First user experiences of Funding

 

Funding (https://www.funding.com.au/) is the fifth Peer to Peer platform I’ve now signed up for and am actively investing through.  Funding is a peer-to-peer platform that lends money to people intending to purchase property.  The loans are first mortgage and have a maximum LVR (loan to value ratio) of 65%. 

The loans are not your standard 30-year mortgage that people acquire from the bank. These are short term loans (1 to 36 months) that are commonly referred to as bridging loans.  This is a space that tradition banks don’t typically play in.  Bridging loans are used in cases where people require money to purchase a new property before their existing one is sold, or, when developing a block of land, such as building units or subdividing the block, where funds are needed to support the project / development prior to sale.  The loans are also interest only with the capital returned at the end of the loan term.

This blog focuses on my experiences on the sign-up process and first impressions on using the site.  Like most of these platforms, the process was extremely straight forward and was completed in minutes.  The platform breaks it down into four easy steps

1. Basic Information – Name, phone number, email and password
2. Investor Details – Know Your Customer requirements like your address, tax file number, driver’s license, etc.
3. Bank details – For when you withdraw funds
4. Product Disclosure – Making sure you have read and agree to the PDS document

After that you are in and ready to invest.  As with all platforms the first step is to transfer some funds into your account.  This platform has a minimum first investment of $5,000 after which you can add funds to your account in $1,000 increments.

To add funds to your account there is a top up and withdraw button on the menu on the left of the screen. Clicking this leads you to a page to choose which action to take.  To add funds, simply enter the amount you want to deposit and then click submit.  Details of how to BPay the funds are displayed on screen as well as emailed to you for reference.  There is also the request to email your payment remittance advice to their investing email address.  My funds appeared in my account within about two business days.  

With funds in the account, it is now time to invest.  Funding typically lists new loans on Monday, Wednesday, and Friday afternoons.  Since joining the platform mid-December 2021, I’ve observed there has been a fairly constant flow of new loans, which I was surprised by in the lead up to Christmas / New Year.  

On this platform you have complete control over which property loans you wish to invest in.  For each loan there following details are provided

• General location (suburb, state, post code)
• Loan overview (Target Return, LVR, Term, remaining funds available for investment)
• Loan Details (Total loan amount, start / scheduled end date) 
• Property & Security (Property value, property type, property security)
• General details (Property description, Location, Valuation Date, Insurance status, Loan Purpose and Repayment Strategy)

Investing in a loan is easy: You simply click on the available loan/s in which you want to invest, enter the amount you want to invest (minimum per loan is $1,000) and click submit.  While I would have preferred smaller allocations per loan to allow more diversity across a smaller funded portfolio, I have found that investments do not have to be multiples of the $1,000.  For example, if you have received some interest and you now have $1,012 in your account, you can apply the full $1,012 to a new loan.  

While I’ve had no problems allocating all my funds to new loans, my observations to date have shown that loans don’t stay available for long and are sometimes fully funded by the evening that they are listed.  These loans listed had interest rates between 5.5 to 6.75%, terms ranging between 3 to 12 months and LVRs ranging from 20 to 65%.  

Overall, I think the platform is super easy to use, clear about what you are investing in and what returns you can expect.  I like the fact that every loan is secured against a property with a low valuation.  This is beneficial in the unfortunate event a property must be sold due to default.  The lower LVR helps ensure your capital will be returned when the property is sold with the remaining proceeds returned to the owner. 

The one thing that does stand out to me is that interest paid out every month will be sitting around idle until an existing loan is paid out or you add additional funds to make the $1,000 minimum investment.  The other way is to have serious coin invested to earn $1,000 per month in interest (at 6.25% interest you need $192,000 invested).

These are my first user experiences and impressions of the using Funding.  If you do have feedback or would like to share your own experiences, I’d be interested to hear them. 

Funding do have a referral link where both parties can receive $150 each when new investors sign on and invest.  T&Cs are here with my referral link available here if you decide this platform is for you. 

