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Author Topic: Value of P2P Lending Sector Diversification

Value of P2P Lending Sector Diversification
OP: August 13, 2016, 11:00:00 PM
I currently have P2P lending investments in two sectors: consumer debt (e.g., LC) and small business lending. I'm now planning to add real estate exposure, split 50-50 between residential real estate and commercial real estate.  My ultimate goal is to have about 30% of my P2P investments in consumer debt, about 30% in small business debt, and about 20% in each of residential and commercial real estate debt.  For each sector, I work with (or plan to work with) a different platform (i.e., company), and that should reduce my platform risk, but I'm wondering if by diversifying across marketplace lending sectors (consumer debt, small business debt, residential real estate debt, commercial real estate debt) I'm decreasing my overall risk in the P2P asset class or if I'm just making myself feel better.

Comments? Insights?

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Value of P2P Lending Sector Diversification
#1: August 13, 2016, 11:00:00 PM
You're reducing one kind of risk, and taking on a different kind of risk.

Unfortunately, there are no P2P platforms in real estate or small business lending which I trust.  (I'm investing a bit thru some, but that's an experiment.)

None of them have been around long enough to establish a track record.  With no track record, you're flying blind.

LC has over 1 million loans in the publicly available database.  Sure there are some problems here and there, but you can see what happened in the past in considerable detail.  You can see the quality of their work.  For these startup real estate and small business lending guys you don't have anything like that.  You're flying completely blind.
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Value of P2P Lending Sector Diversification
#2: August 14, 2016, 11:00:00 PM
If you decided to give $50 dollars to five homeless people at a 10% interest rate or $250 dollars to one homeless person at a 10% interest rate, which do you think is risky?  Well surely the bet on five reduces the risk somewhat, but it doesn't tell us how much.  Why would anyone invest in P2P real estate instead of buying a REIT?  I still don't understand why, other than the fact the P2P guys seem to do perhaps much riskier real estate.
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Value of P2P Lending Sector Diversification
#4: August 14, 2016, 11:00:00 PM
I agree with your logic and am also concerned about the viability of these online real estate lenders.
On the other hand Lending Home has now issued over $750 million in loans and with a current balance outstanding of approximately
$500 million, they are taking in $5 million a year ( at 1% of the outstanding) which is helpful in covering overhead.

In addition they are using a Bankruptcy Remote Vehicle which makes me feel even better. And their rate of return is equal to or surpasses Lending Club.
So I wouldn't put my last dollar with them but all in all I feel relatively comfortable.
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Value of P2P Lending Sector Diversification
#7: August 14, 2016, 11:00:00 PM
I agree with RawRaw/Fred93 that the P2P RE sites all carry risk bur risk is a relative term. I am big proponent of P2P RE and have been investing in this alternative space for 42 months. I know what you are thinking........this is a very short window to determine if this is a good long term play. However, reading your thread I assume your an accredited investor and  I think it is a good idea to try it out and see what happens. Start small and add/subtract based on your results. I have done 110 deals on 8 different sites with 60 deals completely closed. I have lost principal in only two cases and yet my overall return is north of 10%.

I feel the best overall site right now is Realty Shares which gives you Debt/Equity & Commercial/residential opportunities and solid returns. Lending Home/Patch of Land are good for debt positions and short term turnarounds. Most of the deals on the debt sites are done within 12 months so it is pretty easy to get your rate of return.

I used to invest heavily in Fundrise and they were one of my favorite sites until they shut down their interest in specific properties and channeled all their efforts into the eREIT.  Their fees are higher than other REIT's that I invest in so I no longer have any interest in Fundrise.

Another way to participate and potentially spread your risk further is using AlphFlow. The guy who started this site left Realty Shares and created a fund that invests in multiple P2P RE platforms. In addition, this site is awesome if you want a single dashboard for all of your P2P websites. 

Good Luck
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#13: August 15, 2016, 11:00:00 PM
Fred93...........I know you have been critical of P2P lending, specifically Prosper since 2006 and in many cases I agree with your synopsis. No disrespect to you but  there is money to be made in P2P RE sites. Obviously, the market could change and the P2P RE vendors could implode but I don't think that is anytime soon.

I'm sure one could wait another two or three years to invest in P2P RE once these companies become "established" or have a "track record".  By that time, one could miss out on a lot of gains. Again, it comes down to the individuals risk tolerance.

My recommendation for "JustTryingToMakeAbuck" is to try it out and see what happens. I have three years of positive gains and my returns are better then my LC/Prosper returns.

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