P2P investing: Lending Club vs Prosper vs ?

[Slav4ikMD]

So I am considering allocating a small part of my portfolio for peer to peer lending, but have never done it before.  I did skim through what WCI has on this topic, but have not studied it extensively as of yet.

https://www.whitecoatinvestor.com/tag/peer-to-peer-lending/

What have your experiences been like?  How did you decide to go with Lending Club vs Prosper?

https://investorjunkie.com/9328/lending-club-vs-prosper/

http://www.lendingmemo.com/lending-club-vs-prosper/

Most importantly, do you feel that it can be done with relatively few hassles?  I've heard some hassles related to taxes and such - what are they?  Is there a way to keep this cash relatively liquid (i.e. allow for short-term loans so you can pull out in say a year if you wanted to, or does it pretty much have to become a long-term thing)?  Essentially is it reasonable to say take 20k, put into a relatively conservative automated investment and pull out in a year with a then more modest rate of return, or that's how how it really works?

[The White Coat Investor]

I'm currently making big changes to my P2PL allocation, when I get done with them I'll be doing a blog post about it. Bottom line I'm more negative about it than I used to be.

There is some liquidity with LC, but none with Prosper these days. The hassle factor is significant whether you do it yourself or pay someone else to deal with the hassles.

[G]

Looking forward to hearing more.  I've been too lazy to pull the trigger, sounds like that might have been a good thing?  Plus as serendipity would have it, the money I would have used for P2P was in VTMSX for the last year....

[Zaphod]

I've heard lots of people are changing their tunes as defaults pile up and companies dont seem to be fulfilling their end, interested to hear your take.

[The White Coat Investor]

I'm still okay, I think, but, well, it'll take a blog post to explain.

[pulmdoc]

My main concern with them is that you are exposed to both default risk of the actual loans and that you are not actually a creditor of the individuals but rather of the P2P platform itself. So my understanding is that if LendingClub goes into bankruptcy, you become an unsecured creditor of LendingClub and whether the loans you funded are being paid is irrelevant to whether you will get any of your money back. That additional risk made this type of investment unpalatable to me. YMMV.

[PhysicianOnFIRE]

If it sounds too good to be true...

[VagabondMD]

Over the last year, I am mostly letting my Lending Club notes run their course and withdrawing the cash from the account. My returns, though positive, were never as good as everyone else's , and the additional reporting burden of the charge off's probably costs me more money with the accountant than I am earning on the account!

That said, I responded to the LC inquiry as an accredited investor and qualified purchaser and owe them back a phone call to see how they can make me wealthy. Actually, I made far more money on the LC IPO than I will ever make on the platform, and it really was not even that much.

I am finding the real estate crowdfunding sites to be more interesting, better returns (so far), and the loans are backed by the property. The downside is that they are completely illiquid, but I have not yet committed enough money to them (RealtyShares and PeerStreet) to matter.

[Slav4ikMD]

Thanks guys, this is all very helpful.

What exactly are some of the tax hassles?

re: "the additional reporting burden of the charge off’s probably costs me more money with the accountant than I am earning on the account!" - can you talk about that a bit more?  How much legwork does it actually require?  (I am aversive to "managing" stuff too much as I frankly don't know or like it enough and make a lot more actually working.)

So I guess on a very basic level I want to know whether this is something where I can put in 20k, make a grand or two at the end of the year, and take the cash out, or not quite?

[The White Coat Investor]

Slav4ikMD wrote:

Thanks guys, this is all very helpful.

What exactly are some of the tax hassles?

re: “the additional reporting burden of the charge off’s probably costs me more money with the accountant than I am earning on the account!” – can you talk about that a bit more?  How much legwork does it actually require?  (I am aversive to “managing” stuff too much as I frankly don’t know or like it enough and make a lot more actually working.)

So I guess on a very basic level I want to know whether this is something where I can put in 20k, make a grand or two at the end of the year, and take the cash out, or not quite?

Click to expand...

No. It's much more of a hassle than that to get out. You might want to look into a syndicated real estate debt deal though. That might better get you what you're looking for. Lots of risk in both options, of course. If you don't want to take much risk, put it in an Ally Bank high yield savings account and make $200 instead of $2K.

[Slav4ikMD]

Ok this helps and answers my question.  So there is basically no button that says "nearly guaranteed 3-5% return, quit after a year if you don't like it" type thing.   That's what I wanted to know.

Might still put in a few grand and get a feel for it though.  I don't think it's the worst of all things as a small part of some play money allocation.

[VagabondMD]

Slav4ikMD wrote:

Thanks guys, this is all very helpful.

What exactly are some of the tax hassles?

re: “the additional reporting burden of the charge off’s probably costs me more money with the accountant than I am earning on the account!” – can you talk about that a bit more?  How much legwork does it actually require?  (I am aversive to “managing” stuff too much as I frankly don’t know or like it enough and make a lot more actually working.)

So I guess on a very basic level I want to know whether this is something where I can put in 20k, make a grand or two at the end of the year, and take the cash out, or not quite?

Click to expand...

You get to write off the charged off loans as capital losses (great!), but they are small transactions (less than $25) and there are lots of them.

Put $5k in LC just to check it out, but it ain't gonna get you rich and will eat up more time time and energy than is warranted, IMO.

[mantis]

Just finished residency this summer. Do the real estate websites really check if you qualify as an institutional investor?

[VagabondMD]

mantis wrote:

Just finished residency this summer. Do the real estate websites really check if you qualify as an institutional investor?

Click to expand...

I do not think so. I believe that it is on the honor system.

[Complete_newbie]

I have looked into this. Depend on which "law" the platform runs under. If they are doing Reg D its is an honor system. Others check: For example patchofland will check since they are under 503 (c) type of offering (they openly advertise their return, hence they need to check the investor that was attracted to it) etc.

Also I believe the word you are looking for is accredited investor. If you are an institutional investor why are you doing residency  :P

 

(Anyways, back to reading about index funds...so many questions so little time)