Well, I did it....Transferred my money out

[cfb]

Thanks for all the info, I appreciate it.  Until now I found very little constructive and useful information about p2p lending before I noticed this forum, which makes sense as its technically a competitive situation.

I think that (at least for now) jumping in right when the notes release, hitting my filter and then adding everything to my cart and then plinking out the iffies works.  If I can write 5-10 notes a day, I'm happy.  I got 32 this morning, although about half were B and C notes, which I haven't been writing.

I'd still rather make 6% after defaults than 0% sitting in a bank account.

The note I offered on folio that was late was just about a year ago.  It was my first note to slip past 30 days late, and sort of an experiment to see how the loan sales worked.  It sold in a few days and when it sold and I looked at it it said payment was current.

Then I looked at the rate of recovery from late notes, and factored in that the self employed tend to pay late, but do tend to recover at a higher rate than those employed by a business (cash flow problems), I decided to just ride the lates into the ground.  Many of my lates go to default/bankruptcy or the people disconnect their phones and disappear.  I figured to get little to nothing for those on the aftermarket...

[New Jersey Guy]

"I decided to just ride the lates into the ground.  Many of my lates go to default/bankruptcy or the people disconnect their phones and disappear.  I figured to get little to nothing for those on the aftermarket..."

I just don't understand WHY anybody would do this?  Why would you run a note into the ground when you can easily recoupe a decent part of your investment?  I just don't get it.  Everybody complains about their money sitting idle in their account, but don't seem to mind losing an occasional $23 or $24 on a note that could have been sold for half that.

So many red flags to indicate it's time to dump a note. 
I have many speculative notes.  But hell!  Even I know when it's time to dump one and cut my losses.  Even a note going "Chapter 7" today will sell for something.  A note goes "Default" only if you let it.

[cfb]

Several reasons aside from the ones I already mentioned.  The first of which is many late notes come back into compliance or the recovery rate is pretty good.  Once you get into the territory where the recovery rate is really bad I doubt anyone would buy it, time spent winnowing out what I want to sell and what I don't, the irritation over selling a late note and then having the borrower start paying again, the high rate of bankruptcies and disappearances/scammers among my late notes which would make them practically unsellable, and the further complication of the tax situation.  I back-of-the-enveloped what I'd gain vs just standing there and doing nothing and it wasn't enough to warrant spending the time and dealing with the tax headaches.

But most of my notes are $25 ones and my default rate isn't that bad.  I guess if I had a couple of hundred notes and put $500-1000+ in each one, I'd dump it if it went 60+, didn't bankrupt and didn't disappear.

[New Jersey Guy]

CFB....I deal with late notes every single day, and none of what you posted makes a bit of sense to me.

"Once you get into the territory where the recovery rate is really bad I doubt anyone would buy it,"

Totally untrue.  There's a buyer for every note at the right price.  I've sold everything from "Deceased Borrower" to "Chapter 7".  Ask Core.  He'll back this statement.  So will anybody else who's ever sold a bad note on Folio.

"the irritation over selling a late note and then having the borrower start paying again,"

SINCE WHEN IS A PAYING BORROWER AN IRRITATION?  I've had 67 late notes this month make a payment, and get cancelled by Folio.  It takes me about 5 minutes to get cancelled notes back up on Folio.  I am not sure where the hassle is.  I get the payment, and the note still sells.

"the high rate of bankruptcies and disappearances/scammers among my late notes which would make them practically unsellable,"

Your crystal ball must be much better than mine.  I can't tell for sure who's a scammer, disappearance, felon, conartist, a zombie, a smurf, black, white, yellow or blue.  Neither can the buyers who are buying my questionable notes.  Point is, nobody knows.

" and the further complication of the tax situation."

What tax complication?
If a note defaults for $24 during the first year, it's a short-term Capital Loss.
If you sell the note for $10, you still have a short-term Capital Loss, only it's $14.
Regardless of how you cut it, you'll be doing the same paperwork at tax time.
If you are not claiming your losses at tax time, you're really screwing yourself over. 

"But most of my notes are $25 ones and my default rate isn't that bad."

Even if you had just one default this year, it's one default you could have easily dodged. 

I guess the difference is that I don't have money to burn. 

[core]

There's a buyer for every note at the right price.  I've sold everything from "Deceased Borrower" to "Chapter 7".  Ask Core.  He'll back this statement.  So will anybody else who's ever sold a bad note on Folio.

Definitely there's a buyer for every note at the right price.  And there's a fool born every minute.  Some can't be bothered to read the collection notes.  More fools == more money for you and me.  If you don't like profiting from others' stupidity, just tell yourself:  "Maybe, just maybe, these people know more than I do and that's why they're buying my notes."  In a few cases that would probably be correct.  Just pocket the money and sleep well.  You charged them a few bucks to teach them a lesson.

The thing is, if you don't want to take a large hit you can't just let your notes waste away and then decide to sell the bad ones all at once every couple of months.  Once they get into seriously late status you have to sell them awfully cheap, but they will sell if priced low enough.  You have to keep on top of things if at all possible.

[cfb]

I'm surprised that people will buy a chapter 7 note or one where the borrower never paid, their phone line was cut off, and they've never responded to LC's collection efforts.  I guess there are some real dummies buying on the secondary market.  Lesson learned.

Tax-wise, my understanding is that without selling notes, all I need to do is put my aggregated loss adjusted gain and my aggregated original costs in the right places on my tax return and I'm done.  With selling, it looks to me like I need to list each loan, its original cost, and what I sold it for.  Wouldn't be bad for 20 or 30 notes, but it'd be a PITA for a couple of hundred notes.

