Ten year early retirement update

[Dawg52]

Damn, 80 lbs on med's. Guess I'm going to have to do more hiking with the mutt.

Welcome back.

 

[Bikerdude]

Welcome back! I've missed the debates you used to have with CT.

 

[cute fuzzy bunny]

Welcome back! I've missed the debates you used to have with CT.

Yeah, all those old debates were fun. Anyone remember the guy who said the chances of lots of people losing their homes because they made the mistake of trying to arb a mortgage in a long term cyclic recession were low?

How'd that work out?

 

[Rich_by_the_Bay]

Welcome back, fartblossom...

I've always loved that warm, sentimental streak you have.

Nice to hear from you, CFB. You sound less sure of yourself than you used to be (that's a good thing). You'll come out of it just fine, maybe better than the original version.

Best,
Rich

 

[packrat44]

Eh, I'll just work it out with their mommies while the kids are in school. Somebody did say I needed more hobbies

If that doesn't work, I have two video cameras inside the house that record everything. Which by the way, ends all of those "he said/she said" arguments in the game room.

That could get you into trouble.

 

[unclemick]

CT pops up now and then over at Bogleheads - heh heh heh. Still have my 30 yr mortgage but I enjoyed Bacon and Bunnies with stuff on their head much more.

Now retiring from ER after a say 20 yr career and commiting some sinful deed like returning to w*#k!

heh heh heh - seems like you have a 'full time' schedule now anyway.

 

[cute fuzzy bunny]

That could get you into trouble.

Jeez and I was looking at it as the gift that keeps on giving.

 

[cute fuzzy bunny]

I've always loved that warm, sentimental streak you have.

Sweet, isnt it?

Nice to hear from you, CFB. You sound less sure of yourself than you used to be (that's a good thing). You'll come out of it just fine, maybe better than the original version.

Good to see you again Rich! Suffice it to say I've lived a life of great uncertainty the last few years, and uncertainty is the root of all evil. Along with sugar. Things are quickly becoming less uncertain for me.

But don't worry, I'm still a cocky little <insert whatever word I'd have used that the censor filter would have run over>

 

[cute fuzzy bunny]

CT pops up now and then over at Bogleheads - heh heh heh. Still have my 30 yr mortgage but I enjoyed Bacon and Bunnies with stuff on their head much more.

Now retiring from ER after a say 20 yr career and commiting some sinful deed like returning to w*#k!

heh heh heh - seems like you have a 'full time' schedule now anyway.

Hey Mick, been wondering what became of the original e-r.org curmudgeon!

I do have a full time schedule. I get up at 3 or 4am at times and get more done before the marines wake up! But sadly 5 of my 6 pets are unlikely to still be alive in a year or two, and my son is already complaining when I kiss him goodbye at school. So its going to get lighter in weight and heavier in heart...

 

[Dawg52]

my son is already complaining when I kiss him goodbye at school.

We were all like that. I remember when I was a kid I had the flu once and the first day back to school it was raining. My mom walked me all the way to the front door with an umbrella over my head, totally humiliating me. I know she was just doing what she thought was best.......but damn, I still remember that day some 50+ years later.

 

[clifp]

Retirement wise, a lot of people ask if you can go too early and I always said "HELL NO!", but I found as I approached 50 I wished I'd done more, but I've been out of work for nearly 12 years now and I think I'd have a hell of a time getting myself employed right now. Not that I could do it with pets that need regular attention, cant be left home alone for 10 hours, and a kid that needs school drop off and pickup. Maybe after the dogs and cats pass on and Gabe is a little older, I'll try something out. Not sure if i'd try to go back to my old job or try something completely different.

