I think that P2P lending is a great way to generate consistent and dependable income. After playing around with it for over 2 years, I am convinced that it is a good idea and will be a significant part of my income generating portfolio.
Every month, I’ll post an update on my progress with Lending Club. This is update #2.
First Default
I started with Lending Club almost 2 years ago (April 2011) and just had my first default. I really can’t complain though. Almost 2 years without a default with over 100 loans is an accomplishment no matter which grade loans you prefer.
However, I do expect that ROI will drop further before it recovers. I had an idea to put $50 (instead of my usual $25) into loans that I really felt good about (Bad Idea Jeans). I only did this a couple times, but one of the notes is about to go belly up after only receiving a couple payments. That one will be painful, but it also reinforces an important lesson: Be Diversified.
From here on out, I’ll put only $25 into every note until I get up to $5000. Once I’m there, I may bump it up to $50 depending on if I can find enough notes. This strategy ensures that no one note will be more that 1% of my holdings.
More Risk
I’ve also changed my strategy. While I’ve been happy with my returns, Peter from Lend Academy tells me that I can probably do much better. I’ve changed my criteria to use his filters exclusively with the help of Nickel Steamroller to find notes. I do expect my ROI to start inching upwards eventually as I acquire higher risk notes.
Mo’ Money
Finally, I have added $175 to my LC account since my last update and hope to add a bunch more this year. The only thing holding me back is that I’m keeping money on the sidelines to buy a rental property. As soon as that’s in the bag, LC will start seeing much more of my income.
Stay tuned for another update at the end of March.
*The website, Nickel Streamroller has a portfolio analyzer that takes into account late loans. Some would argue that this is a better indicator or ROI.
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Jon says
February 25, 2013 at 4:39 pmNice work! One default after 2 years is a pretty good default rate… Looking forward to future updates!
1500 says
February 25, 2013 at 5:57 pmYeah, I’m thrilled. With the riskier strategy, I’ll have many more defaults, but the higher interest rate should more than make up for it.
writing2reality says
February 25, 2013 at 4:56 pmLooking good Mr! Should be exciting to see how your changing of criteria affects your returns! Looking forward to following your progress!
1500 says
February 25, 2013 at 5:55 pmHi, looks like you have some big goals for Lending Club yourself. I’d like to hear more about your strategy. From your NAR, it looks like you’re trying out the riskier notes. Good luck!
1500 says
March 2, 2013 at 9:37 pmSeems like smart criteria. I wonder why WA has a higher than normal default rate. The others, I understand, but Washington?
writing2reality says
March 3, 2013 at 4:10 pmThanks for checking my criteria out! The WA state number of defaults could be from a variety of things, but more than likely, is suffering from small sample size. However, since I’m not a statistician and can’t recognize that sort of insignificance, I would suggest I’m foolish for excluding it! 🙂
With all that being said, it is just something I picked, and will evaluate again in six months.
1500 says
March 3, 2013 at 4:23 pmCool, I look forward to seeing your progress. And whatever you do, avoid Nevada!
Brian says
February 25, 2013 at 7:22 pmI wish my state would let me orginate loans then I would use lending club, but they are a little behind on this one and I don’t really want to use their secondary market. The more I read about Lending Club the more jealous I am that I cannot easily use their service.
I look forward to see how your updated strategy workd out!
1500 says
March 2, 2013 at 9:39 pmHang tight. I read somewhere that LC will be in all states at IPO time (18-24 months).