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Much of my focus on this blog so far has been on my attempts at internet marketing through building various types of websites to try to create a passive income. However, there is one other thing that I am doing to create passive income online that does not require the work and knowledge that it takes to build a website. I recently invested some money at a peer to peer (P2P) lending site, Lending Club. Whether or not investment income from interest of this nature is considered passive or not is debatable. For me, it is passive enough. I spend about 30 to 60 minutes per month choosing notes to reinvest my principal and interest payments into. So it isn’t completely passive. But, I am not actively trading time for money like I do at my day job. I choose the notes to put my money into about once a month, then they sit there and earn interest for the entire month while I do nothing. Allow me to explain how and why I got started in P2P lending at Lending Club.
I Wanted to Apply for a Personal Loan Online
Around August and September of 2012, I was becoming increasingly frustrated with my inability to get my small niche sites to rank and start earning a good passive income. I was seriously considering purchasing a few niche sites from proven successful Adsense niche site builders like, The Adsense Flippers and Mike from Maine (Mike no longer builds and sells Adsense niche sites). At the time, these types of sites typically sold for 20x their monthly income. For example, if a site earned $50/month, it would sell for $1,000. From a Return On Investment (ROI) perspective, this is an incredible value. $50/month equals $600/year. A $1,000 investment that returns $600 per year is a 60% ROI. This, of course, does not include other factors such as risk.
I had myself convinced and I was willing to take on the risk. I only had one problem – I didn’t have very much money in my “online” account. (I only allow myself to spend money on my online ventures that I’ve already earned online). I began to consider taking out a loan, which I totally justified based on the rate of return I would be receiving from the investment. Wanting to keep it all online, I wondered, “What is the easiest way of borrowing money?” I began researching different places I could apply for a personal loan online. I had heard of both of the major peer to peer lending sites, but never gave them much thought. I went through the initial rate check part of the application process at both Lending Club and Prosper.
I was approved at both sites. Lending Club came back with a much better interest rate for the loan I was considering ($2,500 on a 3 year term). Lending Club offered me an APR of 7.99% while Prosper came back with 12.53% for the same loan.
I was all set to go forward in late September and then Google came out with their EMD update. It completely shook up the niche site scene for a while. The sites that the Adsense Flippers were building and selling lost rankings and diminished their income by 60 to 70 percent! Mike from Maine’s sites also got hit pretty hard. Both of these sites stopped selling their sites in lieu of the Google algorithm changes. I put aside my plans to purchase niche websites. Luckily, I had not gone forward with my loan application. But I was intrigued by the whole peer to peer lending model.
Investing in P2P Lending Notes to Replace Savings Accounts
Instead of borrowing money from a P2P lending site, I decided to invest instead. This sounds stupid, I know. If I didn’t have any money and I was considering borrowing money, how do I have money to invest? Like I stated, I try to keep my online venture finances separate from my personal finances, as far as for what I am doing to try to earn money online. I did have some money sitting in a few bank savings accounts though that was earning a whopping .01% interest. This money was ear-marked for my sons, who are currently 5 and 2 years old. The total from the two accounts was $1,001.84.
I opened an investing account at Lending Club and transferred that exact amount over. This was in mid to late October, 2012. Transferring funds online from my bank account to my Lending Club account was really easy. I chose the option of connecting one of my bank checking accounts to my Lending Club account. This process took a couple of days, as they needed to verify my account. After that, I set up the transfer, which took another 4 days.
I was now ready to start playing around within the Lending Club site and figuring out how to invest the money. In future posts about Lending Club, I will go into very specific detail for exactly how I invest in Lending Club notes and share my strategy. For now, I will just show you some initial investing numbers and screenshots and share my results for the past two and a half months. I can assure you that the decision was wise to move my money out of low interest bank savings accounts into peer to peer investing at Lending Club.
My Lending Club Initial Investment
With $1,001.84 in my Lending Club account, I was ready to fund some notes. The first 10 notes I invested in ranged from $46 to $124 and totaled $1,001.34. Of the notes that I originally funded, the lowest paying interest rate was 15.57% and the highest was 23.33%. Here is a screenshot of my original order for those 10 notes.
Each of these notes are just small portions of much larger loans that are funded to Lending Club borrowers. They all have different interest rates and due dates. Throughout the month, as the borrowers make payments on their loans, my portion of that payment (principal and interest) is added back into my Lending Club account. This money shows up as “Available Cash,” and can either be withdrawn or reinvested. Since I do not plan to use the money for several years, I am choosing to reinvest all of the payment money. I have done this twice now since I opened this account.
In late November, 2012, I had about $40 in “available cash.” I purchased two more notes for around $20 each. Again, in late December I had about $35 in “available cash,” which I used to purchase three more smaller notes. I now own 15 Lending club notes as a result of my initial investment of just over $1,000. This is what they look like.
My Lending Club Performance
I’ve had loans funded now at Lending Club for two and a half months. Of my 15 notes, 14 are current and 1 is currently over a month late. Luckily, that one is one of my smaller loans. My net annualized return for this two and a half month period currently sits at 21.97%! My account summary screenshot below (for today – January 11, 2013) pretty much says it all.
After only two and a half months, my account is now worth almost $1,028! Compare this to the two or three pennies in interest I would have received if I left it in my bank savings accounts! If you would like to invest in peer to peer lending and have a shot at returns like this, go here for more information and then open an account at Lending Club today!
In future posts about Lending Club, I will share in greater detail exactly how I purchase and fund notes and also share my strategy to maintain high returns. I will also 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.
Any Lending Club or Prosper links or banners in this post lead to 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.
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