Beating Broke

Personal Finance from the Broke Perspective

Lending Club Returns Update 4Q13

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Another quarter has come and gone, so it’s time for an update on the Lending Club returns I’ve been getting on my account.  At the end of the third quarter, my account was sitting at a return rate of 14.69%.  It’s actually improved a bit since then, but Lending Club has also added the ability to adjust the displayed NAR, which does some funny stuff (see below) and reduces the rate a bit.  I think that’s a good thing (again, see below) and that’s the rate I’ll likely be using for future updates.

Lending Club Adjusted NAR

A few months back, Lending Club introduced what they’re calling an adjusted NAR.  Basically, it uses the historical charge off rates of loans at the different stages of delinquency.  Obviously, the current loans have a historical rate of charge off of 0%.  Once they go into the Grace Period, about 23%, 16-30 days late, about 49%, 31-120 days late, about 72%, and in full default, about 86%.Beating Broke Lending Club Update

As an example, my portfolio currently has two notes that are in the 31-120 days late category.  So, when Lending Club is adjusting my NAR, they use the 72% figure and assume that 72% of the principle will be lost.  Using that number, they then calculate the new, adjusted NAR.  With the two notes late, my adjusted NAR is currently showing as 13.16%.  Still a very healthy number, and likely a more realistic number.  I like the new adjustment, as it should give investors a more realistic number to look at.

Lending Club Defaults and Late Notes

As I mentioned above, my portfolio currently has two notes that are 31-120 days delinquent.  And, if you go by the historical numbers, those two notes have about a 72% chance of eventually going into collections.  I’ve been lucky enough to only have had one note actually go that far to date, and the collection agency was able to get a bit of that money back for me.  It wasn’t the entire amount owed, but a significant portion of the principle, which I was happy for.  I could try and sell off the two delinquent notes, but at this point, I wouldn’t get much out of them, so I think I’ll just ride them out and see what happens.  The total principle involved is only about $35, so it would mean about a month and a half of lost interest payments.  That’s a risk I’m willing to take.

The Future of My Portfolio

With the rates I’m getting, I don’t foresee stopping my investing through Lending Club.  I may even start putting some more money into the account sometime in the future.  At the moment, I’m content to just leave it and reinvest the payments each month.  I’ve seen a few other investors that have either significantly changed how they’re using Lending Club, or have begun backing out of it altogether.  I think it’s something that you need to be able to change how you do it, but I also believe that backing out altogether is a mistake at this point.  The technology is still relatively new, and many of the changes that we’re seeing Lending Club make have been for the better.

I’ve created a page that consolidates all of the posts I’ve done on Lending Club, as well as the quarterly updates since I began doing them.  If you’re interested in starting to invest in Lending Club, you can read more on my Lending Club page, or you can sign up for an account and give it a go.

Separate Your Business Accounts

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I don’t think it’s any secret, in this online world, that just about everyone is trying to make a little bit of money with a website.  After all, it’s not terribly difficult.  It’s not necessarily easy, but it is far from hard.  Throw up a website, put some work into it, and start bringing in money.  I do it with this site and others.  There’s work involved, but you can make money.

If you’re going to do it, you’ve got to treat it like a business from the start.  I don’t mean that you have to create a company, license it with your state and the IRS, and create a board of directors.  What I do mean, is that you need to have the business assets and accounting separate from your personal assets and accounting.  Using your own personal checking account, savings account, and trying to keep them separate come tax time (and you’ll want to) can be very difficult.  So difficult that you almost have to be a CPA in order to keep it all straight.

