Lending Club Update: February 2012

I’ve managed to get writer’s block while trying to finish my last 2 posts in my core principle series, so I thought I’d take a minute to provide an update on my Lending Club investments.

 

I’ve been investing in Lending Club for a little over 6 months, so it’s probably a good time for an update anyways.  I originally wrote about my strategy (which was using a filter on lendstats.com to find the most optimal notes to invest in) and I targeted a 14%-15% overall return on investment.  So far, things are looking good.  If you haven’t read the lending club investment strategy post, I recommend you go back and read that before you read this update.

 

The Funding Process

In order to increase my overall ROI with Lending Club, I set up a pretty strict filter on lendstats.com.  I only invest in high return loans, and filter out high risk characteristics such as loans for education or loans to people that have not held long term employment.  Historically, the data has shown that these loans are more likely to default.  Because my filter was so strict, I’ve found it a slow process to get $10,000 invested in active loans while diversifying at $25/loan.  About 2 months ago, I transitioned from $25/note to $50/note so I could get the rest of my money actively invested.

Currently, I have almost all $10,000 invested in active loans.  In order to accomplish this I spent about 5 minutes per week to look for loans and click a bunch of buttons to confirm the loans.  Now that most of my money is actively loaned out, I expect that time to drop to about 5 minutes per month to reinvest my profits.

In order to purchase new loans, all I need to do is click on this link.  The scroll down to the bottom and click on the links under “Active Listings.”

 

The Results

Up until last month, I had an annualized return of 16% and no loan defaults.  This past month, I saw two notes default (I knew that was coming, since Lending Club shows that the borrower was over 60 days late on payment).  What’s interesting is that both of these notes were loans I made before I created the loan filter I described above.  What’s even more interesting is that these non-filtered loans were categorized as “low risk” by Lending Club.  In a way, these defaults were a positive sign that my filter was working.

Here are the numbers:

I’ve made a total of 283 loans with an account that I initially opened with $10,000.  Of the 283 notes I’ve purchased, 97 were considered “low risk” and were not part of my filter.  Of those 97 loans, 2 have defaulted and 4 are late and at risk of default.  Overall, not good.  On the other hand, 186 loans were chosen using my loan filter and classified as “high risk” (averaging over a 19% return).  Of those 186 loans, I have no defaults and no late payments in the 6 months since I began the experiment.

While not conclusive, these are pretty exciting numbers!  There is a statisticaly significant difference between my filtered loans and the unfiltered loans.  I’m now considering raising my investment from $10K to $20K, which could quickly grow to about $250/month of passive income.

Feel free to ask any specific questions about my Lending Club experience in the comments below.

Here is a snapshot of my investments:

 

A few items for full disclosure:

1. If you sign up for LendingClub.com from this site, I get $25.  It’s not the purpose for writing the update (I would write the same article regardless of this income), but I want to be open about it.  So far I’ve made $250 in commissions over the past few months.  If you’re one of the people that signed up after reading my results, I’d love to hear about your results!

2. While my personal results are currently good, there is still significant risk in this investment – as with any investment.  Keep in mind that my $10K investment is still only 1% of my overall investment portfolio, so this is still a relatively small personal investment.  I may go up to 2%, but probably not more.

 

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22 Responses to Lending Club Update: February 2012

  1. olivia says:

    Thanks for sharing – perhaps if it is still going well for you a year or so from now I will jump in too! The numbers are sure tempting, but the defaults seem able to kill ya, just 10% of your loans defaulting would kill your profit.

    • Yep, a 10% default rate would be pretty disappointing. Of course, it depends on when the defaults happen. If its 3 years into a 5 year loan, then I’ve gotten most of my money back via principle and interest so it wouldn’t be a huge loss. If the default occurs during the first year of the loan, it’s particularly bad. From my calculations, a 5-year loan with 18% interest will have paid back the initial investment by month 40.

      From the research I’ve done, most loans default around 30-40% into the loan duration, which means the real interesting results are yet to come.

  2. P2P lending has fascinated me for years but my options are really limited as I’m a resident of Texas. Since I can’t invest in new notes, I have to buy them on the secondary market and I don’t know if you have used it before but you can’t really do *any* filtering based on the initial loan information.

