Lending Club

[austinEV]

Is that auto sell a feature of interest radar?

Yes, interest radar the helper site that requires a fee.

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I used to be in the consumer credit lending business. Most of our defaults were caused by borrowers that had situational disruptions in their lives. Divorce, death, health problems, incarceration, loss of job etc. Most of the time you never see it coming. They would pay well month after month, then all of a sudden…nothing.

I am fine with that. I am trying to separate people who honestly intend to pay it back (until that event) from the deadbeats or people who just can't manage money enough to pay on time. Notes with a dirty history plunge in value on the marketplace. So by getting people who are 1/3 or 1/5 done with their loan terms without any payment issues I figure I have an edge over random loans. I have defaults every month.

I tried to buy notes last night and found NONE that met my criteria, which made me nervous. But tonight I found $7k worth. I still have about $50k to go before I am all in.

 

[Jonathan Hewitt]

I tried to buy notes last night and found NONE that met my criteria, which made me nervous. But tonight I found $7k worth. I still have about $50k to go before I am all in.

I've had that happen to me before, too...not a problem just have to try again a different time like you did. May I ask why you are trying to put so much in? Did you figure out an answer to your question of high dividend stocks vs lendingclub?

 

[austinEV]

I've had that happen to me before, too...not a problem just have to try again a different time like you did. May I ask why you are trying to put so much in? Did you figure out an answer to your question of high dividend stocks vs lendingclub?

Diversification. I have a div stock portfolio in a taxable account as well larger than this. I will let those sit for qualified dividends and long term cap appreciation. I may regret not going all div stocks, but then again the market could correct for a few years. For now, I am confident that the LC will produce more cash. So no, I haven't decided that I have an answer to LC vs Div stocks so I am trying both.

 

[Jonathan Hewitt]

Diversification is good! I'm thinking of building up a ~100K portfolio next summer for Model X payments so let me know how your portfolio goes. Thanks again for all your advice and thoughts on LC.

 

[Jonathan Hewitt]

Things are looking better! I am no at a 7% NAR. If it stays there I won't complain! Way better than CDs or a savings account.

 

[austinEV]

Well, my gut feel is that the new better folio-fn site is making it harder to find primo notes. Typical days its just 8-10 with my criteria, and those are only there because I have decided I am ok with $200-$300 notes. But, it is much easier to buy them. I just snap up what is available.

Well the great 6-figure experiment is underway. I just spent the last of my cash.

I am making about $50/day I doubt that will continue as that is about 12% a year.

 

[austinEV]

Well I have about 1.5 months under my belt. A few observations. It is definitely harder to find good notes these days. I have had to relent on my 12-months-of-payments-made rule, and reduce it down to 6 months. Also, I have been getting mainly 12-13% YTM notes which is lower than what I used to do. With defaults I should expect maybe 8% total yield is my gut feel. However, I am doing way better than that so far at over 10%. I am getting about $32 per calendar day:

 

[austinEV]

February update on AustinEV's great 6 figure experiment

Continuing my conversation with myself

First, they have continued to improve their trading website. They fixed the clunky bug where as soon as you bought any note(s) you lost your search parameters/results. Now you can add notes to your cart gradually. It is to the point where I have to retract my earlier complaints about it. It is now perfectly adequate.

Note availability is hit and miss. I accumulate cash really fast, hundreds of dollars a day. Most of that is principal repayment, but also notes being paid off and notes I am selling using interest radar. So I have to spend quite often. I have found the weekends are lousy, probably that is when people go look. But weeknights are frequently fine. I can still just try again later if I have a day where the pickings are slim. I am going to try to get pickier now going forward. When I go shopping I tend to have 2-3k I have to spend.

An update on interest radar (Interest Radar). I sometimes use their analytics to check my accounting, but the main feature i am using now is the "auto-sell" mechanism. You set up parameters ahead of time, and it scans your account and when notes meet your critera they list them for sale at a price you configure. It is pretty cool because it is quite automatic. Basically, when notes slip in status (current->grace period->late 16-30 days->late 31-120 days) I have them offered for sale at a discount, which is based off of LC's published rates of default for those. They have been selling nicely, for some odd reason. So instead of having the deadbeat notes sit around for months I am selling them for scrap right away, getting the cash which I can redeploy. Because of this I have a surprisingly tiny amount of non-performing notes on the way to defaulting. Right now I only have $211 of estimated default in the pipeline.

So after 73 days I am quite pleased with the results. I am getting about $27 per calendar day. I am just over 10% annualized:

So I expect in coming months that interest rate will even out and continue to find it's true value. Still this is exceeding my expectations, and is not a lot of work at all. By far I spend the most time just doing this extra geeky analysis, rather than actually buying notes.

 

[DaveT]

Keep the conversation-to-self going. I'm lurking and learning.

 

[Denarius]

Keep the conversation-to-self going. I'm lurking and learning.

Me too!

 

[FluxCap]

This is an excellent journal and thank you so much for sharing. I had thought about the concept of deploying funds to lending in some way, because it seems so obvious that somewhere between the practically negative Fed funds rate and the practically criminal credit card APR that so many unfortunate Americans pay, there has to be a better market to be made.

As an entrepreneur, I have long been curious about what it would take to literally open a small regional bank from scratch. You know, gathering investors, building a facility, hiring staff, capitalizing it, and then opening up. Your journal is a window into a way to do this globally, virtually and on a small scale, all at once. Fascinating.

