borrowing to invest?

[mikedev10]

please advise. i am looking at the following:

http://www.thirdfederal.com/weboffer...TOKEN=96636745

https://www.penfed.org/productsAndRa...-425cars040308

my car is 75% paid off and my house say 30%.

this looks like i can borrow a whole lot from myself at 4.25%. the most conservative borrowers on prosper are borrowing at 7%. what are the risks and probabilities of them occuring of me getting into trouble if i extract a heap of equity to start lending out on prosper? would you do it? please advise. thanks!

[dbarberic]

Re: borrowing to invest?

I'm pretty risk adverse, so I would never use leverage to invest. In fact, Jim Sinclair is advising that all leveraged accounts should be closed.

Third Federal is in my area and is a rock solid institution. With that said, given the market, what you are proposing is full of risk. I would not walk; I'd run away from this idea.

[Verrocchio]

Re: borrowing to invest?

my car is 75% paid off and my house say 30%.

I don't want you to reply to any of the following questions, but these are the questions that I would ask myself were I contemplating the action that you're considering.

I see from your post that you have car payments and a modest equity in your dwelling. No one knows how much more real estate prices will fall before they stabilize. Is it possible that declining real estate prices could put you upside down on your mortgage?

You'll be without transportation and a place to live if you became unable to make the payments that you owe. Is your job absolutely secure, so that you could continue to make those payments even if the US experiences a long and deep depression?

[mikedev10]

Re: borrowing to invest?

is prosper thought to be that risky? sticking with high credit ratings and smaller loans i would expect it to beat 4.25 without much difficulty.

i'll also note i plan on sliding the money from the HELOC in over time, ie. extracting 250 a week for prosper.. so i'd be getting myself into it slowly and after 3 years (prosper loan duration) each week should have 250 in loans coming to completion so it would feel kind of liquid... i should be able to cut that plan short if i forsee myself getting in trouble servicing debt as i load prosper up each week...

i got a decent price on my house in 2005. i've paid 70k of 250k sale price and zillow thinks it's worth 340k, so i don't think i'd have any problems with a 50k HELOC.

i'm an IT consultant and a severe recession could be bad news for that profession. should i be unable to find work i have a slight moral hazard i suppose at play because i should be able to tap my parents if i screw myself gambling with credit and equity.

[metalman]

Re: borrowing to invest?

is prosper thought to be that risky? sticking with high credit ratings and smaller loans i would expect it to beat 4.25 without much difficulty.

i'll also note i plan on sliding the money from the HELOC in over time, ie. extracting 250 a week for prosper.. so i'd be getting myself into it slowly and after 3 years (prosper loan duration) each week should have 250 in loans coming to completion so it would feel kind of liquid... i should be able to cut that plan short if i forsee myself getting in trouble servicing debt as i load prosper up each week...

i got a decent price on my house in 2005. i've paid 70k of 250k sale price and zillow thinks it's worth 340k, so i don't think i'd have any problems with a 50k HELOC.

i'm an IT consultant and a severe recession could be bad news for that profession. should i be unable to find work i have a slight moral hazard i suppose at play because i should be able to tap my parents if i screw myself gambling with credit and equity.

mike, this guy does tons of analysis on prosper loans. for instance...

http://www.ericscc.com/index.php?page=loan_aging

[metalman]

Re: borrowing to invest?

mike, this guy does tons of analysis on prosper loans. for instance...

http://www.ericscc.com/index.php?page=loan_aging

now this is interesting...



http://www.ericscc.com/index.php?page=rate_history

the lower rated credits are starting to pay for added risk. odd spike up in rates for 'd' rated credits then dropped off.

late and defaulted loan stats here...

http://www.ericscc.com/index.php?page=lates_by_age

[mikedev10]

Re: borrowing to invest?

i like http://www.lendingstats.com/lenders/mikedev10 and i plan on doing 65% AA, 25% A, 10% B. i'd also be looking at smaller loans the better so even in a severe recession i would expect to have a low default rate.