About the only other really interesting thing is that I've been investing in the Lending Club with very good success. Its hard to deploy a lot of cash there quickly without taking on a lot of questionable notes, but I've been chugging away at it for six months and have about $70k in there. They gave me $1000 to start, I've got about 1900 notes, my NAR is 17.58% but with eventual defaults I expect that to drop to around 12%. I have 16 notes late >30 days and 3 in the 16-30 day. Total at risk right now is less than the grand they gave me, and as an oddity I've had 40 people pay the money back within a couple of months and half that many that are late. The LC guys find that very amusing for some reason. My interest take is about $3500 and my notes in lateness are ~$900. If that ratio holds, I'll continue to deploy cash. My very last 7 year penfed 6.25% cd's are maturing next year...

I also have been questioning did I retire too early (CFB beat me by a year damn him!) cause after 13 years I have no illusions about my ability to find an interesting J*B that pay well, certainly in this horrid economy.

If had a do over I definitely would have gotten out of Silicon Valley when I did my timing late 99/early 2000 was pretty much perfect. But I wish I would have found a second act, and while volunteering has its rewards it just isn't the same as psychological rewards as a job and not mention the pay is way better than volunteering .

It finally hit me that my best weeks months were more interesting than best months being retired. On the other hand my worse month being retired is way better than my worse month working. I just needed to find a mythical job that had no bad months.

CFB did you ever try Prosper.com? It soured me on the whole P2P lending business but I have been hearing positive things about lending tree. I am going to wait on this particular opportunity.

Do you still have rental properties? In the last year I have gone a bit nuts buying real estate in Vegas baby, A 4 plex, condo, 2 single family homes, and looking next year for more.

 

[cute fuzzy bunny]

I also have been questioning did I retire too early (CFB beat me by a year damn him!) cause after 13 years I have no illusions about my ability to find an interesting J*B that pay well, certainly in this horrid economy.

Same feeling here. We came from the same mothership, and I could get a job with them again, but it'd be an old friend doing me a favor and I'd be slugging it out for a few years against 25 year olds who would work twice as long for half the money. Ugly. Felt good about it for the first 5 years, and I think I could have slid back in back then, but not sure about now.

If had a do over I definitely would have gotten out of Silicon Valley when I did my timing late 99/early 2000 was pretty much perfect. But I wish I would have found a second act, and while volunteering has its rewards it just isn't the same as psychological rewards as a job and not mention the pay is way better than volunteering .

I only volunteer at Gabes school, but I do a lot there. I've heard generic volunteer/charity stuff sucks, so I never did it. I do reading groups, help out in the computer lab (jockeying 30 second graders on pc's is a hoot), grade homework, etc. It really helps when I see Gabes teachers every day and they owe me one...

It finally hit me that my best weeks months were more interesting than best months being retired. On the other hand my worse month being retired is way better than my worse month working. I just needed to find a mythical job that had no bad months.

I have one, its called 'parenting'. Even the bad times are looked back on quite fondly.

CFB did you ever try Prosper.com? It soured me on the whole P2P lending business but I have been hearing positive things about lending tree. I am going to wait on this particular opportunity.

Do you still have rental properties? In the last year I have gone a bit nuts buying real estate in Vegas baby, A 4 plex, condo, 2 single family homes, and looking next year for more.

Never touched Prosper. I heard their notes are a little less prime than lending clubs. They also had lousy promos. A grand for throwing 50k at Lending Club was fairly tasty. I figured if that disappeared and good things weren't happening, I could exit. But its been pretty good so far. I write only D-G notes these days (but I bought a few A's and quite a few B4/B5 and C's to get my capital deployed), because if you pick well they simply don't default much more than A's or B's, and you get ~4x the interest on a D than you do an A, and about 2x what you get on a low B. That covers your defaults.

I look for credit 680 and up, making at least 5k a month and the loan is ~10% of their gross. An early lesson I gleaned was avoiding helping get people into trouble with debt, because they'll quickly make their problems into yours. One inquiry is okay, sometimes 2. No public records or delinquencies in the last 2 years, I prefer they own their own home than rent but renting isnt a deal killer. What I'm seeing on the few lates that I have is that some of the people appear to have moved and disconnected their phone. Harder to do when you own. Two years on a job, established credit for at least 5 years, and I avoid people working at companies that have recently announced massive layoffs like HP. Its very helpful when people write stuff about their loans, because it almost always tips me off if they're a freak or not. I'm amazed at how often people say completely stupid stuff in a loan application.

