Putting $70,000 into Prosper.com
Sometimes pressing problems require radical solutions. If you've been reading our blog, you'll have gathered that my wife and I are running a monthly deficit of $1,800. This is a LOT of money and if the situation continues, it will put us in dire financial straits. As part of the solution, we're doing the following:
1) Putting the bulk of our investment capitol in Prosper.com. If you don't know what this is, prosper is a person to person money lending service with an ebay style format. In order to generate the 18% required to replace our income, we'll need to lend to persons who have bad credit.
Is this risky? Yes, we will incur two types of risk. First, we risk not having our money repaid. Second, we risk loosing all or most of our money if prosper goes out of business.
Non-repayment risk can be manged via loan diversification and collection agents. So frankly, I'm more concerned about prosper going out of business. Why? The company is still raising money from venture capitalists and won't disclose the amount of transactions or amount of loans under management. This tells me they aren't currently cash flow positive. I've got a call and email in to the company's senior to staff to get more information about this.
2) Second, we're planning on investing in high yielding income stocks. Some of the Canadian Energy Trusts are paying upwards of 10 to 18% percent. It may be possible to secure some preferred shares in some of these companies. The main idea behind preferreds is to get a higher yield while managing our risk.
That's about it.
We'll keep you updated as things pan out.
Best,
James
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34 comments:
Can't wait to hear how it goes!
Ouch. I have been skeptical of prosper and you are sure to suffer some losses of your principal if you are plowing $70k into it.
Why not consider plowing this money into you invesment property mortgage - it seems like you might (maybe not) be close to paying it off and that would significantly change your monthly cash flow - risk free.
Isn't the theory that you should only risk what you can afford to lose? If you've got an $1800/month shortfall, I'm not sure risking all of your investment money on HIGH RISK borrowers is wise. I'm anxious to see how this works for you...
WOW. $70k is a lot of money and the risk seems very high (how else can they justify the supposed high return). I would tread very cautiously on this one. If you get more info on prosper, pls let us know. From what I can tell, it just simply looks too risky.
You've inspired a post on my blog if you'd like to check it out:
Taking the ROI bull by the horns
I'm too risk-averse for this kind of bold move but I really hope it works out for you!
I really like Prosper.com and if you spread your loans around, I believe it can be somewhat diversified. Would I do it $70,000? Probably not at this stage.
As far as losing all your money if Prosper fails, I don't think that's a possiblity. You still hold the promissory note in your name. Maybe you talk to them more and at least alleviate this concern.
Prosper.com is interesting. I have about 2k invested currently earning 20 percent. But stats are only out for a few months. The big money will come if figures look promising by mid 2007.
To Lazy Man And Money's comment about the promissory note.
Loans made through prosper.com are held between prosper.com and the borrower. As each individual is not a bank, he cannot hold a legally lend money to another person in this manner. This is stated in some fine print on prosper.com. The lenders on prosper.com are treated as investers to a sort of loan fund. I do not know what kind of legal responsibilities prosper.com has towards the lenders, but it is definitely not as clear cut as a promissory not.
What's your userid on Prosper?
With the click of a mouse late Thursday night March 1, 2007, the leader of the Two Millionaires Group on Prosper.com admitted the 5,509th member and created the largest group on Prosper ever! The one remaining challenge at the time was to beat PsychDoc's record number of loans created....
Asked about how his group succeeded in growing so large so rapidly, "TwoMillionaires1" the group leader replied that he did a lot of internet marketing in the beginning to bring new members in, and it grew from there to the point where today word of mouth from contented borrowers brings in probably hundreds of new members each week.
"It didn't hurt either to have a private website that has attracted more than 300,000 hits and 10,000 unique visitors," the group leader added.
As of the date of this report, more than one and a half million dollars has been loaned to members of this popular people-to-people online borrowing and lending group, almost 400 individual loans.
Details are available at:
http://www.2mils.org
How about investing in a toy company that will actually profit from its ideas?
http://www.shockertoys.com
Prosper.com could revolutionize banking as we've known it...the number of new borrowers and lenders weekly is amazing...
In April 2007, a new group was created on prosper.com “Six Degrees of Separation – A Social Networking Challenge” to facility person-to person lending on a secure, easy to use internet platform.
This group (Six Degrees) was created to help individuals who want to improve their finances. Loans can be obtained to either refinance higher interest debt (credit cards), to invest in real estate, to invest in other income producing or appreciating assets, or to invest in small businesses.
In addition, the group (Six Degrees) is offering a twist that allows individuals to participate in a social networking challenge to test the small world phenomenon. As an initial promotion, the group is offering a special promotion whereby borrowers can earn cash incentives if they fund a new loan within this group or create the largest number of referral loans within this group.
The group leader of Six Degrees has spent 15+ years in the traditional banking industry and is currently both a lender and borrower on Prosper.com. The group leader before forming this group invested his own money in 75 loans to help others across the country (California, Washington, Texas, Florida, Maine, New York and many other states).