Pete2Peer 2021 Portfolio Performance Update

 

It is hard to believe another year has gone by.  While I have been quiet on the blogging front, my peer-to-peer portfolio has been ticking along in the background.  Last month even saw the portfolio extend to a new peer-to-peer platform (more on that in a future post).  With COVID-19 still wreaking havoc around Australia and the world, I thought it would be good to provide an update on how the funds have performed over the previous 12 months.  Each platform has an individual performance update with a combined portfolio summary at the end.

TruePillars

Early last year TruePillars changed the way people can invest on the platform, creating pooled investment options (GO – 30 days; FLOW – 12 months; and POWER – 36 months). Since that time the have been no new individual loans listed (although there has been residual activity on the secondary market).  As a result of this, the portfolio of individual loans I now own has dropped to 53 loans, down from 137 this time last year.  As these loans have been paid out, I’ve transitioned to moving the funds into mainly the Power loan, but also put small allocations to the GO and FLOW options, just to track actual performances down the road.

The combination of the interest from both direct loans and pooled investments resulted in an overall return of 8.3% for the year.  Taking into account the three defaulted loans that were finalised and written off during the year, the overall return drops to 7%.  It was noted that the monthly returns have been declining as more of the investments move to the pooled options.  I expect this to stabilise this year with only 18% now invested in direct loans at an average net yield of 9.7% against the pooled return of about 7.8%.

There are some losses I am expecting to see come through on remaining direct loans investments.  Seven loans (totalling 1.7% of my investment in TruePillars) are on agreed loan deferrals. This number has been fluctuating during the year depending on COVID out breaks, and trading restrictions placed on small businesses.  

In addition, there are four loans (totalling 1.3% of my investment in TruePillars) listed with a default status.  Two of these are paying back ad hoc, with repayments from these two loans currently been applied directly to remaining outstanding principle.  The notes on these two loans are once principle is fully returned, future payments made will be applied to interest accrued. That is under the provision the businesses continue to operate (these two loans are currently sitting at 0.4% of my TruePillars portfolio). 

The third business has closed its doors with the outstanding loan flagged as potential full loss (0.2% of my TruePillars portfolio).  The final is entering voluntary administration with negotiations on the debt to be finalised (potential loss of 0.5% of the portfolio).  These losses will be captured in my returns as they are finalised.

MoneySpot

This platform continues to be a consistent earner achieving annualised returns of 12.14% over the previous 12 months. I have continued to watch bad debts which appear to have remained consistent throughout the year and started to come down a little from a high of 6.7% to end the year at 6.3%.   It’s something I continue to watch as I know this is the is the number that has the potential to impact current returns.

Plenti

The returns over the previous 12 months have been 6.2%.  However, this number is trending down as new loans over the last few months have invested at rates around the 3% mark.  I expect this will continue to have an impact as loans are paid out and reinvested at much lower rates.

From a platform perspective, the provision fund has continued to support investors against all defaults / late payments.  At time of writing, the provision fund has expanded to 206% of expected defaults (157% 12 months ago) with the latest fund provision coverage found here. 

OurMoneyMarket

This platform provided a 9.3% return over the previous 12 months.  As per my previous year’s commitment, I am no longer actively investing on the platform and slowly withdrawing funds as loans are repaid.  I did note that approximately halfway through last year the platform stopped investors from funding new loans under the guise that the website is undergoing upgrades.  At time of writing this is still the case, with investors given the option to add new or withdraw available funds (Why people would add new funds at this point in time is beyond me).

Overall Performance

The overall performance for the last 12 months has been 8.6%.  I’m comfortable with the performance from a blend of the four platforms I’ve received to date. To keep track of the individual performance of each platform, I track them on a single graph (below) and then aggregate the results to give my overall portfolio returns. 

We can see that the overall returns of the portfolio are trending down for the previous 12 months with the major contributors being the lower returns currently available on TruePillars and Plenti. I expect this decline to continue the portfolio performance over the next few months before leveling out in the second half of the year as the number of higher interest loans are finalised and reinvested at lower rates.  

It is important to note the Truepillars negative month is the net result of the write-off of defaulted loans in June 21.  

For a year full of COVID-19 induced lockdowns and travel restrictions, the portfolio has performed remarkably well.  2022 is shaping up to be another year with COVID-19 providing challenges across the economy.  This will continue to bring the risk of default to both small business and personal loans alike.  These are the metrics I will continue to closely watch to understand the potential impact on my portfolio.

