Renting Vs Buying: How To Live Beyond Your Means!

Posted on May 26, 2008 by Nirav

The debate over renting versus owning isn’t dead. According to the WSJ, you can buy a 2 bedroom condo in Miami with a wrap-around balcony and stunning, jaw-dropping views for $400,000 (and this is after the market has already correctedly significantly). Apparently they come fully loaded too!

“You’ll have at least one private pool in the building, along with saunas and fitness centers and all sorts of other conveniences. Of course, you have a 24-hour concierge and valet parking. Many have private cinemas, bars, restaurants, spas and the like. They’re like cruise liners on dry land.”

But these facilities cost money. About $1,100 every month or $13,200 a year!

Assuming you put down 20%, and finance the remaining 80% at 6% interest rate, that’s going to cost you $19,000 per year. Then you still have 2.25% property tax which is another $9,000. Add everything up and your annual costs are $41,200.

And how much can you rent it out for?

Only $2000/month (that’s only $24,000/year). And the rents are dropping too! Even if you pay cash for the condo, your annual profit is $1,800 on a $400,000 investment! Even a bank CD pays more than that!

For speculators who bought at the top of the boom, real estate is turning out to be a lousy investment. But atleast renters can live well on only $2,000 a month!

Why I Love Payday Loans

Posted on March 13, 2008 by Nirav

This isn’t going to be some post about why I think payday loans are a great investment. I’ve never gotten a payday loan myself, so I’m not talking about my personal user experience either. I’m not even going to discuss whether payday loans are good or bad.

What I’m talking about is how payday loans are helping me get a good return on my money! No, I’m haven’t started a check advance loan business that lends money out to people at 200% per year. I’m just helping out people who are already stuck in the vicious cycle of payday loans and who can’t seem to get out of it.

Payday loans come with fees that usually range between $15 and $50. Assuming you’ve taken out a $100 loan for 2 weeks until your next pay period. You’re charged $15 which is 15% of your total. This works out to 390% annualized, so if you can’t pay off the $100 and it rolls over a few times, pretty soon you’ve paid 50% interest. Some people get into a situation where they can’t pay off the first loan and they take out a second one. Eventually they’re paying a few hundred percent interest and they can never get out of this cycle.

That’s when they hear about Prosper and use it to try and break the vicious cycle. I’m currently lending money on about 50 loans on Prosper. About 10 of them are payday loans. While I’ll have several defaults in the past 18 months, none of my borrowers who borrowed to pay off their payday loans have ever defaulted. I’m not sure if such borrowers are statistically less likely to default than other borrowers, but from my experience (which could be biased due to my personal lending criteria) it certainly seems that way.

I think if a borrower is paying 200%+ in interest to payday loan business, he’s ecstatic at paying me 27% a year. At least he knows he can pay me off in 3 years, unlike the other place where it seemed like a slow death-spiral. I’m overjoyed at getting an buffett-matching rate of return on my principle too. It’s the perfect win-win (except for the check advance loan guys!).

That’s why I love payday loans. They make me look good! And of course I love Prosper for making this possible.

Payday loans can be helpful, if you use them responsibly. Never get a cash advance that you can’t afford to pay back on time. Make sure you know what you’re getting yourself into before taking out one of these loans.

How Not To Bid On Prosper

Posted on January 30, 2008 by Nirav

Micro-lending is one of my 20 passive income streams. I currently have 45 loans on Prosper.com, lent out at an average rate of 19.55%. Even though I’ve had a few delinquencies, my capital has grown 14.5% in the 15 months I’ve been a lender. I’ve learnt a few things about lending and how to protect your principle. While I won’t explain how to lend money on prosper, I will explain how not to lend money!!

Here are the Top Ten Worst reasons to lend money to borrowers:

You think they’re hot!
You feel sorry for them.
They have a picture of a cute kitten or puppy (or supermodel) in their profile.
They’re 95 and need money for medical bills.
They’re a Californian real estate investor and are willing to pay 20% interest for a remodel.
They need $25,000 for college and are willing to 25% interest for it.
They’re terminally ill and need a new fridge.
They look like they’re 65 and are smoking in their photograph.
They make $200,000 a year and need to borrow $5,000.
They’re buying a business and want borrow the 20% down-payment.

So far I’ve had a really good experience with micro-lending on Prosper. Prosper also has a new tool that automatically calculates the estimated chance of loss based on several criteria like the the borrowers credit and number of delinquencies. That gives you a good idea of what minimum interest to charge to overcome your losses.

If you’re interested in signing up, Prosper is offering a $25 incentive to new lenders.

Get Advertising Revenue From Prosper

Posted on October 25, 2007 by Nirav

I’ve been lending money on Prosper.com for nearly a year now. I’ve been getting a pretty decent rate of return, despite having had a couple of borrowers default.

