Am I Crazy Crowdfunding Loans??

[underwrite]

A few months ago I moved about $325k of my investable assets to lending sites. That’s about 25% of my portfolio. I’m 45 and still working.

$100k at Prosper, $30k at Fundrise, and $195k at Peerstreet. If the economy keeps humming, looks like I’ll average around 7% annually. If there’s an average recession, I estimate the returns at 0-4%.

With the stock market up so much and valuations quite high, I’m surprised there aren’t more folks on this site discussing this topic.

Do you think the stock market is a better place to be? Have you looked into peer to peer lendIng? Do you think my allocation to this type of lending is too high?

[Aerides]

yes, you are crazy

[aja8888]

Quote:

Originally Posted by Aerides yes, you are crazy

I have to agree, and good thing he is young enough to make it back if things go south.

[REWahoo]

No you aren't crazy for crowdfunding loans.

However, you are absolutely nuts for risking $325,000 in something that speculative. Makes no sense to me to risk that much money in something that can blow up in you face. Reduce your exposure by 90%.

[Oz investor]

i tend to be very risk averse , and while i have funded one or two small projects ( where i doubt i will ever see a return of the investment let alone a profit ) , i normally look towards a better chance of returns .

peer to peer lending ?

one New Zealand company i have shares in has invested in a peer to peer lending company , i don't know if the ( peer to peer ) company will be a financial success but the listed company is so you can only hope the board of directors have crunched the numbers correctly

i have similar indirect exposure to the medical marijuana industry , again a bigger company sees potential better than the risk taken

obviously i am biased , and think you have over-invested in the peer to peer lending sector .. but at least you have spread the investment over several companies , your 0 to 4% forecast returns are unattractive to me ,

but in saying that i hope you prove me completely wrong and get those 4%( plus )returns .

i see your logic in seeking returns in a relatively new area , but goodness aren't you putting faith in the folks investing the cash on your behalf selecting the better projects .

i had a brief glance at peer-to peer but how easy is it to collect loan repayments ( many of the potential projects would never get a bank loan )

now i disagree on the 'economy humming ' BUT if the economy were to take a turn for the worse would peer to peer lending actually benefit ( as banks and traditional sources tightened lending )

lets use those brave folks who backed Jack Ma and Alibaba as an example ( at the very beginning ) a brave and passionate business person could rise to prominence amidst the chaos .

cheers and good luck

[underwrite]

Quote:

Originally Posted by aja8888 I have to agree, and good thing he is young enough to make it back if things go south.

Lol. Thanks for the feedback. What is your knowledge level on the topic? I only ask as I’d be curious if others have had good or bad experiences with peer to peer lending. On PeerStreet, you’re making loans of 6 to 18 months and the yields are 7 to 10%. The equity investor puts in at least 25% so you have quite a cushion if the project goes south.

Alternatively, I could keep my money in the total stock market index where many company’s earnings yields are in the 2 to 5% range.

[Oz investor]

*** Alternatively, I could keep my money in the total stock market index where many company’s earnings yields are in the 2 to 5% range. ***

and that is the reason i restrain myself from harsher criticism

the 'safe stock-market ' isn't so safe either

i am aggressively looking for higher yields as well ( but also very cautious ) and as mentioned at 45 you DO have a chance to recover some of the nest egg ( if things go south ) and adjust your strategy if you find a better one

good and bad experiences a quick revisit to the GFC ( and the sub-prime loans ) will give you plenty of examples of lending done poorly.
you can't expect your peer-to peer groups to operate in a superior way to the major banks in the pre-GFC days , as they will face similar performance pressures and temptations .


again i hope your investments prove me wrong

[aja8888]

Quote:

Originally Posted by underwrite Lol. Thanks for the feedback. What is your knowledge level on the topic? I only ask as I’d be curious if others have had good or bad experiences with peer to peer lending.

You asked if you were crazy to do this and we gave you our subjective opinions.

I have done research on these loans and a few members here have dabbled in the process. You may get better feedback once more members have a chance to read your thread.

Here's a previous thread on your topic:

http://www.early-retirement.org/foru...per-76203.html

Peer to peer lending is too much risk for me as I don't have the time left to make back any lost funds due to defaults. I have a conservative portfolio and also dabble in preferred stocks for higher yields (6 - 8%). There is a long running thread here with members who invest in preferreds.

[97guns]

Look into deed trust investing, it’s real estate investing secured with the borrowers property, yield are 10-13%. I would favor it over crowdfunding because your principal is backed by the properties equity where as crowdfunding is backed by nothing

[REWahoo]

Quote:

Originally Posted by aja8888 You asked if you were crazy to do this and we gave you our subjective opinions.

Yep.

Peer-to-peer lending is old news, cryptocurrency is where it's at today.

[97guns]

I’m deep in the red with my crypto holdings, luckily it’s(it was) only 2% of my portfolio and not 25%, it’s probably less than 1% as it stands now

[aja8888]

Quote:

Originally Posted by REWahoo Yep. Peer-to-peer lending is old news, cryptocurrency is where it's at today.

Exactly! With only over 1,500 cryptocurrencies to choose from, how could anyone go wrong?

[trumpeting_angel]

I dabbled in Prosper years ago when I was carefully seeking higher yields. Lost money. Loans went unpaid. I only invested small amounts, and some of them higher-risk loans, but I came away very disappointed.

[OldShooter]

Yes, you are crazy. Or, more accurately, massively naive.

Quote:

Originally Posted by underwrite ... I’d be curious if others have had good or bad experiences with peer to peer lending. On PeerStreet, you’re making loans of 6 to 18 months and the yields are 7 to 10%. The equity investor puts in at least 25% so you have quite a cushion if the project goes south. ...