Check it out and Join the Six Degrees Group:
https://www.prosper.com/groups/group_home.aspx?group_short_name=SixDegrees
I started a group that I think could be helpful for first time borrowers on prosper. It is a group where first time borrowers and experianced borrowers can both join. The first time borrowers can interact with the experianced borrowers to recieve info on any questions they may have. The link to join is below.
http://www.prosper.com/groups/group_home.aspx?group_short_name=beginnerborrower&referrer=jg1656&utm_source=referrer-jg1656&utm_medium=referral-link&utm_content=link&utm_campaign=referrals-group
Diversify! Don't put all your eggs in one basket!
I must say, I love Prosper and have been doing wonderfully at 15%+ avg loan rate with no defaults across 45 loans, but putting 70K in when running a deficit doesn't sound prudent. There are a lot of other options out there. This is an old post; did you end up doing so? If so, how's it going? I've posted plenty of tips and ways to exceed to prosper avg default rate, etc. but only time will tell as these are 3 year loans.
Incidentally, a $25 referral for new members through the end of aug 2007. anyone considering joining should find a good finance blog with this link (min included hint hint, but any good one will do) to start off your account with a free $25.
a problem with putting all your money in prosper is that all the loans are in 3 years. also you don't earn interest while you're bidding on loans. It's probably best to hold a lot of your cash in a high yield money market account, because even if a few loans aren't repaid you could do worse than a money market. Anyway, good luck!
look at how prosper is using their attorney's to silence critics
http://www.prosperreport.com/
Prosper seems to be a great site for both lenders and borrowers. Borrowers get a good interest rate while lenders have an opportunity to earn a nice rate of return.
I would strongly advice against putting money in prosper. I have been on prosper ~ 1.5 years, and I put in $2,500 and spread them over ~ 70 loans. So far, I am down approximately $100, even with an average interest of 17 %. I have now stopped giving out new loans (as old loans get repaid) and will withdraw my money as the last loans get paid back over the next three years.
Wow...70k in Prosper is a very bold move. I have $800 invested and am carefully watching my loans. To date I have one borrower who is 2 months late, and the remaining are all paid. Good luck and I look forward to following your progress!
Canadians might be interested in looking at www.IOUcentral.ca, Canada's first person to person lending site.
hmmm. My wife and I put a little money in prosper as an experiment a few years back. Not so good. Even though we mostly funded low risk loans. still had people not pay/go bankrupt. A little trick they pull; the loans we own that went bad, are still showing up in our account as just "past due". They are about 10-11 months past due, so I have no hope for collecting. Problem is, they leave it on the books, and your portfolio looks in the black - I assume this may be the situation with many other lenders... therefore the aggregate propser community numbers may not be reflective of true returns you can expect. Just be aware. 70k seems like alot. our experiment is in the red, but we didn't expect much out of it. We are letting it sit, just to see how it finishes. But I don't plan on putting more in. It's too bad though... peer 2 peer lending seemed like such a great idea. I wished it would have worked out better.
Take a hard look around the "unofficial" Prosper forum before you invest $70K into Prosper.
prospers.org
prospers.org
check it out before you invest
Uh, investing 70,000 into prosper is one thing. Doing so to make up for a deficit is another. Wrong reasoning! Right thing, with wrong reasoning equals wrong thing. PERIOD. Even if you are *successful* with your loans it does not mean it was the right thing.
Ok, on to more positive things and off my soap box.
I love prosper. have been in for 2 or 3 years now. I put in $1,000 and just rotate my balance into new loans each time my account gets to $50.
I recommend staying away from loan requests over 5k. I also like 12% or less loans and only to credit grades aa, a and b. Has worked well to bring me in over 10% average.
Dan
I was just wondering how that worked out for you two. I invested $200 in Prosper a few months ago to see how it was going before I chose to shift anything else in there.
Any advice?
Hmmm...I'm wondering how it went too! I don't see any feedback on if they made up for that loss...never, never, never would I invest that amount...I think they own stock in that company. What happens if they default? Can you put a lien on the person's house, etc?
Cheryl - I think the lesson is to only put a small amount on each person, as the basic answer is that you are screwed in the case of defaults.
Best,
Miel
Someone put $2500 in loans in Prosper and spread that over 70 loans, in 1.5 years?
And that is a bad thing? Minimum $50.00 per loan. 70 X 50 =$3500.00,
Round numbers I know, there are fees, but do the math, to go from $2500.00 to $3500.00 in 1.5 years, they were not loaning at 5%, maybe the problem is I don't underswtnaf their statement, or they don't.
I can recommend a friend who is on Prosper and is looking for an investor. He needs to borrow to pay off medical bills and divorce debts. He's got a new life now, his kids are healthy again and he is trying to clean up his credit. Plus he has already been on prosper and has made every payment on time (and he has also borrowed money from me and paid back every dime). His name on Prosper is ... armydad46(I hope),his real name is Doug Andrews.
I have used Prosper and have had almost every loan go into default. Out of the 45 I started out with only 13 of those are still active and in good standing, the others have all faulted. So, I would recommend putting you monies into a high interest savings account and not take that HIGH risk path to Loss. - Good luck
oh boy......hope you really didn't put your $70,000 into Prosper. It appears they're going out of business.
@ anon - No we only put like 3,000 into prosper. Its a good thing too, a bunch of our loans have defaulted.
Interesting how things that seem so promising at the time can take a nose dive with the current events.
That's why it's important to review your investments often & make quick decisions based on hard fact & not emotions.
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