Stay safe and have a Happy New Year.

TruePillars: A change to the way you invest

TruePillars was the first Peer to Peer platform I invested through. When I started, their offerings were based on investing in the available pool of individual business loans, with contributions into loans with as little as $50. TruePillars has now added pooled investing to the options available to investors with the pooled investing fund going live in March 2021.  This change has resulted from feedback from investors over the last few years and looking at how best to create a sustainable business model.  

While I like this concept of investing in individual loans, this only works well when there are plenty of loans available to diversify your risk.  Individual loan investing typically has a higher risk associated as you have direct exposure to default, and the increased risk of “cash drag” (a positive balance in your account but nowhere to invest the returned capital and interest) when the demand for loans exceeds their availability.  While you may receive higher interest returns on the cash you have invested, this is offset somewhat by the defaults and cash drag. I have noticed this in my own portfolio over the last 12 months during the COVID-19 pandemic where there have been a lot less lending, some businesses either going into default or on extended repayment holidays with the biggest impact coming from cash drag.  

While I have sufficient diversity in my portfolio to continue to give a positive overall result, I can see how a small portfolio of loans could be significantly impacted.  This is because the less loans you have exposure to, the more risk a single default has on destroying any gains the overall portfolio has achieved.  

Pooled Investments

The premise behind pooled investments is to remove some of the risks behind the diversification problem (risk of default) and the cash drag problem. To accommodate this TruePillars have adopted a model where investors funds are pooled. TruePillars then uses the pooled funds to issue loans to multiple businesses. This gives you diversification from a single investment and removes the cash drag as you are earning interest on the full invested amount allocated in the pool. To address the risk of default, the pooled investment funds will have a Loss Reserve attached to the fund that will supplement any defaults while there are funds available in the Loss Reserve. The pooled investments have three options of differing duration and expected rates of return.

Fund	Investment Period	Expected Returns	Minimum Investment
Go	30 Day Rolling	4.35% net p.a.*	$500
Flow	12 Months	6.10% net p.a.*	$1,000
Power	36 Months	8.10% net p.a.*	$5,000

* Net of the impact of borrower defaults and all fees and costs, excluding tax.

To see the latest stats of the TruePillars fund you can find them here (scroll down the page).  Note at time of posting this blog, the fund had just gone live and thus stats updates were pending.  As a starting point TruePillars have contributed 500K to the Loss Reserve. Given this is a new funding model, the expected returns are all indicative. 

The pros and cons

Pooling investing gives several positives for an investor.  It gives a new investor on the platform instant diversification and can allow them to have all their capital earning interest once it is accepted into the pool. The added loss reserve also adds a layer of protection (not a guarantee) that your income will not be impacted by any defaults in the fund. It also gives people a very hands-off investment for those who wish to have little involvement.  

On the flip side some of the negatives I see is that potential returns will be lower overall.  The loss reserve and diversification to combat cash drag comes at a cost of potential returns of selecting individual loans and managing available cash. 

While my preference is individual loans, I am happy to give it a go having moved my spare cash into the pooled investments to keep my capital working.  I will endeavour to keep people updated on how the fund is performing against targets and compared against my portfolio of individual loans still held on TruePillars. Before investing ensure you read the PDS documents that can be found at the bottom of the TruePillars website.

Let us know your thoughts on the new funding model and if you like or dislike the new setup.

Pete2Peer Portfolio Performance Update

 It is hard to believe it is the start of a new year and a year on from when we first heard of COVID-19, yet here we are. 2020 has been a year like no other and while I’m glad that it is behind us, I suspect this year will also throw out a few challenges as the world continues to deal with COVID-19 and the impacts it is having both economically and personally on people’s health and wellbeing. This is the backdrop in which we invest in and as such I have been keeping a close eye on my P2P portfolio and the performance it has been achieving.  Overall, the portfolio has performed reasonably well and am happy with the performance achieved to date.  We will break down the individual platform performance and an overview of the whole portfolio.