What you need to understand is that no one has had useful experience with peer-to-peer lending. It is too new. Only after people have ridden it through two or three economic cycles will there be any useful information and even then it will be marginal. All you can get right now (besides hucksters' claims) is anecdotes and the majority of those will be positive because people tend not to post results when they have just flushed a bunch of money down the toilet. (Nassim Taleb refers to this as the problem of silent evidence. For example: https://www.cuinsight.com/watch-out-...-evidence.html)

Another thing to understand is that the people who are borrowing this way are, by and large, doing so because they cannot get conventional financing. IOW, conventional lenders have judged them to be too risky.

There is also no "cushion." When a company goes bankrupt it is because the money is all gone. Yours and the (possibly-mythical) "equity investor." All. Gone. Your projected loss is 100%, not "0-4%"

Finally, understand that the lending site's motivation is to generate loan volume, not to maximize your financial safety. This is what is referred to as an "agency problem." (more: https://en.wikipedia.org/wiki/Princi...3agent_problem)

Sorry to throw ice water here, but you have been drinking a massive amount of very dangerous Kool-Aid.

[underwrite]

Quote:

Originally Posted by Aerides yes, you are crazy

Lol

[underwrite]

Quote:

Originally Posted by Oz investor i tend to be very risk averse , and while i have funded one or two small projects ( where i doubt i will ever see a return of the investment let alone a profit ) , i normally look towards a better chance of returns . peer to peer lending ? one New Zealand company i have shares in has invested in a peer to peer lending company , i don't know if the ( peer to peer ) company will be a financial success but the listed company is so you can only hope the board of directors have crunched the numbers correctly i have similar indirect exposure to the medical marijuana industry , again a bigger company sees potential better than the risk taken obviously i am biased , and think you have over-invested in the peer to peer lending sector .. but at least you have spread the investment over several companies , your 0 to 4% forecast returns are unattractive to me , but in saying that i hope you prove me completely wrong and get those 4%( plus )returns . i see your logic in seeking returns in a relatively new area , but goodness aren't you putting faith in the folks investing the cash on your behalf selecting the better projects . i had a brief glance at peer-to peer but how easy is it to collect loan repayments ( many of the potential projects would never get a bank loan ) now i disagree on the 'economy humming ' BUT if the economy were to take a turn for the worse would peer to peer lending actually benefit ( as banks and traditional sources tightened lending ) lets use those brave folks who backed Jack Ma and Alibaba as an example ( at the very beginning ) a brave and passionate business person could rise to prominence amidst the chaos . cheers and good luck

Thanks for the feedback.

[underwrite]

Quote:

Originally Posted by REWahoo No you aren't crazy for crowdfunding loans. However, you are absolutely nuts for risking $325,000 in something that speculative. Makes no sense to me to risk that much money in something that can blow up in you face. Reduce your exposure by 90%.

Thanks for the comments. If one believes that the markets are overvalued, then where to put Some money to diversify out of the market a bit? I guess I could put it in the money market. However, even with the increase of rates the last month you’re still basically getting not much in return. I hate to lock the money up into a longer term CD with the max promised Return of 3 or 3 1/2%.

[underwrite]

Quote:

Originally Posted by 97guns Look into deed trust investing, it’s real estate investing secured with the borrowers property, yield are 10-13%. I would favor it over crowdfunding because your principal is backed by the properties equity where as crowdfunding is backed by nothing

Two of the three peer to peer lending sites I mentioned are collateral backed loans. Peerstreet and Fundrise. Prosper is the only one that is truly unsecured. Obviously the rates and risk are much higher on Prosper. Anyways, thanks for your comments And I will check out your recommendation.

[underwrite]

Quote:

Originally Posted by Oz investor *** Alternatively, I could keep my money in the total stock market index where many company’s earnings yields are in the 2 to 5% range. *** and that is the reason i restrain myself from harsher criticism the 'safe stock-market ' isn't so safe either i am aggressively looking for higher yields as well ( but also very cautious ) and as mentioned at 45 you DO have a chance to recover some of the nest egg ( if things go south ) and adjust your strategy if you find a better one good and bad experiences a quick revisit to the GFC ( and the sub-prime loans ) will give you plenty of examples of lending done poorly. you can't expect your peer-to peer groups to operate in a superior way to the major banks in the pre-GFC days , as they will face similar performance pressures and temptations . again i hope your investments prove me wrong

I think lending standards are temporarily better than they had been pre-crash. I do agree with your comments that that will eventually change so it’s something that needs to be watched. For now, I feel pretty good about the lending standards that I’m seeing. The most dangerous landing platform that I use is Prosper as the loans are unsecured. There I’m concentrating my investments on individuals with higher credit ratings.

[Oz investor]

Quote:

Originally Posted by underwrite Thanks for the comments. If one believes that the markets are overvalued, then where to put Some money to diversify out of the market a bit? I guess I could put it in the money market. However, even with the increase of rates the last month you’re still basically getting not much in return. I hate to lock the money up into a longer term CD with the max promised Return of 3 or 3 1/2%.

i understand your quandary , i sometimes have great difficulty finding a good place to park just $5,000 , certainly not in a bank liable to freeze deposits in an economic meltdown ( when that cash can be deployed to get maximum value )

the collapses of Cyprus and Greece a few years back rewrote the rules on deposit safety .( or was that tore them up )

for example that $300,000 would have to be in 2 separate banks to be ( probably ) guaranteed by the Australian government ( it was $250,000 per bank consortium last i heard )

some of the interest-bearing securities i have researched in Australia are junk debt with lipstick and then some ETF buys them and sells them as sausage filling .

the golden formula ( for me ) is risk v. reward .. and in the current climate it is TOUGH to get a good answer