    I do try to apply your criteria but I have to do it manually which makes it a bit time consuming. Still, I’m glad you’ve been getting good results! I’m happy with mine too but I only have a few hundred dollars in it.
    DollarDisciple recently posted..Rental Property Financing, or Please Don’t Pay CashMy Profile

  3. Nick says:

    I like that you mention this is only 1% of your portfolio. If someone used this as their primary investment it could be disastrous. I’ve considering p2p lending, but your article will actually steer me away from it, I think. If $20k will bring you $250 per month, I think real estate is a better idea, if you have the guts to do it. My $22k investment in a single-family home has been netting me $600 per month for the last 6 months. I know that there is risk involved there as well, but it’s not like they can stop paying and decide not to give me my house back :)

    • $600/month in profits on a $22K investment is pretty amazing. That’s the kind of real estate deal I’ll be looking for after I quit my full-time job.

      “I know that there is risk involved there as well, but it’s not like they can stop paying and decide not to give me my house back ”

      Yep. Having ownership of a physical object is a lot better than the notes I get from Lending Club. Still, I consider LC a fun and interesting alternative income.

  4. AEBinNC says:

    Thanks for posting your results. I checked into this about 2 years ago and wasn’t able to get into it because I live in NC.

    I have aproximately 15k that I have in my ING account and I’d like to find a short term place to put it. I’m saving 2k a month, when I reach 30k I’ll be looking to get a rental property.

    Buying some loans on the secondary market that are within 6 months to completion could work but seems like way more trouble that it would be worth right now. Probably just have to sit tight until I have enough money to buy a rental.

  5. Poor Student says:

    I looked into P2P loans when I read your first article on the topic a while back. You really piqued my interest but I found it may be a little more difficult in Canada. Also, any investments I make right now automatically makes up a lot of my portfolio. I still think this could be a kind of fun investment for me when I can make sure I won’t lose my shirt with it.
    Poor Student recently posted..TFSA For StudentsMy Profile

  6. Executioner says:

    What are the tax implications of P2P lending? Have you commented on that in the past?

  7. Mark says:

    That direct link to Lendstats.com is nice! How did you get the direct link to Lendstats.com to save your loan settings?

    When I adjusted your settings, bookmarked it and brought up the same link again, it changed back to your original loan settings. Any ideas on how to get my own link with my own settings?

    I have about $5k invested in Lending Club now (@$25 each loan). It is so time consuming to browse through the loans. I’m probably spending 15-20 minutes per day looking through loans and re-investing ones that expire before they are funded. So far no defaults or late loans though.

  8. Ben says:

    Thank you for the update, and thank you for the full disclosure. It actually makes me more likely to use your link if I join LC, as opposed to wondering about possible financial motives for recommendations

  9. burntout says:

    Sounds more like a hobby (we’d call it “timepass” around here) than a serious strategy. Maybe I dont fully understand the concept to appreciate this.
    burntout recently posted..PPF Limit Increase : Duh!My Profile

    • It’s both. I’ve created a strategy towards my peer-to-peer lending that I hope will optimize returns, but the money is relatively low enough that I sort of treat it as a personal hobby.

      But don’t trivialize it too much. If I’m able to achieve my target returns, $250/month in returns can turn into $500/month in less than 5 years, $1000/month in 10, and $4000/month in 20. This is more than my family of 4 spends, which means I (relatively) tiny investment now, using a good strategy, could be very beneficial in the future.

  10. mik says:

    Was wondering why the link to your ‘using my loan filter was dead’? Is it the same filter that comes up on any of the other links to lendstat in your post?
    Thanks, Mik

  11. Kevin says:

    Do you invest at Prosper at all? If not, why Lending Club? It seems the first step in diversifying would be to use both companies?

    • I chose Lending Club because I had read about some horror stories about Prosper in it’s early days before better regulation. But, they were first to market with their business model so in their defense it looks like they are running a much better business now.

      I’ve been thinking about investing another $5K or %10K in P2P lending and if I do, I would probably do it with Prosper just to diversify and also to experiment with some filters with Prosper.

  12. [...] for a about 9 months, so I feel my results are finally starting to become more legitimate.  My last update was in February, and I’ll try to continue to provide a quarterly report of my performance.  I originally [...]

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