As an investor at Lending Club, and a resident of the great state of Michigan, I currently have only one of two options available to me for how I am able to obtain notes. I must purchase notes via the note trading platform by Foliofn, which is the secondary market used by Lending Club, for trading peer to peer (P2P) notes. The other option is to fund notes directly through the more common retail platform, which is not currently available to investors in all 50 states. The difference between these two options is basically this – the retail platform is for notes that are not yet fully funded or acitve and the note trading platform consists of notes (or loans) that already exist and are active. After reading through several blog posts and blog comments, I am finding that a lot of people prefer the retail platform and feel that the secondary note trading platform by Foliofn is inferior. I am the exact opposite. Although I am not able, or even allowed (currently), to take part in the retail platform – I actually think I like the note trading platform better. Only three months in to my Lending Club investing experiment, and I’ve been able to maintain a Net Annualized Return of over 22%!
Lending Club Investor Availability by State
Lending Club States
Currently, to invest directly via the retail platform at Lending Club, you must live in one of the following states: California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Kentucky, Louisiana, Maine, Minnesota, Missouri, Mississippi, Montana, New Hampshire, Nevada, New York, Rhode Island, South Carolina, South Dakota, Utah, Virginia, Washington, Wisconsin, West Virginia, and Wyoming.
If you don’t live in one of those states (like me), you might have the option to invest at Lending Club via the note trading platform which is run by Foliofn. These are the states that currently allow this: Alabama, Alaska, Arizona, Arkansas, Indiana, Iowa, Massachusetts, Michigan, Nebraska, New Jersey, New Mexico, North Carolina, North Dakota, Oklahoma, Pennsylvania, Tennessee, and Texas.
All current “State and Financial Suitability” conditions are available on LendingClub.com.
I have heard of at least one person who bends the rules by using an out-of-state friends address in order to be able to invest in the primary retail platform. I am not suggesting this and am not sure whether Lending Club, the SEC or the IRS would be okay with it. It could be an option for you though if you are willing to take the risk. This is not something that I will personally be experimenting with. Like I said, I prefer the secondary note trading platform anyway.
Check out my initial Lending Club post – including how to open an account, step-by-step
Foliofn Note Trading Platform for Lending Club
The following explanations and screenshots portray one example of how I buy notes within the note trading platform at Lending Club, run by Foliofn. The criteria and strategy that I use is very aggressive, which explains my 22%+ Net Annualized Return rate. I am not so naive to think that I can maintain this kind of return rate over the long term, but I honestly don’t see why not. As long as I stay diversified and keep investing small amounts over several different loans, a long term return rate above 20% just might be possible. Everything I’ve read from P2P investors who have been at it for awhile say otherwise, so I guess time will tell. Originally, my goal was to maintain a return rate above 15%. I absolutely think that is possible with the strategy I am using, but I am now shooting to stay above 20% long term if I can.
Available Notes on Foliofn
When I opened up the note trading platform after logging in to my Lending Club account, on January 29, 2013, there were 54,543 notes available to purchase on the Foliofn note trading platform. This is a very active platform and there is plenty of buying and selling going on every single day.
My Search Criteria and Filters on Foliofn
I always start my search for notes by setting up certain criteria with the drop down menus and check boxes on the top of the screen. Like I said, I have a very aggressive strategy and only look for notes with high average interest rates (usually at least 18%). I like to set the remaining payments to 56. This will show me only 60-month loans that have at least 4 months of history to look at. The reason I focus on 60-month loans is because interest payments on the front end of those loans are higher. After setting the initial criteria on the top and hitting search, I now had 10,670 notes to choose from. I usually click on the far right column in order to sort these results by their Yield to Maturity stat. After doing this, I browse down the Status column and only look at notes that are current.
Analyzing Notes on Foliofn
On the date I was searching for these loans, I had a little over $58 available cash in my Lending Club account to reinvest. Available cash builds up in my account throughout the month as borrowers make principal and interest payments. Available cash can also be obtained by selling notes on the note trading platform. My original intent was to buy 2 notes in the $25 to $30 range. But then I noticed this note on the first page of results that was being sold for $57. The stats were too good to ignore, so I investigated further. You can view the details of the note by clicking on the link that says Current. The following screenshot shows what comes up when you do that.
