the portion of the $25 that loan defaulted on. You do need to wait either 36 or 60 months to get all your principal and interest back.

Another option for lending, is being a private lender to someone with a real estate deal.  In this method, you can have a secured loan tied to property.  This could be property in your own area, so that if someone does default, you can take the property.  If you make the loan at a lesser amount than the value, you can still sell the property to get your investment back.  (Or if the property is really that stellar you may decide to hold onto it as a rental and cash flow.)

If you have money to lend, there are TONS of people who could use it. The key is finding those people who are reputable and who you will trust to get you your investment back.

Eva Salas · Answer

J. M. you are right, I should not assume peeps buying cochinadas, when they could be buying RE with CCs. Could be.  The great thing about these P2P sites is their is no minimum investment  and you're right about not needing to be accredited.

Emily Hsieh · Answer

I opened a Prosper account last June and have invested $5k so far to see how it does with the minimum $25 amount per note. I put a bunch of filters in place to hopefully create a higher ROI, and so far have been happy with my returns/experience, but my portfolio is still "unseasoned" (Prosper defines a seasoned note as one that is at least 10 mos old as most defaults, if they occur, generally happen within the first 10 mos). It is unsecured debt as everyone has mentioned, but I had my eye on it for a few years and finally decided to give it a shot after listening to Dave Van Horn's podcast about RE notes, which I would eventually like to get into. He mentioned investing in Lending Club and said that p2p lending is a good way to get started learning about notes.

Mary Joe · Answer

After doing some reading on Prosper and Lending Club, even though I think they are great alternatives to traditional CDs,  one thing that worries me a lot is that these business models are the perfect PONZI schemes.

Just imagine how easy it is to create a massive number of fake borrowers on the website ....

Mary Joe · Answer

@Eva Salas

No, it is not related to real estate, google "crowdfunding prosper" and you will see, basically you act as the bank and you reduce your risk by being able to easily acquire a large number of loan portfolios.   I suppose you can do the same with real estate notes but somehow real estate notes never really appeal to me because I do not know what is the process involved when the borrower defaults.

I am just looking for other options besides being a landlord.   I don't mind being a landlord, it takes some work but nothing that I can't handle, the problem is where to find the next profitable property that makes sense for my needs.

Jay Hinrichs · Answer

@Eva Salas

maybe its one of those crowdfunding unsecured loan sites.

Eva Salas · Answer

What's prosper? No tenant headaches after 20 years sounds great. If its related to RE I'm always looking for creative, safe opportunities!

Ramon Jenkins · Answer

Thank You @Brandon Hopkins for sharing.

A few weeks ago I started the process as lending a very

small amount of $100 - $250 on Lending club.

Here an information podcasts on Prosper, Avant, and Lending clubs