I do debt/credit card consolidation, major purchases, cars (but I'm not thrilled with that), weddings (even less thrilled by people with 50k in credit card debt that make 5k a month and think they should have a 30k wedding) home improvements. I do not do small business, medical, renewable energy, moving expenses or vacations. Those dont pay and there are underlying concerns with most of those. I don't mind high dollar loans, but I skip the ones where people automatically pick the max of 35k when they're showing 10k in debt and they mention that after paying down their debt they're going to use the rest of the money for a vacation! Noooo! You don't know how to manage money!

Most of my lates are from my early attempts before I dug into the data, largely at Nickle Steamroller and they're people with low income or more than 10% loan to gross ratio. You can back test your filters there, and my back testing on the above produces a default rate on the historic data (yay firecalc!) of about 3% defaults. You're going to get 1-2% just from deaths/divorce/serious illness or injury/high earner losing their job. My "job" is basically to shave the 5-8% expected rates down to a rational level and make sure I'm getting ~20% interest for my troubles.

So far it looks like I can wring 4k in profits from 50k invested, with no rent collection, property repairs, property taxes or upgrades. I'd have to spend ~150-200k for a rental property that needed a ton of work and would rent to less desirable people. I doubt I'd clear 12-16k in rent on that once all is said and done.

The only potentially frightening thing is a big recessionary dip. I'm sure this wasn't a good business to be in a couple of years ago.

As I understand it, you get two primary waves of 'lates'. A patch up front where you have scammers, spouses with great credit while the other spouse is holding all the debt and has a poor credit rating, people who don't use the money the way they described, etc. Then around 11 months you get people who just cant afford the loan and they quit. Once you get past 11 months, it should be death/divorce/illness. I've got north of 1800 notes, most of them $25 lots, 42 paid the money back already, 1 just declared bankruptcy and went into default, I have another 15 late 30-120 and 2 late 16-30 days. Clearly due to the pay back to default ratio, I'm picking people who don't desperately need the money!

I spent a few weeks looking into it, a month of tinkering around, and it takes about 15 minutes a day to check on notes. The only things that are bugging me now is that if you look at the extended downloadable data, it often tells a completely different picture than the loan app you see on the web site. I've seen guys that were A rated, but were slagging along a ton of rental properties, owed a LOT more in debt than the numbers LC shows (they say they exclude mortgages, but they also exclude helocs, car loans and other secured debts). The loan app says "debt consolidation" but its really helping fund the borrowers small business of renting homes. Other thing is the institutional money thats buying into it. Yes, some mutual funds and money managers are committing 5-10% of their funds to this. I'm less than that, this is closer for me to what most people put into gold or some other oddball asset class. The institutional money just buys a $ amount of a particular credit grade and allegedly have no other filters available, but when they buy the note inventory drops from ~2000-2500 available to 800 or so, and it takes almost a week for there to be enough notes to look at. In that time, any notes that look good sell in a matter of hours, so my 15 minutes turns into 30 for those days.

If I get 12 months in this and my income is still surpassing the defaults by a good margin, I'll keep dropping cash in. Half my notes are 3 year and half are 5 year. I'm getting enough return of capital and interest to draw a $1500 or so a month for the first 3 years and it'd drop after that as I depleted capital. Thats some nice income thats somewhat coupled to the economy but not the stock or bond market. But I'm turning enough of the profits back in to keep myself around the same principal amount in play. If you need cash that month, take it. Otherwise reinvest.

I'd buy cd's or bonds if those paid anything, but they don't. Stock market scares the crap out of me right now. Looks ugly and I know half the good stuff is window dressing for the election. Real estate is a PITA. What else is there?

