P2P Investing Denied! What Should be My Next Passive Income Ambition?

P2P investingAnd so it was over before it even began …

The tires on my P2P investing (peer to peer) efforts quickly went flat last week when I discovered some very important information.

To bring everyone up to speed, I had wanted to start off 2013 by adding a new form of passive income to my money design. Last year blogging income and dividend stocks were valuable additions. This year out of the available choices I had listed, P2P investing was the one that stood out. It intrigued me in a number of ways:

• Potential higher net rates of return than a stock market index fund

• A steady stream of interest income

• Access to the earnings before retirement age (helping the early retirement efforts)

• Potentially lower risk (if you pick borrowers with good credit)

• You get your principal back (in theory …)

• Diversification from the stock market


Hitting the Internet to Learn More About P2P Investing:

Like most of my investing efforts, I hit the Internet to start educating myself as much as possible on P2P lending and investment opportunities  After reading a few basic articles, I started to find some real gold.

One of my searches led me to the Early Retirement forum where there was a thread that was all about P2P investments. The topic initiator was asking whether P2P investing was truly worth the effort given the complexities of how many loans you’d need to invest in, what rates you could expect, etc.

A few responses down another reader posted in great detail his strategy for filtering the information. It was good stuff and went into some vivid detail.

The majority of the thread was based around information that the initiator had found on a peer to peer investing niche site called the Lend Academy. I visited the site and found a few a general articles as well as a free eBook on P2P investing.

I’m beginning to feel like a collector of free eBooks. I went ahead, downloaded it, and quickly began to read. And that’s when I found out something that put the brakes on my efforts:

• Not all states in the U.S. allow P2P lending – including my home state of Michigan!


No P2P Lending for MMD!

Ugh! That can’t be true!? Why would Michigan or any other state not allow me to be a P2P investor? I needed to the hit the Internet again to validate this intel.

Sure enough, it was right. In fact Free Money Finance (also from Michigan) had written a whole post entitled Peer to Peer Investing a Bust in Michigan.

FMF really went above and beyond and looked at what alternatives there were for us “Michiganders” (yes that’s what we’re called) if you really want to participate in P2P investing. Unfortunately however, he concluded that none of the available options were really worth the hassle. Therefore, that was it for me. My P2P ambitions have gone cold.


What I Did Find Out About P2P Lending that I Pass On to You:

First of all, if you’d like to get a free eBook on how to be a P2P investor, download it from that Lend Academy site above.

As you’d expect, P2P investing isn’t as idiot proof as funding loans and getting paid back at high interest rates. Basically your success depends entirely on:

• The quality of the loans available, and

• Your ability to pick out the borrowers who will have the ability to pay you back

In general, every piece of information I found mentioned the following key P2P investing tips:

1. Spread your investment out over as many loans as possible. The minimum you can invest is $25 in each loan. So do just that! Diversity among many loans helps to reduce the effects of default.

2. Don’t be fooled by the loans with really high interest rates. The reason they have such attractive rates is because they are high risk borrowers with undesirable credit histories. Defaults DO happen on P2P lending sites, so make sure you understand the risks.

3. Read up on the loan details and watch for red flags. As part of selecting the right loans, get to know who these borrowers are and if you really think they’ll ever be able to pay you back. The Early Retirement forum thread above has some good discussion on this.

4. Remember that you’ll owe taxes on the interest you earn. Don’t get too excited about those potential return rates just yet. Unless you setup your account as some type of IRA, count on forking over money to the tax man.


If I Can’t be a P2P Investor, Then What’s Next?

So P2P investing is a bust. That really doesn’t stop me. There is certainly more than one way to get rich and hit my goals.

The main attraction to developing P2P income was that it could help me fund my early retirement efforts. So if I again hit up the list on my passive income ideas page, there are a number of other interests I can pursue that could also potentially accomplish this:

1. Building another blog or niche website

2. Writing and selling an eBook

3. Getting aggressive with affiliate marketing

4. Take on free-lance writing projects

5. Put more effort into my stock music licensing

6. Finally buying a rental property

If you were in my shoes and knew that P2P investing was out, which one would you choose?

To be honest, that list is already written in the order of my preference.

No. 1 is my front-runner. The reason why is because I’ve already learned SO MUCH from creating My Money Design and making a small income from it. This gets me wondering:

• If I owned TWO sites, could I possibly double my income?

Writing content is a lot of fun and I’d like to think that I’m getting better / more efficient at it. But perhaps the biggest draw to No. 1 is the low risk. If it fails, who cares? I’m out less than $100. When my real job gets busy, I can always put the project on the sidelines without many repercussions.

I think the biggest challenge will be ranking well in Google. I’m still struggling to meet my stats goals with My Money Design as it is. This would require a little more education in terms of back-linking and other SEO practices.

The eBook is also very high on my list. I’ve got a few topics that I think would be great. In theory, I already have all the material written (ah hmm, the blog). But the biggest challenge here is that I’ve never put one together before. Plus, I have no idea how to effectively market one. I suppose like all things, there’s a lot of trial and error, and you figure it out as you go.

By far, the rental property is the one that scares me the most. Believe me – owning hard real estate is the American Dream and there are a lot of success stories out there. But unlike my blog example, you can’t just “walk away” from a rental property when things get hairy. Tenants still call. Bills still have to get paid. It poses a lot more commitment than I may be ready to make at this time.

Regardless to whatever option I land on, there’s one thing to be said: The answer isn’t “do nothing”. The year is just getting started and I have a lot of ambition to get out there and get developing another passive income stream! Let’s get going!


Related Posts:

1) Passive Income Ideas

2) Retirement Income Strategies for My Money Design – November 2012 Update

3) Our Long Term Financial Goals and How We’ll Meet Them in the New Year

Image courtesy of Toa55 / FreeDigitalPhotos.net


  1. says

    Sorry to hear that it’s a bust for you MMD. I’ve never really looked into P2P lending before, perhaps I should. I think another blog or niche site would be cool, if you’re willing to put in the time for it to rank. I personally would probably go with #4 myself. But, then again, I like to write and there are a number of resources out there.
    John S @ Frugal Rules recently posted..Reader Question: Should I Invest in Mutual Funds or ETFs?My Profile

    • MMD says

      I think getting another site to rank (let alone My Money Design) is going to be the biggest challenge! I also am very up for free-lance writing, but it seems like more of an “active” income source than passive. But like you, I have fun doing it, so no harm there! And if I can build a name, perhaps I can command a good fee!

    • MMD says

      It was a surprise to me that the rules varied state to state as well.

      Getting a rental property is never off the table, and prices make it very attractive. My concern are the type of people who would apply to rent there …

  2. says

    Don’t despair. I have two pieces of good news for you. First, Lending Club will be available in Michigan….probably in late 2014. Lending Club are planning an IPO in the next 18-24 months and once that happens it will be available for investors in every state.

    In the meantime you should check out Prosper.com. I have heard that they have been approved for Michigan and should be available as soon as early February.

    • MMD says

      I love where you’re going with this Lance! I may have broken that rule already by writing articles. But I was going to try something along those lines such as focusing more on keywords and backlinking.

  3. says

    We looked into P2P a while ago and with our income/assets we weren’t allowed to do it either in NC. There are secondary markets but we didn’t want to fool with that. Maybe when we move to CA!

    • MMD says

      The secondary market thing didn’t sound very appealing to me either. The primary market seems tricky enough as it is!

  4. says

    Same boat here in NC. I was ready to start investing in Prosper and got instantly denied. I then went to Lending Club and found that NC residents could not directly invest in loans, but can trade notes. I am still thinking about investing via their trading platfrom Foliofn. This is the only way it would work for me. Stupid laws!
    Grayson @ Debt Roundup recently posted..Two Common Debt Reduction OptionsMy Profile

    • MMD says

      If you do, I’d love to hear how it works out. The secondary market thing didn’t really sound very convincing to me, but that doesn’t mean there couldn’t be some opportunity there.

  5. says

    Hey MMD, just caught this post through Google+ and am glad I found your blog. Great read, I hardly knew anything about P2P investing.

    You make a great point about the rental property. The niche websites and affiliate sales are great passive income. Really, you could walk away from any of it and be just fine for months and perhaps years to come.

    In contrast a rental property will require upkeep and maintenance. You will have people living there that will contact you, bother you, cause unnecessary bills, etc.

    Of course, your online properties due call for attention. I just think those are little bit easier to walk away from than a physical property.

    In 2013, I am looking to diversify my handful of niche websites and blogs, along with my portfolios by publishing several ebooks. I’m looking to focus on long term durability, quality and buzz. It should be fun

    Best of luck and I look forward to reading more!
    Scott @Youthful Investor recently posted..5 Lessons on Investing Learned from the film Boiler RoomMy Profile

    • MMD says

      Thanks Scott! And I had no idea anyone was even mentioning my writing on Google Plus!

      You’re absolutely right that the online properties will need some work! I know that all too well from working on this site for what feels like all the time and still only ranking a PR2. But I do see the light at the end of the tunnel if I could just make the puzzle pieces fit together. Plus there are a lot of other bloggers in our niche that have made this work, and their income reports are outstanding!

      Out of curiosity, how many is a handful of niche sites and blogs? I’m always interested to hear how other people can maintain so many of these efforts at once. The eBook thing also sounds very, very intriguing to me!

    • MMD says

      Doing all six is not off the table (so long as I want to have no free time at all anymore)! :) The writing sounds good, and you’re right – a lot people seem to be doing very well at this. I think it would help to build my reputation more first so I could command a better rate.

