In another discussion on peer to peer lending I came up with an idea. I am willing to identify a multi-family property nearby that is listed on the MLS and will post the particulars on a few of the most popular 'peer to peer' lending (crowdsourcing, crowdfunding, or whatever you want to call it) websites to see if it is possible to get funding for the purchase real estate through these sites. Then I can review them all in one post here on BP. We can call it a BP Social Experiment! I am open to comments, suggestions, etc. if anyone wants to chime in to see what options are out thereâ¦
Though I have already tried two of them:
Money360.com: Already posted on there for a reasonably priced property and requested 75% loan to value (recommended by the site) and got no hits, emails, notices or anything at all. It was a simple and free process to enter my data (though it took three tries before the information finally got submitted-website glitch). But, nothing came of it so I cant recommend it or say its legit.
Lendingclub.com: I requested a business loan for $18k (thinking of using it as a down payment…but never gave that detail). I was tentatively ‘approved’ for $18k at around 12% though I didn’t pursue it. Once you do pursue the loan you are approved for, then it is posted on their site and investors can review your request, credit, etc. and offer to contribute an amount towards your loan. Once enough investors have agreed to contribute and their money collectively equals the $18k you requested then the loan is green-lit. I have a coworker who lends through this site so I know it is legit (for his lending purposes, anyway). He tested the waters by agreeing to lend $2,500 altogether, but broken up into smaller chunks of several hundred dollars that he lends on different loans. His $2,500 is currently yielding a return of 26%. This is because he is lending on risky loans to people who are in credit card debt and are being charged 29% by the credit card companies—so they are more than happy to accept my coworkers loan at 26%.
MyHousedeals.com (Offers to connect you to private lenders): I have not tried but may be willing to open an account and then post a review here on BP.
Kickstarter.com: This is a hugely popular lending site but I don’t think the lending parameters allow for real estate loans.
Prosper.com: Popular site, but again, not sure real estate loans are possible.
Any other site suggestions? Kiva.com? Microplace? Kabbage.com? Ill review a few of them (we can set a limit of, say, five sites) and I am willing to pay small registration fees if any of the sites require it.
Any specific data/review points you want me to consider? I am thinking of identifying a multi-family property that offers high cash on cash returns and then post the details here on BP as well as on those sites to see if any of them would be legit in assisting the funding of a deal.
Could be interesting…
I am a lender on Prosper.com and it is legitimate and there are small real estate loans but they are unsecured. I was even burned on a few as a lender! However, as a resident of Maine I am not allowed to borrow. I have good relationships with several of my state representatives and senators and contacted Prosper to offer assistance in lobbying to get this changed, but was blown off. Oh well, I tried!
I've never used any of these sites. Just out of curiosity, what recourse does a lender have against a borrow when they default on an unsecured loan? Does the lending site offer any assistance in collecting the amount due? Or do you typically just write off the loss or try and utilize a collections agency?
I have used Lending Club. Basically Lending Club and Prosper are the same thing but I have found that Lending Club has cheaper rates.
I used the funds from Lending Club to purchase a house. It is pretty simple. The funds are automatically taken out of your account on a monthly basis. You also have the option to pay back the loan early without penalty.
I would use Lending Club
According to my coworker, (If I recall correctly) lending club has its own collections department and will seek to get the invested monies back for the lenders when the borrower falls behind. The loans are unsecured and may be risky but that is why you:
1. Can get 26% returns :)
2. Break up and spread out your loan amount into smaller chunks and lend to different borrowers
3. Personalize your lending criteria and only lend on those loans that you feel comfortable on (for example, my coworker would only lend to borrowers who were going to agree to cancel the credit card that the loan was going to be used to pay off so they couldn’t rack up a huge credit card bill again. However, I am not sure if he was able to realistically apply this standard to those he gave his money to—I’ll have to ask him)
@Prashant P. Well, I guess there is no need for my proposed BP experiment—you already bought a house using P2P lending! Ha! Can you give some details on the loan? How much was it for? How long did it take to get approved? Im guessing you had to offer no collateral, correct? What rate? How long was the loan for? Did you use the loan for a down payment or for the entire purchase price? Did you get more than one loan? Where there any good or bad things about using it? Any recommendations for others on here?
@Amy A. I forgot to ask: Can you share what Prosper.com did to help you when the others defaulted on the loans and burned you?
So there are some things to watch out for when using Lending club but it is a great tool for someone starting out which is why I used it.
Before using P2P lending make sure you have a solid deal or plan. Also make sure you have a good credit score so you get a lower rate.
In my case, I found a house for $17,500 and I knew I could rent it for $800 a month. I punched in my information and found out that I could get a loan for $25000 at 10% for five years. So I chose this option. I did this option because I knew I would have to make some repairs to the house.
Anyways my loan is for $25,000 at 10% for 5 years and my payment is around $570 a month.
After pruchasing the house, the tenant did not want any repiars so I had an extra $7000 in my bank account and his rent was paying the payment on the loan.
Before going the P2P route, make sure you can cover the loan payment amount if you have a vacancy or your tenant does not pay the rent.
As far as listing the loan, it is pretty easy. You cannot say certain things in the loan posting like how much money you will be making or how you are going to pay off the loan. Lending Club will send you an email telling you if something is wrong.
The loan funding is pretty easy too. It takes a week or two to fund the loan. The whole loan does not have to be funded for you to get the money. I think 60% has to be funded and Lending club will fund the rest.
You can have two loans using Lending Club. Each has to have a differnent email address.
The whole process is pretty painless. I would recommend it to others but just remember you are paying 10%+ interest. So you have to have a solid deal.