 

[cute fuzzy bunny]

We were all like that. I remember when I was a kid I had the flu once and the first day back to school it was raining. My mom walked me all the way to the front door with an umbrella over my head, totally humiliating me. I know she was just doing what she thought was best.......but damn, I still remember that day some 50+ years later.

I think its an excellent friendly weapon to use. If he's having a bad day at school, I tell him to shape up or I'll kiss him goodbye when I'm done with my volunteer work. I love sneaking up on him on the playground and laying one on him.

 

[Dreamer]

Welcome back! I have thought about you and wondered how you were doing. Sorry to hear about some of the problems that you had, but it sounds like you are getting things together. Thanks for the update and I am really looking forward to your posts. Hope that you stick around.

 

[Nords]

CFB did you ever try Prosper.com? It soured me on the whole P2P lending business but I have been hearing positive things about lending tree. I am going to wait on this particular opportunity.

MrMoneyMustache put up an interesting post on Lending Club:
The Lending Club Experiment | Mr. Money Mustache

 

[cute fuzzy bunny]

MrMoneyMustache put up an interesting post on Lending Club:
The Lending Club Experiment | Mr. Money Mustache

Good overall article, but I excluded the 'auto invest' option, which is what the institutional investors have to use.

He says: "When you look around the web to see what other financial bloggers have said about the service, you run into a raft of interesting opinions and techniques, bordering on witchcraft and sorcery. People will say things like “I am excluding borrowers who are consolidating credit card debt, or buying a new vehicle, because those are just recipes for disaster”. Or, “I’m avoiding the D through F grades, investing only in A-grade notes, because those are the safest”.", yet while he's correct on the "Only install A grade notes" being a bad idea, there are clear statistics available that show some types of loans like credit consolidation are better than others (see chart below).

The problem with most of the articles on lending club is that they're like most internet articles about investing. They usually go something like "So I heard about this investing thing and bought a bunch of penny stocks and lost my money, so that investing thing doesnt work" or "So I wanted to try this 'investing' stuff and I bought the stock that went up the most in the last year, and it went down, so that investing thing doesnt work".

Unlike stocks, excepting mass economic issues (20% of the population losing their jobs would raise defaults) borrower behavior is a little more stable and predictable. The fico score is supposed to be pretty high tech as far as determining grade/risk, but I see situations where a 780+ is paying more interest than a 680 as LC factors other stuff in.

There is some really interesting stuff to look at, but I'm skeptical about the payback rate by state. Supposedly California and Florida are bad states to write loans in (and other states also check in to this bucket) but I think its a past issue of real estate devaluation resulting in people not paying the unsecured loan. Many of my loans are in CA and FL, none are late so far. Self employed people tend to pay late a lot due to cash flow issues, but are less likely to default as their credit rating is more important to them than an employed person. Interesting stuff to learn.

What I see is that there are a slice of investors that are making 12-18%, a big slice in the 6-12% range, and a slice making 0-6. Providing you avoid the huge issues the data points out, I think you can slide up into the 12-18% range and so far it looks like I'm going to be in there somewhere. If you're a moron that buys renewable energy and small business notes from 660's that are starting their own business from scratch, are making 2500 a month and the loan is a grand...you're in the 0-6% bucket.

Its a lot like mutual fund selection. Diversify, don't take on too much risk, avoid perennial losers, make sure the compensation makes up for the risk.

The one piece of suckage is you cant deduct the deadbeats as a loss, its just gone. And unlike the stock market, you cant 'hold on' to your devalued shares until they come back...but a solid minority of really, really late notes do eventually pay at least some of the loan. Whats really sucky is I have to pay income tax on the grand they gave me. Sort of good news is that unless you sock 150-200+ per note, none of them will generate a 1099 as you're only making $5-15 in interest per note spread over 3-5 years. If you report it yourself, its ordinary income taxwise.

Certainly a rental property under the right circumstances can give you capital appreciation and good cash flow, but there's a huge hassle factor involved.