TruePillars

I’ve found my portfolio of active loans in TruePillars has been shrinking over the last year with more loans paid out and a couple of defaults (more on this later) which has outpaced new loans on offer.  So much so that by October 2020 I had 30% in cash which was pulling down my returns.  As such I’ve pulled a fair chunk of this money out of the platform and redistributed most of it to Plenti (formally Ratesetter) to keep the money invested.  The reduction is reflective in the number of loans I now hold compared with the last update (currently 137 vs 165 loans). This would be much lower had it not been for the 12 new loans since October which is great to see a pick-up in loan initiations compared with the 3 months prior.  However, I will add back into the platform as loans start to exceed the repayments again to continue the diversification.

The 137 current loans are diversified across multiple industries.  The following pie chart breaks out my portfolio diversification based on the allocated industries assigned to each loan.

Over the last 12 months my TruePillars account has averaged around 10% down about 2% from last year.  There were two factors to this result, the first was the driver was holding up to 30% unproductive cash (I calculate based on all funds in the account and not just what is invested). The second driver was the number of loans on deferred payments. Thankfully this has dropped right off with only nine loans now on deferred payments compared with a high of about 55 loans.  When it comes to defaults the last 12 months have seen five defaults with the first occurring in back in January last year.  This still sit on the books as they go through the default process to see if any of the funds will be recovered. The losses for these will be worn in my profitability numbers once the default process is finalised and TruePillars write off the amounts that were not recovered. The value of the defaulted loans from the last 12 months equated to 23% of the interest I earned over the period.  Factoring in the full right off would lower my returns for the 12 months to 7.3%.

While the last 12 months has seen an increase of defaults, over the last few years I have made 227 loans with 89 loans paid in full and six defaulted with the remaining 132 still active. 

Moneyspot

This platform has been a consistent earner for us with no active involvement required from myself achieving annualised returns of around 13.02% over the last 12 months. Given the short-term nature of the loans, I had expected the returns to be affected by bad debts. The one figure I have been following closely. MoneySpot’s bad debt was 5.33% in January 2020 to moving up to 5.61% in July 2020 and continuing the upward trend to 6.66% in December 2020. While this has yet to affect returns it is something that can’t be ruled out and one to watch in the next few months.

Plenti (Formally RateSetter)

The returns over the 12 months have been 7.4%.  However, the last two months were around the 6% mark due the new funds introduced that were redistributed from the TruePillars.  Last year also saw a number of changes to the Plenti platform which includes capped interest rates with a maximum on the five-year lending market of 6.5%.  As such, the average returns on this platform will continue to decline as my earlier loans are paid out and reinvested at a lower interest rate. The performance over the last 12 months as shown little impact on the provision fund to support investors against defaults.  At time of writing the provision fund was still sitting at 157% of expected defaults with the latest fund performance found here. 

OurMoneyMarket

This platform I’ve made the call to not actively use and will see out the current investments only.  As such I’m only on every month to track its progress and withdraw my available funds.  The platform has achieved an average annualised return of 10.6%.  The few times I’ve logged in I’ve noted a couple of the loans were behind schedule repayments.  This fluctuates from month to month and as of the start of January all were up to date.

Overall Performance

The overall performance for the last 12 months has been 10.6% with the last four months sitting a little lower at 9.6%.  I’m comfortable with the performance received to date and while I’m aware that there are some capital losses on TruePillars that I’m waiting to finalise that will be reflective into the returns once they finalise. 

To keep track of the individual performance of each platform, I track them on a single graph below and then aggregate the results to give my overall portfolio returns. We can see that the overall returns of the portfolio are trending down from 12% to around the 10% mark for the previous 12 months. The driver for the returns trending lower were the underutilised capital in TruePillars and the loan deferrals.  As this has now been redeployed, I do expect this to stabilise however Plenti have a capped max rate of 6.5% which will also contribute to the overall returns trending lower in the longer term as more weight is added to this platform.

I feel the full impact of COVID-19 on the loan space is yet to fully materialise so am keenly watching the space to see how my investments continue to perform. As with all investments there is risk which is why we diversify into multiple loans and platforms. 

Hope all are faring well and staying safe in these crazy times.