I’ve also made over $200 from referrals fees! Whenever anyone signs up using the referral link and funds atleast $50, we both get $25. If a borrower signs up, I get $125.

And to add to that, Prosper is now a paid advertiser on my blog. Not only are they offering referrals rewards, but they’re also paying me to put their link up!

I guess they’ve had such success with the program that they can afford to be extremely generous. If you have a blog you can start making extra money by doing just 3 very simple things:

Sign up using this referral link.
Fund your account with $50 and lend it out. (ok, you don’t need to do this, but considering you get $25 almost immediately, where else are you going to get a 50% return on your money?)
Email me at livingoffdividends$$gmail.com (replace the $$ with @) with “prosper referral advertiser” in the subject field, and I’ll put you touch with the rep at Prosper.com

Not only will you get a check from Prosper for advertising, but you’ll still get the referral rewards too!

If you don’t have a blog, you can do steps 1 and 2 and get a referral link or an image button from Prosper.com which you can put in your email signature to generate some extra money.

Prosper Update

Posted on August 23, 2007 by Nirav

I started lending money on Prosper.com about 10 months ago. I started out with a total of $1900 in my account. I’ve been mainly targeting people with D and E credit who seem have steady jobs but got into the payday loan trap and can’t get out. My average interest rate is about 19.4% right now and I usually lend out the minimum $50.

I’ve been reinvesting all the interest payments I’ve received. So far I’ve made loans to 40 people and I’ve had 2 defaults and 1 currently late loan – two of which were from Prosper’s auto-pay, which I don’t really recommend using. One of the defaults had a B rating!

Currently my account is worth about $2106, which gives me an annualized return of about 13%. Not bad at all.

If I don’t have any more defaults, this might increase slightly. Even if I get 1 more default, I should still get an annualized rate of 9%, which is about twice what I get in a savings account.

Why should Visa and Mastercard make all the money!

A Better Way To Lend Money To Friends & Family

Posted on August 4, 2007 by Nirav

Lending money to friends and family can be a strain on the relationship (not to mention your finances). Seeing that you’re doing well, everyone wants to hit you up for a small loan. If its a short-term thing its fine, but if you’re worried about the borrowers ability to repay your loan either due to poor financial responsiblity or income limitations it sometimes becomes difficult to say no.

One way is to steer them towards micro-finance sites like Prosper.com. Tell them that if they sign up on Prosper, you’ll contribute as much as you can towards their request and also give you a recommendation.

This helps you in several ways:

1. It doesn’t sound like you’re saying no. You’re trying to help them and will even
contribute towards their loan.

2. You get paid interest. This is based on their credit history. The better they’re
credit history, the lower the rate.

3. You don’t have to keep on asking them when they’ll repay you and they don’t have to avoid you because they feel like stiffing you. (Isn’t it amazing how people who don’t have enough money to repay you still seem to have enough money to spend on movies and fine dining?)

4. Their credit is on the hook if they don’t repay you. Even if you lose money, atleast they didn’t get away without incurring some loss. You don’t even have to bug them. Prosper will pass on the info to collections after a few months of non-payment.

Prosper is also currently running a promotion. If they sign up using the referral link, both you get $125. If they join your group, you get group rewards which can be a % of the loan and an ongoing % of the monthly payments! If you refer a lender, then you both get $25.

You can even borrow money from friends and family this way. If you need a small loan just sign up on Prosper and forward your request to your friends. The smallest amount they can lend you is $50. If your friends can’t lend you $50, you need to find richer friends or (more likely) to work on your image!

Borrow Money From People. Low Rates. No Banks.

What Is Microfinance?

Posted on July 13, 2007 by Nirav

Here’s a post from the archives. I had saved it and never got around to actually publishing it!

Who the hell is Mohammed Yunis and why on earth did he win the Nobel Peace Prize?
Well he pioneered the use of micro-loans to poor entrepreneurs in Bangladesh. Dubbed as the “Banker to the Poor”, he began fighting poverty during a 1974 famine in Bangladesh with a loan of $27 out of his own money to help 42 women buy weaving tools to save them from the clutches of the usurious moneylenders.(Yeah, back in the day, $27 was actually worth something).

So whats so revolutionary about microfinance that he deserves the Nobel Prize?
Apparently people think that it will become a catalyst to eradicating poverty. Even the Economist had an article about some guy who was giving out micro-loans to poor tea plantation workers in Assam, India to buy Solar powered headlamps(made by his own company!) but the economics made sense and it was a win-win for everyone.

So how do you benefit? You can become a lender yourself through and offer micro-loans to other people starting with as little as $50. And thus you can do your part to eradicate poverty. Yeah!

Achieving financial freedom through passive income

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