The other thing I see people doing is selling the notes if they go into the 15 day grace period or when they're late. They have a secondary used note market where you can list a note and set a price. For notes that are performing well and have a high interest rate, you can even mark it up over face value. Some states allow LC members to buy existing notes, but not new ones, so those sometimes get snapped up at a good premium. You pick and season the notes, then pick up 5-10%+ selling it to someone in Massachussetts. I haven't tried that. I did sell one note that went into the grace period, the borrower paid late and the note sold at a discount before I saw the payment. I've since been watching that end of it, and I see that I may have as many as 15-20 notes in grace, and that most of those pay eventually and quite a few of those pay back in full. Apparently their slight lateness was just because they didnt pay the monthly bill because they intended to pay in full. So selling notes that'll likely come back into compliance or pay off most of the time seems like a bad idea to me.

 

[clifp]

Regarding the Mr Money Mustache article.

Here is his first faulty assumption.

I could see that Lending club was automatically calculating the average interest rate of all of my proposed loans, subtracting the expected default rate based on their 5-year history of thousands of other loans with these characteristics,

I'd be willing to bet dollars to donuts that isn't actually how Lending Tree does its expected default rate cause I don't think 5 years of data especially with relatively low number of loans funding in 2007 and 2008 by lending club is enough to make good prediction. Rather I imagine that the default rates are calculated based on expected default rate on people with similar credit scores as calculated by the credit reporting agency. In the case of Prosper these assumptions prove to be widely optimistic. I never was quite sure why this was the case, but my underlying assumptions was that is possible that credit card companies knew a wee bit more about making consumer loans than a start up and bunch of wanna-be-banker on the internet .

Don't get me wrong Lending Club does many things better than Prosper. I particularly applaud their high level of transparency providing all of their loan data in excel files.

However, when I actually look at past performance it paints a less rosy picture.
I downloaded the excel file and took at look at the performance of tranche of loans made in Aug 2009 which should have been paid back in by Sept 2012. Of the 452 loans made that month for just over $4 million in investor money with an average (not weighted) interest rate of 12% 36 have defaulted and 9 are late. Very consistent with the cumulative default rates of 8-10% posted on Lending Tree's website.

The real important data is the total return for the Aug 2009 loans is 10.8% and will increased to 11.2% if all the late loans are paid in full. This is not an annual rate which is closer to 3.5% (a bit higher IRR). More or less in line with 3 year CD circa 2009.

 

[Purron]

So good to hear from you. I'll never forget how much good advice you gave me when my elderly cat was so sick. You also gave me a good shoulder to cry on. Hope I can do the same for you since you're in charge of an aging menagerie.

As for me, still retired and still involved in the local animal shelter. Almost quit about a year ago after a heartbreaking experience. Some kittens I took in from a hoarding situation ended up very sick and had to be euthanized. At one point, I was so down about this I thought it would be the kindest thing to euthanize me too.

After a big, long break I'm ready to dip my toe in the water again and foster a couple two or three kittens at a time. Nervous about it though. Heart is still broken about that unfortunate experience.

Otherwise, DH has joined me in retirement. He’s happy to be off the Northern Virginia highways and bought himself a Kubota tractor. Boys and their toys ;-) We dumped the big fancy place we lived in and moved back into the small, funky, old starter home we hung onto all these years as a rental. We love it. Oh, and DH built himself a detached garage. Major man cave.

Looking forward to hearing more from you and am happy to hear you’re getting healthy. Gabe sounds like quite the little man! Bet he keeps you on your toes.

 

[cute fuzzy bunny]

So good to hear from you. I'll never forget how much good advice you gave me when my elderly cat was so sick. You also gave me a good shoulder to cry on. Hope I can do the same for you since you're in charge of an aging menagerie.

I had to put my oldest cat down last year. She went 20 years, and she was at least a year or so old when I got her from the shelter. I have a pair of 18.5 year old cats that still look like they could go another year or two.

