Author Topic: rate of return when purchasing notes via interest radar through folio  (Read 15942 times)

no1kcfan6

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I'm not as intelligent as most of you people, so please try to bear with me.  So for example, on IR, note #27233835 (brand new, 36-month note) is up for sale at an ask price of $25.30 and the value of the note is, apparently, $25.07 ($25 principal and $.07 accrued interest).  Is there a way to figure out what your actual rate of return is after paying the premium of $0.23 and the 1 percent fee that lending club (or folio?) will charge?  and how do you factor in the effect that defaults have on your returns?

Thank you.  i'm disabled and my mind isn't everything it should be.

New Jersey Guy

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Re: rate of return when purchasing notes via interest radar through folio
« Reply #1 on: August 13, 2013, 10:51:22 PM »
"Thank you.  i'm disabled and my mind isn't everything it should be."

I'm normal, and my mind isn't everything it should be!  So don't be shy about asking questions.  I can tell you right now, I'm not the sharpest tool in this box!

However, your question is simple to answer.

First off, buyers do not pay an extra fee above the selling price that's listed.  The sellers do!  That's why you'll see many notes with a 1% markup.  Sellers just want to cover their costs.  So what you see, is what you pay.

Typically, a $25 note with a 1% markup will cost you $25.50.  You're paying $25.30, so you're paying less than 1%.  The seller will lose a little on that transaction, but it's good for you.

Secondly, Interest Radar (or IR as we call it) does show the re-calculated yield.  Look under this column which is located to the far right of your search results:

                    Markup %
                             /
                          YTM


                         1.0%
                         4.6%


The 1% figure shows that there is a 1% sellers markup on that note
YTM is called "Yield to Maturity".  The 4.6% figure is your new, recalculated yield which includes the seller markup.  So, if you bought this note, you could expect to earn 4.6% if you hold the note all the way to the end.
Return over deposits:   66.82%
IRR:   86.54%
As of April 30, 2014

BiggieC

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Re: rate of return when purchasing notes via interest radar through folio
« Reply #2 on: August 13, 2013, 11:31:40 PM »
Just to clarify, the yield to Maturity shown on IR is an annualized rate, just as it is on the foliofn platform, correct?

LonghornSF

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Re: rate of return when purchasing notes via interest radar through folio
« Reply #3 on: August 13, 2013, 11:39:58 PM »
Yes, the YTM is the annualized return.

Rob L

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Re: rate of return when purchasing notes via interest radar through folio
« Reply #4 on: August 13, 2013, 11:41:39 PM »
Guess I'm normal, but New Jersey Guy has his doubts about me.  :) Welcome to the forum; lots of good and helpful people here. You also asked how to factor in defaults. Lending Club publishes a list of expected default rates for each loan grade. These were recently changed and the changes were discussed on this forum at http://www.lendacademy.com/forum/index.php?topic=1234.0. The web site Interest Radar (IR) that NJ Guy mentioned provides what it calls its proprietary IR01 rating https://www.interestradar.com/scores. This ranking provides a risk of default estimate and an expected average loss. I live in an LC okay state and have very limited experience with Foliofn. From what I've read here IR is an absolute "must use" for  Foliofn investors. IR is also very useful to those of us that primarily invest directly with LC and I am an IR subscriber.

no1kcfan6

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Re: rate of return when purchasing notes via interest radar through folio
« Reply #5 on: August 14, 2013, 04:22:39 AM »
"Thank you.  i'm disabled and my mind isn't everything it should be."

Quote from: New Jersey Guy
I'm normal, and my mind isn't everything it should be!  So don't be shy about asking questions.  I can tell you right now, I'm not the sharpest tool in this box!
well, i surely appreciate the warm welcome!  Thank you! :)  However, I must tell you that you're probably going to be sorry that I ever found this forum! LOL j/k (sort of :-[).


Quote from: New Jersey Guy
First off, buyers do not pay an extra fee above the selling price that's listed.  The sellers do!  That's why you'll see many notes with a 1% markup.  Sellers just want to cover their costs.  So what you see, is what you pay.
I found this in the Folio FAQ's:

"8. How much does this cost?