In this case, the borrower has ALWAYS paid on time up until this month. Many lenders freak out as soon as one of their notes goes even a day late and immediately put them up for sale on the note trading platform. In this case, I can see that the borrower actually contacted Lending Club themselves to set up a payment plan. This kind of proactive approach from a borrower is rare as far as I can tell from my limited experience in examining notes within the note trading platform. Their status doesn’t concern me one bit, so I decided to purchase this note. It’s principal and interest value was at $68.19, and I was able to purchase it for only $57. The interest rate the borrower is paying is 19.22%. By purchasing this note at a discount, I will be getting a Yield to Maturity rate of 28.59% – meaning if I hold the note until it is completely paid off that will be my overall rate of return.
Purchasing a Lending Club Note via Foliofn
Purchasing the note is as easy as simply checking the box next to the Note ID number and hitting the Buy Notes button.
The next screen is a kind of confirmation screen. If you are purchasing more than one note at a time they will all show up here. Simply click Submit.
Easy as that. That is the gist of how I buy notes on the Foliofn note trading platform through Lending Club.
Foliofn Note Trading Platform Complaints
From what I’ve read on other blogs, people are less than impressed with the interface offered by Foliofn for secondary note trading of Lending Club notes. They complain that there aren’t enough filter settings and that it takes too long to browse through pages and pages of notes to find the ones that suit you.
I actually like that they have it set up this way and wonder if this is done intentionally. My thought is that if it were extremely easy to find the “good” notes for sale, then savvy active investors would always be snatching them up almost instantly. This would leave less “good” notes available for more passive investors like me who only log in about once a month to buy notes. But then again, what is considered a “good” note is completely subjective to the respective eye of each investor.
My Lending Club Investing Strategy Performance
Just over three months in to my Lending Club experiment and I have increased my initial investment of $1,001.84 all the way up to $1,055.59! Just two days ago, my account total at Lending Club was only about $1,042. By purchasing this note recently for about $13 less than it’s value, I increased my account total by about that much. Not to mention the spectacular rate of return I will be receiving in the coming months and years. The following screenshot shows my account summary, including my current Net Annualized Return rate of 22.25%!
As you can see, it is possible to earn a good rate of return and even possibly profit by buying and selling notes on the note trading platform by Foliofn. If you wanted to, you could actively buy and sell all the time in an effort to profit like this. Although I do enjoy the process, I am taking the more passive approach. After all, this is a passive income blog. By passive, I mean that I usually only go in once a month to reinvest the funds that have built up in my Lending Club account. Throughout the rest of the month, I am passively earning interest income while I do nothing.
Browse Lending Club Notes
If you are on the fence and thinking about becoming an investor at Lending Club, but aren’t quite sure if you want to move forward, you can always browse through available notes without risking any money. If you want to check out the retail platform (notes not yet fully funded), you can do so without even signing up or creating an account. Click here to go to Lending Club > then click Learn More > then click Browse Notes.
I could not find a way to do the same within the secondary note trading platform by Foliofn without creating an account. Don’t worry, you can still browse notes over there risk free. Simply sign up for a Lending Club Investor Account today, and then you will be able to access the note trading platform before you even add any funds to your account.
Note: Lending Club advertises return rates of 5.66% to 10.27% for A to C grade loans, which are lower risk loans from borrowers with better credit scores and credit history. I invest mainly in higher risk loans (grade D to G), which is how I achieve a higher rate of return. My risk of loans going into default is much greater which could affect my results in the future.
In future posts about Lending Club, I will keep you up to date on how my notes are performing by sharing my exact numbers with screenshots and explanations.
Until then, remember that there are several dumb ways to create passive income online, but only one site that is blogging about it! Dumb Passive Income… dot com.
Readers: What do you think about buying and selling Lending Club notes via the secondary note trading platform by Foliofn? Do you like or dislike my strategy? Do you think I can maintain this high rate of return, or do you think I am setting myself up for a big disappointment?
Any Lending Club links or banners in this post are affiliate links. If you click on any of these links and choose to open an account, I will receive a commission. I greatly appreciate it if you do so and hope that the information I am providing you is helpful in making your choice, one way or the other.
Map: Lending Club Investor Availability by State from LendAcademy.com by Peter Renton
Image: Michigan’s West Coast from Flickr by Robby Ryke – a lighthouse on Lake Michigan