Is this a bad idea?...

[Jeremy K.]

I'm thinking about taking out a $25,000 P2P loan (Lending Club, Upststart, Prosper, etc) at 6.9% interest rate for 36 months, and then investing in a note fund with a pref return of 10% for 36 months.  I've put it in the spreadsheet and it pencils out.  Only downside I see is that the monthly payment of the loan (which is fully am) is higher than the monthly return from the note fund (which is interest only),  I'd be out of pocket around $500 a month, but after paying myself back, I'd have 4-5k left over as profit at the end of the term.  I was looking to save around $1,000 a month anyway, so I would look at it as savings that gets a return.  

Of course all of this is predicated on the note fund performing, but let's just assume it does for the sake of this analysis.  What are your thoughts on this idea?  Is the cash-on-cash return too low over the 36 month period?

[Travis Sperr]

That is a bad idea. Borrowing money to make an investment with a thin margin doesn't make sense to me. Further that payment reporting to credit could hinder your ability to finance a rental property because of DTI.

It doesn't take $80-120k to get a rental in our market- it takes more time and energy to chase down a good deal. I am buying what I consider to be marginal deals right now for around $200k that rent for $1,800 a month right now. My bank will fund with 20% down. On a 30 yr note at 5% ( as an example - I only use 15 yr notes) the gross cash flow after mortgage and HOA is $665 a month. I use gross because everyone has different resources - property manager, repair folk, etc.

You mentioned you are new to investing, our market is not easy but it is very doable when you are willing to work for it.

Good Luck!