FOLIOfn charges to the seller a transaction fee equal to 1% of the purchase price. There is no fee charged to buyers for trades; however, buyers holding Notes are charged a service fee by Lending Club for collecting payments."


Quote from: New Jersey Guy
Typically, a $25 note with a 1% markup will cost you $25.50.  You're paying $25.30, so you're paying less than 1%.  The seller will lose a little on that transaction, but it's good for you.
I come up with a price of $25.25 after the 1% markup [$25 + ($25 * 1%) = $25.25].  Am I missing something?

Quote from: New Jersey Guy
Secondly, Interest Radar (or IR as we call it) does show the re-calculated yield.  Look under this column which is located to the far right of your search results:

                    Markup %
                             /
                          YTM


                         1.0%
                         4.6%


The 1% figure shows that there is a 1% sellers markup on that note
YTM is called "Yield to Maturity".  The 4.6% figure is your new, recalculated yield which includes the seller markup.  So, if you bought this note, you could expect to earn 4.6% if you hold the note all the way to the end.
Okay.  But is that the note buyer's **annual** return until the note matures, or is it their **total** return once the note matures, meaning you would have to take that "yield to maturity" number and divide it by the number of years remaining on the life of the note in order to figure out the yearly return?  Make any sense?  Basically, i'd like to know what the APR or APY will be (assuming all payments are made on the note).  I've seen some conflicting information in some of the other posts regarding this. 

Thank you again, NJG.  And thanks to everyone else who chimed in.

core

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Re: rate of return when purchasing notes via interest radar through folio
« Reply #6 on: August 14, 2013, 04:39:09 AM »
But is that the note buyer's **annual** return until the note matures, or is it their **total** return once the note matures, meaning you would have to take that "yield to maturity" number and divide it by the number of years remaining on the life of the note in order to figure out the yearly return?  Make any sense?

It is the annual return you would get, but only if you continuously reinvested the incoming payments in equivalent notes.  So they say.  I haven't been able to duplicate their numbers.  Maybe in California they're using New Math.

no1kcfan6

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Re: rate of return when purchasing notes via interest radar through folio
« Reply #7 on: August 14, 2013, 04:40:15 AM »
Guess I'm normal, but New Jersey Guy has his doubts about me.  :) Welcome to the forum; lots of good and helpful people here. You also asked how to factor in defaults. Lending Club publishes a list of expected default rates for each loan grade. These were recently changed and the changes were discussed on this forum at http://www.lendacademy.com/forum/index.php?topic=1234.0. The web site Interest Radar (IR) that NJ Guy mentioned provides what it calls its proprietary IR01 rating https://www.interestradar.com/scores. This ranking provides a risk of default estimate and an expected average loss. I live in an LC okay state and have very limited experience with Foliofn. From what I've read here IR is an absolute "must use" for  Foliofn investors. IR is also very useful to those of us that primarily invest directly with LC and I am an IR subscriber.
Hi and thank you for your input.  I would love to be able to invest directly in LC, but unfortunately, Massachusetts is a communist state! ::)  And I do currently have a free-trial account with IR, although I don't like that fact that I can only buy notes through Folio, so I'm not sure that I will buy.

no1kcfan6

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Re: rate of return when purchasing notes via interest radar through folio
« Reply #8 on: August 14, 2013, 04:45:46 AM »
Quote from: core
It is the annual return you would get, but only if you continuously reinvested the incoming payments in equivalent notes.  So they say.  I haven't been able to duplicate their numbers.  Maybe in California they're using New Math.
Yikes.  With a $1K investment, it's gonna take a long time to save up the dough to reinvest

rawraw

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Re: rate of return when purchasing notes via interest radar through folio
« Reply #9 on: August 14, 2013, 04:57:47 AM »

Quote from: New Jersey Guy
First off, buyers do not pay an extra fee above the selling price that's listed.  The sellers do!  That's why you'll see many notes with a 1% markup.  Sellers just want to cover their costs.  So what you see, is what you pay.
I found this in the Folio FAQ's:

"8. How much does this cost?

