Another strategy for generating income is Peer to Peer Lending sites. At these sites as a lender to take the exact same position a bank would with the same possible risks of defaults, late payments etc however the actual site manages everything including writing off notes, collecting late fee’s etc. You earn a percentage based on the category of note. The riskier notes obviously provide higher returns. The safe bet in most cases is to let the site “build” a portfolio of notes where you have a good blend that minimizes your risks while offering a good return. 6 of the top sites are mentioned here: Best Peer-to-Peer Loans of January 2023
I personally did a test with Lendingclub.com. I could not use some sites because they were not available to my state. In the normal operation they will recommend you let the money from paid off notes purchase more notes to keep the ball rolling. I tested this initially then set my account to not purchase any new blocks (a note at Lendingclub gets broken up into $25 blocks and hundreds of people may have blocks from the same note. This minimizes the risk of 1 note sending you into the hole.) and just let the funds build till I moved them to my checking. Over a 2 year run the money invested returned 4.79% which is pretty good. This return is AFTER all write-off’s of bad notes and would be higher if I was reinvesting the proceeds. You have the option to sell your notes in a “marketplace” but you won’t get full value so if you use these sites you have to be prepared to lives off the “income” and let the initial investment ride till the notes they are tied to eventually pay off or get written off.
Finally the sites typically grade a note from A to F with F being the most risky. You would think if you stuck to all A and B notes you’d have very little write-off but truthfully I had notes from A to F that went both ways. There are people that hand review each note they choose to invest in but I had good results just letting it pick choices.
This option just like the first one is not for everybody. Hopefully it’s useful to someone. The actual breakdown for my test was as follows (even though it looks like I still have 50% or so of my blocks most of those have little left of the $25 that hasn’t been paid off so 100 blocks in this case is closer to $100 vs $2500.
[ My Notes at-a-Glance 621 ]
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Not Yet Issued ![?][ 0 ]
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Issued & Current ![?][ 251 ]
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In Grace Period ![?][ 5 ]
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Fully Paid ![?][ 292 ]
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Late 16 - 30 Days ![?][ 1 ]
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Late 31 - 120 Days ![?][ 3 ]
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Default ![?][ 1 ]
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Charged Off ![?][ 68 ]
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