It’s been over six months since I gave an update on our P2P lending investment at Prosper. Last August, I wrote that Peer to Peer lending is a pretty good passive investment. I finally got my automated screening dialed in and I was seeing fewer defaults. Let’s see what happened since. I was waiting for the yearend report so I can show you how we did in 2013.
Some changes over the last 6 months
Here is the account summary from August 2013
This is the latest account summary from March 2014
It looks like the last six months didn’t go as well as the beginning of 2013. We gained about $400 and the rate of return has steadily decreased. You can also see that the cash is building up in my account. My automated screening isn’t picking up many loans lately and cash sitting around will drive down the total ROI.
I started with $1,000 in 2011 and gradually increased my investment to $10,000 in 2012.
How we did in 2013
Our account value increased from $10,850 to $11,697. That’s an increase of $847. That’s way better than our savings account, but we take on a lot more risk with peer to peer lending.
Interest received: $2,057
That’s a lot more charged-offs than last year, but I guess as long as we take in more interest, then it’s not too bad. In 2012, we had $1,072 in interest and $220 in charge-offs. I did not add any new money in 2013. I just reinvest everything.
Net charge-off recoveries received: $27.45
Collection fees paid: $13.23
It’s no surprise that we don’t see much recovery once someone defaults on their loan. I’m surprised that we see anything at all here.
Biggest problem with P2P lending
The problem now is the lack of listed loans. I just logged on and there are 19 loans listed. Last year, there were many more loans available. From what I understand, the institutional investors are getting into the peer to peer lending game and they are snapping up a lot of the loans very quickly.
The good news is Prospers.com is making some changes to level the playing field for small investors. Previously, an investor could invest up to 50% in a loan and it only took two investors to close a deal. Prospers is changing this to 10% so more investors can get in on the action. We’ll see if this works in our favor.
I have been really busy lately and I haven’t paid much attention to my P2P account. Once I have a little more time, I’ll tweak my screen a bit and see if I can pick up more loans. I also heard that you can log on at a certain time (9am and 5pm) and run your screen manually. This way you’ll pick up new listings before the big investors. I’m not sure how effective this is because I don’t have time to try it right now. If I can’t reinvest the money quickly, then I might pull it out and invest it somewhere else instead.
I still think P2P lending is a good diversification for your portfolio. I would put less than 10% of my net worth in P2P lending because I’m sure the default rate will rise when we have a downturn.
Have you tried P2P lending? How did you do in 2013?
How to start lending (if you are interested)
The first thing you should know about P2P lending is that you will see defaults. To protect yourself from defaults, you should have at least 100 loans. Don’t invest a large amount of money in one loan because if it defaults, then your ROI is shot. The minimum amount you can lend is $25 so 100 loans means $2,500. It’s probably fine to start at $500 and increase it to $2,500 over time.
Not everyone can lend
The bad news is not everyone can participate in peer to peer lending. You have to be at least 18 years old and have a valid social security number.
Prosper – Open an investing account at Prosper.com
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Lending Club – Open an investing account at Lending Club
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