Keep your business accounts separateWhen I first began making money with blogs and websites, I didn’t separate anything.  The money to buy the domains came directly from my personal checking account.  The money to pay for the hosting of the websites came directly from my personal checking account.  And then tax season came around.  While I hadn’t made much money from the sites, I did make some.  I wanted to be able to use the expenses of the sites to reduce the income from the sites, so I needed to figure all of that out and get totals for my taxes.  Instead of just going into my accounting software, pulling up the business accounts, and running a profit loss statement, I had to go through each months’ statement of my checking account, and single out the transactions that were related to the sites.  After I’d pulled them all out, I had to compile them into a spreadsheet and create a profit loss statement from them.  It easily took twice as long as it should have.  And that was when things were simple and I only had a couple of sites with a couple of transactions every other month or so.  It would be much more difficult now.

How should you separate your business accounts?

I’m still a fan of keeping things as simple as you can.  I don’t think you need to go through the whole filing process to create a company.   That’s something that can wait until you’re making a decent amount of money.  Ask your CPA if you want a more accurate number.  You can keep it simple.  What you really need is separate accounts and separate bookkeeping.

Start with setting up separate accounts for the business funds to flow into.  You’ll need your own business savings account. Add a checking too if you think you’ll have need of a debit card or actual checks to write out.  I’ve got a checking account and several savings accounts set up that are used solely for the business funds.  If you’re not going to use the business account debit card for online purchases (it’s probably safer not to), you’ll also want a credit card that is used only for business transactions.  Again, it doesn’t have to be in the business’ name, it just has to only be used for business use.  I use one that has a 1-5% cash back feature to save a little extra on expenses.

When it comes to keeping your books, you probably don’t need anything too fancy for your personal accounts.  Just enough to create your budget, and keep track of accounts.  For business, you really need something a little bit more.  I prefer a full on business accounting software.  There’s a couple out there, and you can probably pick one up cheap off of eBay.  They’re a little more complex than the software created for personal accounts, but I like the detail the complexity gives me.  Maybe you can get by with a robust spreadsheet.  But, something that you can use to give your CPA (even if that’s you) a full detail of the profit/loss of the company including all sources of income and expenses.

It may sound a little difficult, but it’s not any more difficult that it would be if you didn’t separate them first and then tried to separate them after you need to.  You’ll thank yourself later.

Lending Club Returns Update 3Q13

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Another quarter has come and gone.  We’re bracing ourselves for the coming winter.  It’s also time for a check-up on my Lending Club account, and the returns I’ve gotten.  In my 2Q13 update , my account was showing a return of 14.08%.  Keep reading to find out if I’ve managed to maintain that rate.

No More Defaults

One of the other things that I wrote about in last quarters update was that my portfolio finally suffered it’s first defaulted loan.  In this quarter, I had a few loans that went into the late categories, but ended up coming back to normal.  I’m still a little surprised that I haven’t had more defaults.  I’m glad that I’ve been lucky enough to only have the one default since January, 2010.

Active Passive Income

Beating Broke Lending Club UpdateThe closer you get to true passive income, the less work you have to put into it.  Lending Club portfolios are not true passive income.  I’ve discussed it before, and it bears reiteration.  They are awful close though.  In all, I spend about 20 minutes a month to reinvest the payments and interest that have come in.  It’s not all at once, usually.  With the $9-$10 in interest that my portfolio is earning each month, that’s a pretty good wage.  Maybe it’s an active passive income stream.  Oxymoron for the win!

Lending Club Return Rate

Now, for what everyone has been waiting for.  (Or scrolled down really quickly for)  Without any further defaults, and staying on top of reinvesting the funds as they come in, I’ve been happy this quarter with my return.  As of 10/4/13, my current Lending Club returns rate displayed is 14.69%!  It’s bounced back nicely from the default.  I’ve been investing the funds a little more aggressively over this quarter which helps explain some of that.  At this point, my reasoning is that I’ve been investing with Lending Club since 2010 and have only had one default.  The risk is still there, I think, but I don’t think it’s quite as bad as some would like to make it sound.

Where will my rate be at the end of the year?  I’m hoping it will remain steady.  I’ll be maintaining the same Lending Club investing filter, and hope that doing so will maintain the low default rate I’ve been lucky enough to have.

How is your Lending Club portfolio doing?