Dog wise, we still have Jake who is probably pushing 16 and at 170lbs, cant walk very far and doesn't look like he's having fun doing it. Jasmine is 13 and with her two rebuilt rear knees and 5 overall leg surgeries...manages almost a mile around the block every day. Ted is 12 and is turning gray all over his nose.

We just rescued Benjamin. He's a 7 month old black lab/corgi/terrier mix. Very sweet, but a little too much for the old dogs. Everyone enjoyed playing with him when he was small, but he's almost as big as they are now and has way more energy.

But sadly, we're going to go from six to one in the next year or two. Its going to be a very hard time for me and my little man...they've all been with him since day 1. Hopefully Benji can ease the pain a little.

My dad did shelter work for a few months and it crushed him. I don't think I'd do much better. I'd have 400 cats and dogs hiding out in my house.

 

[73ss454]

My dad did shelter work for a few months and it crushed him. I don't think I'd do much better. I'd have 400 cats and dogs hiding out in my house.

You sound like Ralph Kramden.

 

[cute fuzzy bunny]

You sound like Ralph Kramden.

Hardee har har. To the moon 73ss454! To the moon!

 

[Nords]

This is not an annual rate which is closer to 3.5% (a bit higher IRR). More or less in line with 3 year CD circa 2009.

Without FDIC insurance. And much less liquid.

 

[kramer]

Great update, CFB. Thank you very much.

If you have any advice on marriage and/or significant relationship, I am all ears -- like what you would have done differently.

When I come back to visit the USA (I am at the end of a month long visit at this moment), it seems like I hear so much about divorces and drugs hurting peoples' lives. One or both have affected essentially my entire extended family although some are happy now in a second or third marriage. The only exception to this is a second cousin who is still married to her first husband, but they deliberately got a house with separate wings so they don't have to see each other that often.

 

[cute fuzzy bunny]

Without FDIC insurance. And much less liquid.

These are notes that are written by an actual bank, but yes there is no insurance and certainty of some loss. Just like stocks and bonds. I'm not treating this as a cd or money market, but as the second riskiest asset class I own, which if I did my homework right, will give me better returns than anything else I'm holding. At a minimum, it was an interesting learning experience and I doubt I'll lose money on it, and it does produce a pretty reliable income stream.

Liquidity doesn't bother me a bit. Obviously this isnt my cash fund or my emergency fund, and since there is quite a bit of capital returned along with the interest, I can start schlorking a couple of grand a month out if I want to draw down the account more, or sell notes on the secondary market.

If I were to get into the situation where I needed to get my 50k out right now and needed instant liquidity, then my planning sucked and I'd be an idiot.

I'm sure that overall the returns are a little soft. A lot of their inventory is low interest notes, and I don't buy those. A lot of it is also low credit rated, higher risk of default. If you buy a lot of crappy notes you'll get higher defaults, and if you lowball the interest rate and go for A and B notes because they're 'safe', you're also doing it wrong. I don't think I'm doing either.

But time will tell. See if I still like it in 6-12 months. What I *do* know is that so far about everything I've read about other peoples experiences showed me that they didn't research it very well.

What I'm *really* looking forward to is when interest rates rise. If that ever happens again.

Here's a chart from nickelsteamroller showing past performance of all notes ever issued by LC that meet my criteria. Of course, this is backtesting but unlike stock market movements, borrowers in the same economic conditions tend to behave the same. This is actual loan data for about the past 3 years.

If I can get half that roi, I'll be tickled.

 

[cute fuzzy bunny]

Loan grade seems to have nothing to do whatsoever with lates or defaults.

My current 15 lates are:

Three B's
Four C's
Four D's
Four E's

As a percentage of notes I have, the "E"s are a little heavy.

FICO score also proves to be an iffy measure. Several of my lates had 750-780+ FICO scores that dropped into the 500's or low 600's soon after the loan was issued. My guess on those are people who wanted to get money and then stop paying their bills and go into bankruptcy, or they're a spouse that isn't the bill payer or they lost their job or were injured. My wifes credit looks awesome right now, but it won't be as good next year.