P2P Lending

bondora-by-isepankurPeer-to-peer lending is a great way for building passive income streams and it probably is the first pillar of my cashflow triad. It is easy to do, very passive and you can get started right away!

Basically you can act as a bank and give out loans to other individuals or corporations. The loans can be secured by the collateral (morgage loans for example) or unsecured. As an investor, you will receive interest income that is usually higher than you would get from bonds or bank deposits. As far as risk goes, you need to do your homework and also diversify among many different borrowers. The biggest benefit of this model is the minimal amount of necessary starting capital – you can start building monthly cashflow right now!

I started giving out P2P loans in Bondora. It is based in Estonia and it can be used for all the investors residing in EU or Switzerland (if you are outside EU then you need specific forms to fill out because of anti-money laundering act – you need to contact their customer service). Currently you can give out loans to 4 countries: Estonia, Finland, Spain and Slovakia. All the transactions are in euros and you can get started with 10 euro investment.

My experience so far (I started in August 2013) have been mixed – in the beginning, everything was rosy and I invested over €52,000 by June 2014. Initially my returns were north of 20% p.a. and bad loans were minimal. I was averaging over €1000 is monthly interest and I planned to increase my lending up to €100,000. But then Bondora started changing its lending terms and basically forced investors to invest in multiple countries. I personally wasn’t very keen on Spanish loans and so starting from 2015 I have been taking money out of Bondora and have not reinvested there any more. As of november 2015 about third of my portfolio is overdue and it remains to be seen how well the collection process will go.

Instead of Bondora, I have been focusing on Omaraha and Mintos. There you have more control over lending and so far I have been getting better results as well. My goal is to average 12-15% returns after losses long term. So far in Omaraha I have averaged about 21% return and in Mintos about 13%.

I have also given out secured private loans for real-estate investors. My interest rates have been 12-24% p.a. and before I give out any of the loans I need to be pretty comfy about the collateral – meaning that I would be happy to own the pledged real-estate instead of getting my money back. Usually these loans are pretty short-term (3 to 12 months) and only to selected people that I know and trust.

Estonian tax law is one of the most investor-friendly that you will ever see. When using limited liability company for investing, I can postpone paying any tax until I want to take that money out from my company (basically pay a dividend). For reinvestment purpose, my money can grow tax free! So I have created a separate entity that I use for investing in giving out loans.

As far as my €10,000/month cashflow goal, P2P lending plays important role here. My first step is to get at least €100,000 working for me in different lending portals (that should generate about €2000-2500 monthly cashflow). As those payments come in, I will re-invest 100% of them. So next goal would be to get at least €3000 monthly interest income from P2P lending. Then I would start withdrawing half of it for spending and keep half of it still compounding. To get money out from my company (so that I could use it for day-to-day expenses), I either need to get creative with accounting 😉 (eg. buy a company car or laptop) or pay dividend and dividend income tax (currently 20/80%).

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One thought on “P2P Lending

  1. Congrats on already having over €50,000 working hard for you 🙂 That would be awesome if you can consistently get 20% or higher annual returns. My passive income is only about $1,500 per month right now among my farm rent, dividends, and mortgage income. But I can easily see it going to $2,000 in the next couple of years. At $3,000 I will be financially independent but my ultimate goal is to reach $10,000 of passive income eventually 🙂 I love your €10,000 per month goal! It’s ambitious but I think you can do it 😀 How long would you estimate it will take for you to reach that level of cash flow?

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