I currently have P2P lending investments in two sectors: consumer debt (e.g., LC) and small business lending. I'm now planning to add real estate exposure, split 50-50 between residential real estate and commercial real estate. My ultimate goal is to have about 30% of my P2P investments in consumer debt, about 30% in small business debt, and about 20% in each of residential and commercial real estate debt. For each sector, I work with (or plan to work with) a different platform (i.e., company), and that should reduce my platform risk, but I'm wondering if by diversifying across marketplace lending sectors (consumer debt, small business debt, residential real estate debt, commercial real estate debt) I'm decreasing my overall risk in the P2P asset class or if I'm just making myself feel better.
Comments? Insights?
You're reducing one kind of risk, and taking on a different kind of risk.
Unfortunately, there are no P2P platforms in real estate or small business lending which I trust. (I'm investing a bit thru some, but that's an experiment.)
None of them have been around long enough to establish a track record. With no track record, you're flying blind.
LC has over 1 million loans in the publicly available database. Sure there are some problems here and there, but you can see what happened in the past in considerable detail. You can see the quality of their work. For these startup real estate and small business lending guys you don't have anything like that. You're flying completely blind.
If you decided to give $50 dollars to five homeless people at a 10% interest rate or $250 dollars to one homeless person at a 10% interest rate, which do you think is risky? Well surely the bet on five reduces the risk somewhat, but it doesn't tell us how much. Why would anyone invest in P2P real estate instead of buying a REIT? I still don't understand why, other than the fact the P2P guys seem to do perhaps much riskier real estate.
I agree with your logic and am also concerned about the viability of these online real estate lenders.
On the other hand Lending Home has now issued over $750 million in loans and with a current balance outstanding of approximately
$500 million, they are taking in $5 million a year ( at 1% of the outstanding) which is helpful in covering overhead.
In addition they are using a Bankruptcy Remote Vehicle which makes me feel even better. And their rate of return is equal to or surpasses Lending Club.
So I wouldn't put my last dollar with them but all in all I feel relatively comfortable.
I agree with RawRaw/Fred93 that the P2P RE sites all carry risk bur risk is a relative term. I am big proponent of P2P RE and have been investing in this alternative space for 42 months. I know what you are thinking........this is a very short window to determine if this is a good long term play. However, reading your thread I assume your an accredited investor and I think it is a good idea to try it out and see what happens. Start small and add/subtract based on your results. I have done 110 deals on 8 different sites with 60 deals completely closed. I have lost principal in only two cases and yet my overall return is north of 10%.
I feel the best overall site right now is Realty Shares which gives you Debt/Equity & Commercial/residential opportunities and solid returns. Lending Home/Patch of Land are good for debt positions and short term turnarounds. Most of the deals on the debt sites are done within 12 months so it is pretty easy to get your rate of return.
I used to invest heavily in Fundrise and they were one of my favorite sites until they shut down their interest in specific properties and channeled all their efforts into the eREIT. Their fees are higher than other REIT's that I invest in so I no longer have any interest in Fundrise.
Another way to participate and potentially spread your risk further is using AlphFlow. The guy who started this site left Realty Shares and created a fund that invests in multiple P2P RE platforms. In addition, this site is awesome if you want a single dashboard for all of your P2P websites.
Good Luck
Fred93...........I know you have been critical of P2P lending, specifically Prosper since 2006 and in many cases I agree with your synopsis. No disrespect to you but there is money to be made in P2P RE sites. Obviously, the market could change and the P2P RE vendors could implode but I don't think that is anytime soon.
I'm sure one could wait another two or three years to invest in P2P RE once these companies become "established" or have a "track record". By that time, one could miss out on a lot of gains. Again, it comes down to the individuals risk tolerance.
My recommendation for "JustTryingToMakeAbuck" is to try it out and see what happens. I have three years of positive gains and my returns are better then my LC/Prosper returns.
Interesting conversation. In the absence of track record, I expect more transparency and disclosures from platforms. I have stayed away from most P2P lending platform, except Lending Club and Prosper, because none of them want to be transparent in disclosing information about their past and current deals. No opening the loan/deal book, no interest from me.
You never know when someone is running a "ponzi" scheme. Trust but verify.
Lending Club and Prosper has set the benchmark for P2P lending disclosures and transparency. At minimum, I expect historical loan information with detailed attributes considered during due diligence at the time of loan issuance, information on loans in progress, payment file for each loan, and details on the due diligence methodology, collection and payment distribution process.
Since they are available only to Accredited investors all the transparency you are looking for is right there in the PPM. Just sign up and prove Accreditation and the info is there in black and white.
For example hypothetically it might read like this:
Our portfolio currently includes over 3,700 loans of which 3.2% have ever hit the 120+ day delinquency stage. Once a borrower is 30 days late on their monthly payment or their maturity date, we consider that loan to be default, and our servicing team works closely with borrowers to bring them back to current. Delinquent loans may, but do not necessarily, produce a loss. Of four foreclosures and two short sales to date, only one resulted in a loss of principal.
What I am wondering is are you looking for all the attributes available to LC, such as FICO scores, inquiries, etc?
If so you are in the wrong business. I have been lending hard money on real estate for 30 years. as long as the LTV is appropriate and the rate meeting my parameters I will usually make the loan as long as the borrower hasn't filed cha 7 or 11 , and has some other minimal attributes. But my primary security is the property. I am more concerned if its a judicial or non judicial foreclosure state.
What i have learned over the years is that when a borrower has 25% or more of the properties value on the line, he would much rather default on his Lending Club loan than on his property.
http://www.bloomberg.com/news/features/2016-08-18/how-lending-club-s-biggest-fanboy-uncovered-shady-loansLet me throw today's Bloomeberg news article into the discussion. To be clear, Bloomberg journalists are extremely good at generating clicks by exploring public's emotion, be it greed or fear. And this article is negative as usual on LC, but it does open a window into how LC has transformed in the past a few years
Fred93...... What is your experience so far with Groundfloor? I'm interested but am clearly a little hesitant with this being such a young company. Are you seeing decent return? They advertise 12% average.
Doesn't the government lien prime your position? Hope it isn't too large.
Groundfloor is new to me. What made you open an account there when LC already offers home improvement loans?