Then like I said, I ran the #'s for what I'd get by selling using the figures supplied by NSR vs LC's reported recovery rates for each class of lateness, and it didn't come out to much.  A few hundred bucks.  Probably because of efficient markets which are likely to get more efficient as the idiots get weeded out and the investors become more educated.  But it sounds like you guys are perhaps getting more out of folio than NSR suggests, and perhaps the market is much less efficient (for now) than it should be.

I'm not into burning money, but I might have a higher tolerance for return vs hassle factor, and I hate complicated tax situations, especially ones where I might have to sit in front of an auditor with 3000 pieces of paper.

[core]

With selling, it looks to me like I need to list each loan

No, it's simpler than that:  You can just total everything up and put down "various" for the dates acquired and sold.

its original cost, and what I sold it for

And yet it's more complicated than that.  Your interest income for that note was already reported on your 1099-OID.  In that respect, yeah it's kind of a can of worms.  Peter wrote a few blog posts about LC taxes.  You can find them on the main site.

I hate complicated tax situations

The least complicated tax situation is not making any money.  (Ok actually that's no longer true thanks to wealth redistribution, refundable tax credits.)

[New Jersey Guy]

"Wouldn't be bad for 20 or 30 notes, but it'd be a PITA for a couple of hundred notes."

20 or 30 notes would be a breeze!  Actually, if it were only 20 or 30 notes per month, I'd get quite bored quite quickly!

But you are right about one thing.  I do have a separate Excel spreadsheet set up for my Folio sales.  I use Interest Radar to back up my results.  Core sells a ton more than me.  So, I suspect he also has a system set up.

Is it a hassle?  Once you're in the habit of doing it, absolutely not, especially when posting gains.     It's my favorite time of the day!

The difference is in the returns.  I want the returns, and I'll put the extra effort in.
Look at my IRR and ROI.  Look at Core's IRR and ROI.  Then look at yours.
That's the difference between working the system or letting the system work you.

If you've been doing this for over 6 months, then the word "Default" shouldn't even be in your vocabulary.  You need to know how to work Folio to your advantage.  And if you don't, then you know what to study this weekend.

Oh!  And Core is correct about one thing.  A less complicated tax return is "No Money".  I want complicated taxes.  That's what accountants are for.  I pay that guy to figure it all out.

[yojoakak]

With selling, it looks to me like I need to list each loan

No, it's simpler than that:  You can just total everything up and put down "various" for the dates acquired and sold.

Are you taking Form 8949 into consideration with this statement? I didn't think they just let you put down "Various" on that one.

http://www.irs.gov/pub/irs-pdf/f8949.pdf

[core]

Are you taking Form 8949 into consideration with this statement? I didn't think they just let you put down "Various" on that one.

Yes, I am taking f8949 into consideration.  Each account needs a different line of course.  And you have to separate out ST, LT, basis reported/not-reported to IRS, but within each category you can combine them.

I cannot offer cites right now because the last time I went through this was last October.

[edward]

Don't forget--IRA accounts don't have any of these accounting problems!

[cfb]

Oh!  And Core is correct about one thing.  A less complicated tax return is "No Money".  I want complicated taxes.  That's what accountants are for.  I pay that guy to figure it all out.

Ha ha.  Thats sort of the approach I take.  I pay cash for everything and have no debt, and my only income is qualified dividends and my only "interest" is my LC investment, except for one nearly mature 7 year old 6.25% CD.  I wish I'd bought a lot more of those.

I figure I can think of much better things to do with my money than the government can, although I think I funded half of a B1 bomber before I retired.  I look very much like a poor person on my tax returns.  Most years I pay no taxes (except real estate and sales taxes) but I'm getting on the ragged edge.

I like easy taxes too, the accountants always want to make them much more complex and do risky stuff that increases audit odds, then the spit forms on their lips as they tell me how great they handle IRS agents when they have pretty much nothing at risk.  Usually I just click a few things in turbotax and I'm done in under an hour, and most of that is remembering what the heck my turbotax password is.

I'm a reverse American.  I make money from other peoples debts and owe nothing.

[Rob L]

I'm a reverse American.  I make money from other peoples debts and owe nothing.

That makes me the true red/white & blue then. Recently downsized from a home I owned outright to one with 20% down and 3.25% fixed 15 years. Also bought a new second home 25% down 3.75% fixed 30 years. Those rates are before taxes and there's that nice home mortgage deduction that brings the effective rate down (the amount depends on your marginal tax rate and mine is still, fortunately and unfortunately pretty high). This debt is a hedge on inflation; I'll pay it off in cheaper dollars someday. If, over the term of 15-30 years, I can't get a better return on the money I owe on these than the unprecedented historically low rates I'm paying then I've made a poor choice and I can live with that. Having debt isn't comfortable for me (I'm not young), but I've often found uncomfortable trades are the most profitable. Usually, if it hurts my gut, it's a good trade. If it hurts really bad, it's better.

If you haven't been keeping track, since May 1 this year (with the Fed hinting at taper) the long end of the interest rate curve has climbed a full percent and more. This Fed and the next will simply not permit deflation if it is within its awesome power to do so. They will do whatever is necessary and hope (as do I) they can somehow and someday unwind it all successfully.

[cfb]

Mortgage rates sure are awesome these days.  Mine was 8% when I paid it off and the deduction sure was handy when I was working.  Up until a few months ago it was pretty much free money if you could pull a refi, given that we're very likely to have more inflation in the next 15-30 years.

[Rob L]

Yeah, you may remember Mark Knopfler & Dire Straits ... doesn't seem like that long ago ...