Great topic. I have often though that a big business opportunity is being missed here. If they take one of these p2p sites and add securing the note with the property plus a foreclosure service this would be great for both re investors and people with cash to lend.
I have used Prosper for several years mostly as a lender but I also took a small loan to try it from the borrowers side. I have done well as a lender averaging low teens returns even though I've had a lot of loans default. They say they send them to a collection agency.
I would have borrowed more from them for real estate but last time I checked they wanted a much higher interest rate for me even though I have good credit. I have a lot of debt at the moment though so that is probably why.
I tried a listing for a house I own free and clear on money360. I got 1 question about my cost basis but that was it. I pulled the ad. Seemed kind of worthless.
Prosper sent the loans into collections and recovered some of my money. I started lending right before the financial collapse. My projected return was around 20%, but my actual return was around -5%. Much better than I did on my Tech mutual funds after the tech bubble or on my Countrywide and Fannie Mae Stocks after the real estate bubble! I should probably just go to Vegas, I hear at least you get free drinks. Seriously, this was my fun speculation money and I didn't invest more than I could afford to lose. I'm much more conservative with my real estate investments.
Does anyone know if these P2P lending clubs add to your credit report? Specifically, @Prashant P. - did that loan show up on your credit report like a normal mortgage, or like a credit card, or not at all?
If you've lost money from making bad loans, be sure to write off your losses. The IRS can refund a good portion of your loss. Check with a tax expert. I've had several friends here in my town that lost $40K to $150K each from funding 2nd mortgages on property that was foreclosed by the first mortgage lender/borrower never paid.
@Brandon Turner , the loans do show up on your credit report. I believe they show up as a credit loan, like a car.
I have asked Lending club to post a loan as an LLC but they told me that they only do personal loans at this time.
So if you cannot pay for the loan or don't have a plan this method is not for you. You can end up ruining your credit score.
When you buy the house, you own it free and clear. Lending club does not put a lien on it.
Fairly related, and several here may benefit from keeping an eye on this. Basically, the JOBS Act has allowed expansion for getting micro-investments like kick-starter to allow small, un-accreditted individuals to become investors. The SEC is still working out the various rules - but these DC investors have already started down a path into becoming a portal to post properties - you can see more in this article: http://www.theatlanticcities.com/neighborhoods/2012/11/real-estate-deal-could-change-future-everything/3897/#
I also purchased 2 single-family homes using Lending Club. You are only allowed to have up to 2 loans at one time, and you need to have a separate login to each "account".
The loans show up on your credit report as unsecured debt which is unlike a mortgage or car loan. This is similar to a credit card being unsecured.
What Prashant said about the loans all being 10%+ is not true. My loan (one of them) was at 7.64%. But I have very good credit. The lowest rate they can offer was just over 6%. The rates and matrix is all on their website.
I would recommend Lending Club over Prosper as they have lower rates.
Hey Guys -
Great discussion. I just wanted to let everyone know that we do have partnerships with both Lending Club and Prosper, and if you decide to use these sites, we definitely ask that you use our partner links (the links above) to get over there, as this does help support us here financially on BiggerPockets.
Thanks in advance!
i know this is an older thread, but i have been thinking of lending on these p2p sites.
the mls has dried up for what i do (rentals), so i dont know what to do with the money i have laying around besides put it into stocks/funds.
Have you considered getting into hard money lending, @George P. ?
hi brandon, i know one thing well..... rehabbing and renting houses within .5 miles from my house. the rest of the RE is like the "black hole" to me. i have been reading threads for notes, but dont know where to start..
Hey @George P. same here! If I were looking to get into it, I'd probably just latch on to someone who does a lot with notes. Best of luck!
Originally posted by @Joshua Dorkin :
Hey Guys - Great discussion. I just wanted to let everyone know that we do have partnerships with both Lending Club and Prosper, and if you decide to use these sites, we definitely ask that you use our partner links (the links above) to get over there, as this does help support us here financially on BiggerPockets.
Thanks in advance!
@Joshua Dorkin , I already have account with lending club prior to reading this message, is there a way that i can call them up and let them know that i am from BP, what is the benefit of signing up using BP? will the rate be cheaper?
@Huy N. - There is no discount benefit -- BP just gets a (very) small commission when we send folks over.
As tough as it is to do HML take-outs these days, someone should set up a P2P solely for that specific purpose.
I know this is and old post but glad that I found it.
@Prashant P. I am glad to see your post and that you purchased property. I was looking to use Prosper.com to help me get started but I see that Lending Club is seemingly better considering the amount that one can borrrow and their lower rates.
I also saw in this post and another that @Dawn Anastasi also used Prosper but also recommends ,in this thread, Lending Club. The property that I have my eyes on is approx. $140,000 and I was thinking of using P2P for the down payment/fees. There are currently tenants who have just recently rented per the management company. I see that you used the funds to purchase your properties assuming that you covered the much smaller closing cost yourself. What are your thoughts on my being able to use the funds for this purpose of down payment/closing fee? Thanks
The issue with taking out a loan for your down payment is that the lender will then see that your DTI will rise upon taking on the new loan. So if you were close or already over, then you're disqualified. Lenders generally like to see borrowers use their own funds.
In my case, I took out the loan and contributed some of my own money and bought a whole house with it. So that's a different scenario.
Glad I found this thread. I've been considering doing the same as @Dawn Anastasi and possibly buying a house 50% my own funds and the rest plus closing from a P2P loan.
Dawn, how long was your loan for? I have excellent credit so I'm hoping I'll get a low rate, wondering if the length of the loan affects the rate.
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