Please keep the updates coming!

Further proof that this site is a beacon for awesome people.

Cheers.

 

[FluxCap]

Austin, I found some interesting tidbits doing a bit more research into the current state of P2P lending. I was curious about Prosper as well, and stumbled across a pretty cool site called LendingMemo run by a guy whose stated purpose is "to help you discover and excel with peer to peer lending."

In particular, I found his comparison of Prosper and LendingClub to be interesting. He also linked to a very useful site with some analytical tools called NickelSteamroller.

What I found really interesting is the comparison of current national Credit Card rate averages with the current average returns on LendingClub and Prosper -- they are in fact very, very close.

His article on properly analyzing his returns using NickelSteamroller's tool is a nice one too.

It was also interesting to see that not all US states allow investment via these sites. For me, it looks like the District of Columbia is allowed on Prosper but not LendingClub. Might be an oversight by LendingClub, as our oudated and bizarre legal status in DC tends to be overlooked very often (don't get me started on our lack of representation in Congress/Senate).

Anyway, interesting food for thought. I am considering opening a Prosper account with a passive search and automated investing function as I don't have a ton of time to handpick loans, but that does seem a bit risky and highly dependent on my ability to write a successful query.

Fascinating stuff! (OK, so I'm a bit of an accounting geek too).

 

[scottf200]

Thought this was a great thread. Much appreciated.

The below is from a presentation at the LendIt 2014 conference from Ron Suber of Prosper .

Wrap-up of the 2014 LendIt Conference

 

[tsla168]

sucks lending club is not really allowed in new jersey (trading doesn't count). any other get-rich-slow sites? has anyone tried microventures?

 

[scottf200]

sucks lending club is not really allowed in new jersey (trading doesn't count). any other get-rich-slow sites? has anyone tried microventures?

Maybe after the IPO
Excluvsive: CEO Renaud Laplanche on Lending Clubs IPO

 

[austinEV]

June update

I have been slacking a bit on the grand LC experiment. I let a little too much cash go idle when I got busy, definitely a risk with this. The grand 6-figure experiment is now a 150k experiment, I added more.

Part of the reason I haven't been updating is that my old accounting method was flawed. It worked ok as long as I was just letting my balance grow, but got messed up when money went in and out. So I had to revamp my accounting entirely.

So now I am using an IRR, internal rate of return method (IRR, or XIRR in excel). It accommodates moving money in and out. I will share my spreadsheet with anyone interested, but basically I am using this guys method:

I discovered an elegant way to put a running daily XIRR in an Excel column.

It is surprisingly difficult to figure out what your rate is! I have spent quite a bit of time researching the different accounting methods. Now I have several I maintain and once I get them agreeing with each other I get more confident I have it right.

Basically I am getting something like 8-9%. Not too damn shabby.

So below is this months attempt to demonstrate it. Note that for some reason my actual monthly net gains are strangely too high, 9% is $1100 per month, but I am over that. I think things will settle out over time. Another observation: I think the reason my return was low in the beginning of the year is because I hadn't deployed all my cash yet. Idle cash reduces yield since I am now calculating yield over total balance not just invested balance, which is fair. After all I might get 5% in a bond fund without having to spend time buying bonds. Inactivity is a real risk so best to measure it.

Note availability has been hit and miss. I had a few weeks there where I thought the party was over; notes are hard to get. Then the last few weeks it has been fine again. It is feast and famine and the trick is to shop every few days.

 

[austinEV]

Something else I am going to try to watch: Lending Club itself is planning to IPO in the second half of 2014. I don't totally have a handle on it as an investment, but here's the thing. How complicated can it be? They take a fee for loan issuance and for aftermarket transactions. And here is a chart of loan issuance over time:

This might be the simplest business in the world, with the clearest trajectory. They haven't begun to tap the addressable market.

 

[swaltner]

For those of us that live in a State that "doesn't allow" investing in P2P lending, this may be a way to get in on the action.

I put doesn't allow in quotes because when I contacted the Kansas Securities Commission, to ask why I can't invest with Lending Club, they said it wasn't and issue of this being outlawed in Kansas, but that the KSC asked Lending Club for more clarifications on their application and Lending Club never responded. Lending Club says the details that the KSC requested are impossible to provide. So, both sides point at the other side as the issue and the chance to invest isn't proceeding any further. Oh well, like I said, maybe the IPO is a chance to get in on the action.

 

[austinEV]

For those of us that live in a State that "doesn't allow" investing in P2P lending, this may be a way to get in on the action.

I put doesn't allow in quotes because when I contacted the Kansas Securities Commission, to ask why I can't invest with Lending Club, they said it wasn't and issue of this being outlawed in Kansas, but that the KSC asked Lending Club for more clarifications on their application and Lending Club never responded. Lending Club says the details that the KSC requested are impossible to provide. So, both sides point at the other side as the issue and the chance to invest isn't proceeding any further. Oh well, like I said, maybe the IPO is a chance to get in on the action.

LC may be playing a cynical game. They have more people on the investing side than the borrowing side. Members are complaining that new issues get snapped up super fast. So LC has no incentive to bring on a new market right now.

 

[austinEV]

Jul update

Going good still: