Review on Prosper.com â€“ Can We Leverage on it to Achieve Financial Freedom?

May 25, 2007 · Filed Under Achieve Financial Freedom, Do Something Profitable, Ways To Make More Money · Comment

It seems like Ebay has a lot of effect when comes to building an online business system. Today, a lot of web sites or online business systems are built based on the concept of Ebay and I think Prosper.com is one of them.

Prosper.com is a community that lets people lending and borrowing money to each other in Ebay style or peer-to-peer. It is a very famous site that many people are paying attention on it. You can lend or borrow money through Prosper over the internet without leaving your house hunting for lenders and borrowers. As a lender, you can easily find people to lend money to over Prosper.com. This is because since Prosper launched, it has attracted more than 270,000 members to their service. As a borrower, there are plenty of people ready to lend money to you over Prosper.com. The good thing is you don't even have to open your mouth shamefully, well, you will know this feeling if you try to borrow money from others.

Prosper.com is a great investment opportunity, at least to me, because it is a source of making money or funding for your investment and business. So in this article, I am going to share with you some of my thoughts over Prosper and see how we can leverage on it to achieve financial freedom.

Without further ado, here is the information:

How Prosper Work

Before we move on to talk about how to leverage Prosper, we must know how it works and how it can help us.

Generally, Prosper is a place letting people lend and borrow money in a form of People-to-People lending through the internet. It is by-passing the bank as the middleman of the transaction and letting people dealing with people directly. I brought a simple example from Prosper.com and show you how the concept works.

John needs a small loan, $3000. So he posts a listing over Prosper.com for a loan he wants and interest that he can afford. Lisa and other lenders start bidding on John's listing at a rate that is fair. At the end, the bids with the lowest interest rate will combined into a single 3-year loan for Joe. Each month, John's payment will be deducted from his bank account until to the lenders until the loan is paid off.

John's $3000 loan is not always coming from a lender. It can be a combination of money from several lenders.

If you want more information, you can always go to Prosper.com.

The Theories to Make Money from Prosper

Now you should have an idea how Prosper works. So let us move on discuss how to make money from it.

Generally, you have 2 ways to make money from Prosper:

Lend Money to others. Lending your money out through Prosper and earn some interest as passive income.
Get funding for your business and investment. Collect some money through Prosper to start your business or invest in a higher return investment.

Lending Money to others can be a good idea to build passive income. In Prosper, no bank or other parties as middleman, you and the borrower are dealing directly. So the process is quite simple and the interest rate is quite high too, at least all the interest is paid directly to your pocket. In Prosper, you can lend out your money up to 24%+ high interest rate which considered as a high-return investment. This can easily give a great competition to your saving account.

On the other hand, if you have a great business idea, however you don not have any money to start it. Now you can get some fund for your business through Prosper. Of course, you must prepare a great business proposal to explain your business idea to lenders so they can have a brief idea about you. Your credit is also important here. Besides that you also need to do some research and calculation over how much interest you can offer to people. Maybe not as high as a bank loan. Just offer the rate that you can afford.

The risk of Prosper Money Game

Every money game has its own risk, this is what I always believe. In this world, there are no financial investments that are guaranteed, except saving account. So before you jump into the money game of Prosper, you must understand the risk of the game and the rules to play it.

Well, don't you agree that risk only exists if you lend out your money? Come on, if you borrow money from others, the only risk you have to worry is whether you can pay back the money on time. This is all about your money management. However, if you are a lender, then you have to treat yourself as a banker and think about the risks exist such as late payment or default.

Actually Prosper is doing some good job in their system to protect the lenders:

All the potential borrowers must submit their information for credit check. From here, you will know:

The credit rating of a borrower. Ranging from AA through E, HR(High Risk) and No credit(NC).

The debt-to-income ratio of a borrower.

A borrower also has to key-in their important information such as social security number, 2 phone numbers and also driver;s license number. This will ensure a borrower is coming from USA.

Prosper has developed good relationships with the major credit reporting agencies. So any missed payments or default cases will be reported immediately.

Borrowers have a better chance of receiving some better bids on their loan if they from a group of trusted users. So if a borrower missed payments or defaults, the reputation of the entire group is at stake. So if the borrower is from a trusted group, the group leader may take some action to help you in order to protect their group trustworthy rate.

If you ever been to Prosper.com and read their lenders section in FAQ, you will know that you are advised to reduce risk by diversify your investment money / lending money. For example, you have $2000 extra money to be lent out. Then you bid $100 on 20 listings with an average interest rate 10% and 1 out of 20 is default, you still make money. Anyway, here is the calculation:

$2000 @ 10% - 3 years loan

$100X20 @ 10% Interest = $2323.80

($2323.08 is the total money you will get at the end of the loan)

However, something happen, 1 of the borrower went to default. Soâ€¦

$100X19 @ 10% interest = $2,222.81

($2222.81 is the total money you will get at the end of the loan with 1 default lender)

PS: the above example is extracted from Prosper.com

Like what you can see, you can protect your money by diversify it to different borrowers. Well, every investment has its own risk, it is about how you manage the risk.

Tips Help Lender assess risk

As an investor, we cannot stop because one investment has risk. Instead, we should learn how to assess the risk and then compose a plan to manage it. So here are the tips that we can use to reduce the risk of making money from Prosper:

Debt to income Ratio. Please pay attention on this ratio. From this number you will know the financial health of the borrower and whether he/she able to pay back the full loan in 3 years time.
Group Ownership. If a borrower belongs to a good credit group, there are high chances that he/she will pay back the money to you. But of course, good group = lower interest rate = less money for you.
The reason. Read the story why borrower wants the money. To me, I will never lend money to someone to buy doodads such as car, gadgets and etc.
Credit Information. this is the most useful information for you. From the information, you will know the credit history of a borrower and hence analysis whether you can trust the borrower.
Employment/Income Source. So you want to know whether a borrower can pay back the money to you? Then you must know their income sources. Whether he is working for someone, unemployed or self-employed. Why kind of job or business they are doing and of course you must predict whether he can afford his debt.

Conclusion

There are many positive and negative thoughts on Prosper over the internet. Some people think that it is too risky to give a try on Prosper. But there is a man who have lent out $750,000 in Prosper and decided to leverage on Prosper for retirement. So it does not have right or wrong to invest in Prosper. Every investment has its own risk, the only thing is whether you want to spend time to learn how to manage it or not. I am not saying that Prosper is suitable to you and it can 100% make you money and make you rich. But to me, it is a kind of investment that we can leverage on to achieve financial freedom. At the end, it is your rights whether you want to give it a try or just look for the next new investment.

Good luck!

Harrison

Tags:

The Reasons Why Getting Started in Real Estate with buying Rental Property

May 17, 2007 · Filed Under Learn How to Invest, Real Estate · 9 Comments

There are a lot of ways to make money from real estate. But there are certain reasons that you must get started with rental property.

1. Leverage on Bankers Money

One of the advantages of buying a property that other investments do not have is you can borrow money from bank to buy it. You can always leverage on the money of bank to buy property that you want to. In most cases, all you have to do is just pay a small amount of money, usually 10%, and get a mortgage from a local bank to own the property. That is mean with a small amount of money, you can own a rental property that bring you money in several ways.

Another issue that you must pay attention here is the PMI charges. For your information, PMI, Private Mortgage Insurance, is an insurance that purposely protect the lender against the losses should the borrower default. You must buy this insurance if you put less than 20% of down payment in your property. The monthly payment for the PMI is depending on a number of factors and will generally fall into the $25-$100 range for median price property.

If you are trying to make money from rental property, then you must pay attention on this PMI expenses and do some calculation. $25 dollar monthly expenses might affect your profit or even make you getting a negative cashflow from your property. Collected Rent < Mortgage payment + insurance.

2. Real Estate Tax Advantages

You can have a lot of taxation benefits by owning a property. Below is some of the Standard Tax deduction/Tax Advantages that you can get from the rental property:

Home Mortgage Interest. Once you start making payment towards your mortgage, remember that you can the portion paid toward interest is deductible.

Depreciation. Depreciation is all about the overall wear and tear on your building. Only the portion of a property's value that is attribute to the buildings. Residential rental property must be depreciated over 27.5 years.

Operating Expenses. All the expenses that related to your rental property are deductible. For example Travel expenses that you drive around for the rental activities. So you are advised to keep track all the expenses on running your rental property business.

To fully benefit from the real estate tax deduction, you must help yourself to be Real Estate Professional. IRS defined that a real estate professional as someone who spends more than half of his or her working time in the rental business. A real estate professional also needs to spend more than 750 hours per year working in rental properties. Once you achieve the name of Real Estate professional, all your losses are fully deductible against all income. Otherwise, your losses are only deductible up to $25,000 against your rental income.

3. Side Income or more income

All the time, rental property is claimed to be the best way to build passive income. A tenant rent your property and pays some money to you every month. Then you use the money to pay your mortgage and also other expenses that involved, maybe some maintenance on the property. If the pays is high enough to cover all the mortgage payment and expenses, then you are considered having a positive cashflow from your property and this will be your passive income. You do not have to do anything but this positive income will go into your pocket each month. All you have to do is choose a right location with the right market, and then you can easily have the passive income you want to. The good news is the rent hike each year, while the mortgage of your rental property remains the same. That is mean…. YOU MAKE MORE MONEY!

4. House Equity, a better saving fund

When you are paying the mortgage payment every month, you are paying both the mortgage interest and also the propertys equity. The more you pay, the faster you can build the equity.

So what is this house equity for? You can use it on anything you want to. You can take it out for your house improvement, vacation or even as an education fund for your children. Some of the real estate investors are using this home equity fund to perform No-Money-Down purchase for their next investment properties.

There are a few points you must know:

1. By owning a rental property, your tenant will build the property equity for you as he/she will pay the mortgage for you.

2. You still own the property even you take out the equity.

3. You can take out the equity many times as long as you own the property. Of course you must know your credit and have a plan to manage it

Now you know why the home equity is called as a better saving fund where someone save the money for you and you can withdraw the money again and again in future.

5. Getting more information getting information for a market

Real estate is a business. For rental property, a property will be your income source. You rent it out to your tenant (customer) and collect a certain amount of payment every month (service income). So you must know the market and then you will only know what kind of strategy you can use to rent your property out or even increase your property value and rental and make more money.

By owning the first property in certain area, you will start learning the local culture, behavior and real estate market trend. In a nutshell, you are learning the local people behavior on housing. Then you will know

How much of rent you can charge. whether you can fully maximize the profit or away from it as you are losing money

What kind of facilities in your property can boost your profit. This is all about the taste of your tenant and how you provide the business value to them and make them happy with your service, maybe some improvement or add-on on your property.

What kind of property that you can buy that will make you money. By familiar with a real estate market, then your brain and your eye will be your analyzer on how to choose a property that will bring you money. This is all about experience and sometime this is hard to be learnt from a book.

Who can help you in that area. It is important to have a list of handyman or real estate agents that you can trust with especially you want somebody help you to run your rental property business. A trustworthy handyman can help you solve your tenants problem and give a silent night to you.

The more information you have on a particular market, the more strategies you can build to make money. To me, this kind of information is important if you are going to run a property flipping business in future.

Simple Formula of Making Money from Real Estate

You can consider rental property is the base, is the foundation of your real estate business. First, it let you leverage on bankers' money to own property. Second, with a property you can get some extra tax deduction on your income which helps you save some money. After that your rental property will generate income to you and also help you in capital appreciation in home equity. From here, you can generate the enough money to start owning more property. With your experience dealing with tenant, you start learning more about a market and you can use the generated money to buy your second, third or even more property. This is a simple formula on making money from real estate.

Good luck

Harrison

Tags:

Carnival of Debt Reduction # 86

May 7, 2007 · Filed Under MISC · 6 Comments

Welcome to another new Carnival of Debt Reduction for this week. Hope you have a great time to read all the tips and information on debt reduction. Without wasting your time, here are the articles:

Beware of Easy Fixes from My Credit Scores

Remarks from Author :

Debt and credit improvement tactics

Type of Debt Consolidation Loans from 3 Debt Consolidation

Remarks from Author :

Chris Viale, GM at Cambridge Credit Corp. in Massachussets, USA. He says 70% of American citizens who take out home equity or debt consolidation loans to pay off their existing credit card debt end up with similar debt loads (if not higher) almost within 2 years!.

Steps to Avoid Foreclosure : What to do when you canâ€™t keep up with mortgage payment from Grad Money Matters

Broke and in debt is normal. Be Weird! From Dandelions and Daydreams

Remarks from Author :

This article is a personal review of Dave Ramesy’s Financial Peace University classes. My husband and I are currently 1/2 way through the program

Credit Card Finance Charges | Credit Help and Tips from The Truth About Credit Card

Getting Out of Debt â€“ TT#8 from Stop the Ride!

Increasing Cash Flow for Debt Reduction from Ask Mr Credit Cardâ€™s Blog

Unscrupulous Companies and Reporting Requirements from My Credit Scores

Remarks from Author:

Some companies act in favor consumers, other make it obvious that they do not

Being Debt-Free is not Always What itâ€™s Cracked Up to be from Queercents

Remarks from Author:

Next time youâ€™re building a head of gray hair or freaking out over having to carry a small amount of debt on a temporary basis, remember that being intentional with your money pays far more dividends than obsessing over being entirely debt-free.

I hate Debt from My Money and my life

Remarks from Author:

My personal confession about my debt and resolution and how to get out of it.

10 Common Sneaky Credit Card Companies Charge from Credit Card LowDown

Welcome Clark Howard Fans and WSB TV Viewers from No Credit Needed

Remarks from Author:

Chalk one up for the “good guys”! Debt Reduction makes it to the TV! Let me know when you go “live” and I’ll link-back! NCN

PS: If your article appears below, then your article might be considered off-topic or not suitable and related to this carnival. Please feel free to double check your article.