As interest rate remain low, real estate price has nowhere to go but up. While this is good for some people, it is a nightmare for cash flow investor like me. Assets price going up equals no more good deal to buy and higher property tax. I can’t raise my rent fast enough to match with the rate of property tax increase. This fact alone is sending the yield down and make the hassle of owning real estate investment less attractive.
So I am in the questing searching for a way of creating more Arbitrage -aka more yield for the money. Lending Club is what i am investigating right now and it seem like i could send some of my employee (money) over here and make them work for a bit.
Since the money that you are lending on lending club does not tie to any hard asset. this alone is a very dangerous factor when lending money. You have to find a way to mitigate this risk. Here is what i do as of right now to mitigate the risk:
- Diversity your loan – Only invest a small amount of dollars into each loan. Lending club let you do as small as 25$.
- Screen your borrower – just like how i screen my tenant. I only loan to people who his or her income that has been verified by lending club. also the credit utilization % must be less than 40%. They also need to have a job in a stable industry. I might not want to lend money to a person who is working in Oil and Gas at the moment
Hey if all I need to do is pick the loan then sit on my ass from 3 to 5 years and get 11% annually. I don’t mind doing it more at all. I have not any buyer defaulted on my yet so let see how this will play out in the future. Of course comparing to Real Estate you won’t get any of the benefit such as tax advantage, phantom income, equity build, etc.. but this is a really passive way to generate yield with little to no work at all.
On the other end. I see the rate that they offer for A type borrower is pretty good. Instead of using hard money for a deal in real estate. You could potentially borrow up to 35,000 over there and get a single digit rate. I will also keep this option on my end now when doing Real Estate deal.
More article to come about lending club later. Happy Monday