FOLIOfn charges to the seller a transaction fee equal to 1% of the purchase price. There is no fee charged to buyers for trades; however, buyers holding Notes are charged a service fee by Lending Club for collecting payments."
Yes, everyone pays that fee.  But the 1% selling fee is on top of that.

Quote
I come up with a price of $25.25 after the 1% markup [$25 + ($25 * 1%) = $25.25].  Am I missing something?
I think the difference is either NJ screwed up his math OR he is factoring in most notes have accrued interest when you buy them.  So the markup he may see is 1% above the par value + accrued interest, which could reasonably be 25.50 for a lot of notes.  My young B3 note for sale has .33 in accrued interest, so higher interest rates notes will have even more.

rawraw

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Re: rate of return when purchasing notes via interest radar through folio
« Reply #10 on: August 14, 2013, 04:59:17 AM »
Quote from: core
It is the annual return you would get, but only if you continuously reinvested the incoming payments in equivalent notes.  So they say.  I haven't been able to duplicate their numbers.  Maybe in California they're using New Math.
Yikes.  With a $1K investment, it's gonna take a long time to save up the dough to reinvest
The notes amortize monthly, which means they produce a lot of cash flow.  My account isn't that large and I still invest in roughly 30 notes a month just from P+I payments. Then I have my deposits which increases that number.

core

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Re: rate of return when purchasing notes via interest radar through folio
« Reply #11 on: August 14, 2013, 05:30:20 AM »
Yes, everyone pays that fee.  But the 1% selling fee is on top of that.

No, not "on top of", it's "instead of".  If you sell it there aren't any more servicing fees, obviously.

no1kcfan6

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Re: rate of return when purchasing notes via interest radar through folio
« Reply #12 on: August 14, 2013, 05:46:44 AM »
I emailed LC/Folio or whatever the correct name to go by is and am waiting for an answer.  I asked the following question: "Can you please tell me the amount of the service fee that is charged by Lending Club to the buyer for the collection of payments?" in response to this FAQ on their site: "8. How much does this cost?

FOLIOfn charges to the seller a transaction fee equal to 1% of the purchase price. There is no fee charged to buyers for trades; however, buyers holding Notes are charged a service fee by Lending Club for collecting payments."

GS

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Re: rate of return when purchasing notes via interest radar through folio
« Reply #13 on: August 14, 2013, 09:05:51 AM »
Quote from: core
It is the annual return you would get, but only if you continuously reinvested the incoming payments in equivalent notes.  So they say.  I haven't been able to duplicate their numbers.  Maybe in California they're using New Math.
Yikes.  With a $1K investment, it's gonna take a long time to save up the dough to reinvest

I find that I get about $25 per month in P & I for each $1000 I invest.  I'm probably what most here would consider a "low risk" investor, with my average note being around 10-11% (B grade), and a mixture of 3 and 5 year notes.  So, you could probably add one note per month in the beginning.  I also started small, and liked it so much that moved a large chunk of my IRA to Lending Club. 
« Last Edit: August 14, 2013, 09:10:00 AM by GS »

New Jersey Guy

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Re: rate of return when purchasing notes via interest radar through folio
« Reply #14 on: August 14, 2013, 10:52:13 AM »
Whoops!  My bad!  $25.25 is the correct purchase price at a 1% markup.  I was thinking of the fees on a $50 note.

Don't fear Folio!  Several of us (including me) are in Folio-only states and still fare well.  I think SarahV is also from Massachusetts.  She's brags about her "Pristine Bouquet" of notes she's built strictly off of Folio.  See!  So it can be done, even if you're up in New England!

Spend your free trial with Interest Radar learning the in's-and-out's of the site.  You'll find out out it's great for Folio users.  Once you learn how to personalize it to your investing style, you'll be picking notes like a Pro.

Read my Guest Blog about Folio @ http://www.lendacademy.com/foliofn-lending-club-users/



Return over deposits:   66.82%
IRR:   86.54%
As of April 30, 2014