Has any one had experience with this site, either as a lender or as a borrower? I see quite a few people with RE deals trying to get funded through this site.
Just wondering if it works or not.
DB
I’ve not borrowed from the site but I am a lender on prosper. It’s a novel business model but a little cumbersome in it’s process.
I was looking at it to possibly lend. The thing that I was thinking was that it doesn’t look like it has been around long enough to have a track record deep enough to make me comfortable. How have you found your investments there to be. Any Defaults? How risky do you go when loaning money out?
Thanks
DB
I tried it but due to my state laws it will only let me borrow at a certain percentage rate (11% I think). I was looking to borrow some money with a higher interest rate but without all of the points and closing costs associated with hard money. I was willing to pay over that but couldn’t due to some state law (even though there are credit cards, personal loans, etc all over 20% within the state laws). There are a lot of people looking to borrow to pay down really high interest debt so they are often offering over 20% on some of the loans so the money all goes to those loans long before my 11% loan.
When I have some liquid cash I wouldn’t mind lending there. Being able to spread it as thin as I want down to $50 a loan makes the risk a lot lower so I would think its acceptable risk to me. If I spread a few thousand out at $50 a loan even if a few defaulted I would still make a killing at 15-25% interest.
I think there’s an area within the website that shows a default percentage per catagory. Every state has a specific cap interest rate (usury law). I understand all the loan terms are based on a minimum 3-year timeframe. Should you have a few thousand dollars sitting around and can afford to gamble, why not?
Its not a minimum 3 yr loan, its 3 yrs period. No more no less.
I just created a group on there. We will see how it goes. It is a nice idea.
They also have collections protocols in place should a borrower you lend to default. Obviously there is no guarantee they will get your money back and if they do it will be minus fees but at least all is not lost. The borrowing rates are pretty darn high though on most loans so minus defaulting accounts the payout is pretty high.
Ryan,
Are your intentions to borrow or lend? Are you doing this for REI purposes?
thanks,
DB
Here is what one RE investor thought of Prosper.com …
[i]I’m going to give up on Prosper.com. I think they have a good idea, but it doesn’t really work for me. I have a couple problems with it:
* The 3 year loan period. I realize this is to help the borrowers to give them a lower payment, but right now, I prefer loans of 1 year or less.
* Small payments. I am unwilling to lend large amounts of money on unsecured loans to people. A small loan amount combined with the 3 year repayment period equates to tiny monthly payments to me.
* I don't think their peer review system works. They push "groups" as a way that people will police each other to help prevent loan defaults. Supposedly, if a group member is behind on loans, the other group members will encourage the late payers to make their payments so that the group as a whole looks good to other lenders. I don't see this happening. With my one late loan, there has been no response from the borrower to the one polite email I have sent. The borrower belongs to a group and the group leader also was a lender to this person. His emails have not been answered either. She is still a member of the group too. I can see people using Prosper only one or two times - it's not like eBay where one person will be conducting many transactions. As a result, the "feedback" or community policing has little to no effect. If people want to take the money and run, they will. This is especially true of high risk borrowers. Their credit report is already not good, so I don't think the threat of another ding will deter them too much.
For people wanting to get into hard money lending, Prosper is a good starting place. It is an unsecured loan, but you can start lending with just $50. You will get the experience of lending and receiving payments, the headaches of late payments, and all the other little details and worries that are part of money lending, all for a low entry cost. If you like it, however, I suggest leaving Propser and moving on to making larger loans through private parties secured by tangible assets.[/i]
And …
[i]I’ve already mentioned I’ve grown disappointed with Prosper.com and will not be lending any more money through there. I’ve noticed now that they have added a new feature called “Community Payment” which I’m not sure I like. The concept is simple: if a member of a group is behind on payments, other group members can chip in and make a payment on the overdue loan. This helps keep the group’s rating up by cutting down on the number of late loans the group has, which can scare away other lenders from that group.
As a lender, I should be glad for this. If the borrower can’t pay me, at least someone else will. In fact, this has just happened. One of my loans is 2 months late and I received a community payment. The amount was only $1.43 and after all the late fees and service fees, I only get $0.21, which is still better than nothing (although not by much).
But on another level, I am against this idea. The point of Prosper, I think, is for people to help other people get back on their feet by lending them money. But part of getting back on your feet means learning and accepting fiscal responsibility. The community payment option gives borrowers less of a reason to accept that responsibility. I think it is also a huge source for potential abuse. If you find a group whose members tend to make community payments for others, why not join that group, borrow money, and default on the loan? The community payments will stretch out even further the amount of time it takes for a loan to go to the collection agency and thus, hurt your credit score.[/i]
I’m not agreeing or disagreeing - just pointing out one RE investor’s position on the matter who’s been through it.
NMD,
Thanks for posting that, very insightful, and much the same as my own thoughts on a number of things.
DB
I created a group for the REI Club that I am the director of. I am not sure how well it will work if at all, but anything to give people more potential success. If other investors have succcess, the more I will have with them. The more money they will have, the more I can borrow from them, the more deals they can do (partnering with me of course), etc.
So, we will see how it happens. The group is WCRT on Prosper.
While the posted rates on loans might seem high they do not necessarily close at this rate. Remember this is a bid marketplace, sort of like buying tax lien certificates. You bid a minimum rate you will accept on a particular loan, if the loan fully funds prior to listing close then the higher rates get tossed out as lower rates are substituted.
It is an interesting concept and gives small investors a chance to directly invest in unsecured consumer loans and diversify their risk across multiple loans.
Most of the times they don’t get bid that low, the rates don’t change much. Certain amounts with certain credit scores tend to fund at certain rates there. You won’t see many start off in the 20’s and end up in the low teens.
So, if you borrow, can you pay the loan off before 3 years? This seems like a pretty good option if we have a house that goes over budget, but not if I’m stuck with a loan that won’t allow me to pay it off early.
Yeah you can pay early if you want. Also, keep in mind the max loan value of $25k…that might keep it from being useful on larger projects.
From my research, there is no prepayment penalty at all. I have seen several loans on there for exactly what you described, it at least looked like they intend to pay them off in a couple months when they get the house turned over.
DB