Passive hands off income

[Sagar Naik]

I am a new investor and was looking into something a little less hands on to start.  I wa wondering if anyone used any platforms like LendingClub or any other programs that yield a good return and don't involve too much of the legal aspect that you have with traditional niches. 

[Roger Vi]

I have been on a lender on Lending Club for about 2 years now. When I signed up, I looked into every company similar to this (mainly prosper vs LC).

Prosper had some rule that prevented me from investing in my state. I don't remember the exact rule, but it was state-specific and made my decision a lot easier; I knew I wanted to put X amount into one of these p2p lending sites.

There are several strategies you can go with when investing in these. There are lots of articles on the internet, I would browse "p2p lending strategies."

In the beginning, I chose to try to buy the high interest high risk loans ( C-F credit grade, 15%-28%+ ). I planned to sell them on their note trading platform if they didn't perform (folio i think?). I soon learned that it is almost impossible to sell a non performing note for any sort of value on this platform; you would rather just keep it ( these are all $25 notes).

After about 1 year of this strategy, I went to the other side of the spectrum and bought a bunch of notes in the A-B grade with 6-11% interest rate. This was about one year ago. 

Here are my numbers at a glance for the 2 year mark...

TOTAL NOTES: 251

ISSUED & CURRENT: 175 (all $25 loans, A-G grade 6-28%)

FULLY PAID (PAID OFF EARLY): 37 (my experience is this randomly happens, all grades will pay off loans unexpectedly. not a bad thing, just an observation)

IN GRACE PERIOD (LATE ON CURRENT PAYMENT): 3 (ALL D GRADES, received payments equal to about half of original loan currently)

LATE 16-30 DAYS: 0

LATE 31-120 DAYS: 7 (D,E,F,G grade, 6/7 have paid about half, 1/7 is 2 months into loan(C grade))

DEFAULT (IM PROBABLY ABOUT TO LOSE) : 1 (D grade)

CHARGED OFF (I LOSE) : 28 (received between $2.50-9.50 out of my $25 before they charged off. These are all C,D and E grades. Surprisingly I've never had F,G charge offs, but I dont have as many either).

Lending club says my adjusted annual return is currently at 6.5%. When I first started with all the high risk loans, this was constantly 12-18%. I am not sure how accurate this is and i have never looked at the formula.

So there is absolutely money to be made in lending club and different strategies to do it. I went into this hoping to find the optimal investment strategy for p2p lending. My conclusion is although it is possible, the returns aren't big enough for me to focus on more than I do with my stocks and bonds. 

I'm sure if you spend a little time you could find a way to consistently pull 10-15% from these sites. It'll continue to be something I look at once a year. To me, the value is from trying the new technology and being ready for the next big thing. There are stories that the money was a lot easier when they first started doing this.