  6. says

    That seems so bizarre… It almost seems like the state is in bed with the banks to ensure their profit margins stay fatter than they should be.
    Why else would they ban it?

    What a load of baloney! I’ll have to check if it is legal over here.

    I thought America was the land of the free? Free to do what they tell you to do by the sounds of it…
    Glen @ Monster Piggy Bank recently posted..MPB – Pool Room Posts #13 Baby EditionMy Profile

    • MMD says

      Yeah, its weird for me too. There are a lot of discrepancies from State to State sometimes. I didn’t even think about the “in bed with the banks” thing, but that does seem to make sense. It’s all good though Glen – as you can see, I’ve got a lot of alternatives.

  7. says

    Yep, that is absolute crap. I get really excited by community initiatives, like the concept behind P2P lending. There is enormous risk involved, sure, but I love the idea of lending money to an indivifual in need and it weakens the monopoly of the banks for issuing loans. Sorry this didn’t work out, MMD. Keep us posted on your income stream progress.
    Jennifer Lynn @ Broke-Ass Mommy recently posted..Weekly Spending: January 14-18 and some irksome parking tickets.My Profile

    • MMD says

      According to the Peter Renton comment above, it sounds like I still might get my chance at this. I’ll have to keep an eye on both companies and see if there are any exceptions made.

  8. says

    Sorry about your let down. I don’t know why Michigan would care, other than the banks want all the loans for themselves. I would certainly choose the rental just because I suck at blogging and barely know what I’m doing most of the time, so I can’t imagine running another site. Writing might be fun. I love to write if I just didn’t have to do all the other technical things. I’m sure you will make whatever you choose work out.
    Kim@Eyesonthedollar recently posted..Save Money on Groceries-How to use a Value CardMy Profile

    • MMD says

      Thanks Kim! I had a feeling you’d have a little bit of bias in your choice! :) And you’re doing fine with the technical stuff on your blog. You managed to rank the same as me in about 1 year less!

  9. says

    It looks like I am in the minority here, but I can’t help thinking that Michigan may have done you a tremendous favor. I’m skeptical of these networks, especially after reading studies of the default rates.

    Remember: if you lend money at (for example) 6%, then if you have a 6% default rate, you will not make any money. It’s certainly possible to make money with P2P lending, but the effort necessary to maintain a precision of 90% or 95% non-delinquent loans on an ongoing basis does not qualify as a passive activity to me.
    S. B. recently posted..Year-End NoteMy Profile

    • MMD says

      That may be true SB! I actually read about P2P investing back in 2007/08 in Smart Money and it has been intriguing ever since. But at the same time I never invested because I too was also very skeptical of the default rates and potentially bad outcome.

      I will say that having read enough blog posts and income reports that I am now willing to give it a shot. Like stock investing, there is definitely a strategy involved. Potential risk and return. If Michigan does come around, I will likely only invest something small like $1000 and see where it goes.

  10. says

    I wanted to get into P2P lending as well, but just like you, I live in one of those states that forbids it. Supposedly, I can still buy notes on a secondary exchange, but that just seems like way more work than it’s worth.

    For passive income, I’m sticking to my goal of investing in companies with a consistent history of increasing dividend payments.

    In terms of your list, the one that would really make a bang, would be the rental property. I’m considering rental property myself, but the excessive cost of housing in this area, and associated high down payments are keeping me away for the moment.
    My Financial Independence Journey recently posted..Man Up and Admit Your Money Mistakes In Order to Learn and ImproveMy Profile

    • MMD says

      Rental property holds a special place for me as well. It is one of the oldest forms of extra income out there. And people will always need a place to live (even if its only temporary).

        • MMD says

          Interesting Matt! It sounded somewhat tedious when I first looked into it. However, I’ll have to stay tuned to your progress and maybe return to this again.

          I don’t know if you noticed it above, but the author of the Lend Academy posted a note too about how Michigan might relax some of its restrictions on these sites and we might be able to invest first hand.

  11. says

    Hi MMD, I thought you could use FolioFn to invest in P2P, couldn’t you?

    It is a great investing vehicle so shame on those states which do not allow LC or Prosper. I invest successfuly into LC notes and I am totaly satisfied with it. If they go public (as Peter said above) I hope it would bring more investors and borrowers to the table.

    Well as far as your pasive income thru blogging it is very interesting topic for me, that’s why I jumped back here to the beginning to read how you do it. I am very interested myself to monetize my blog. So far not as successful as I would wish.
    Martin recently posted..Safeway (SWY) hikes its quarterly dividendMy Profile

    • MMD says

      Matt from Dumb Passive Income has had some good success with those as well.

      I have heard that Lending Club is now official in Michigan, so I might go back and check that out next year when I have money to move around.

      The thing to remember with monetizing your blog is to be patient and put the readers first. My biggest mistakes were always thinking that by simply putting ads out there that the money would come. Nothing could be further from the truth. A successful base of the right people is where the key is.


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