photo credit: naliloAlmost one year ago I took out a $1,000 peer to peer loan using Prosper – I had already been an active Prosper lender for over 3 months at the time. My plan was to test out a theory by using my good credit rating to take out a loan under 6%. I wanted to use this money to generate passive income by purchasing assets that earned over the 6% rate of my loan. By purchasing a high yielding stock that paid a monthly dividend, I could use that income to payback the loan and profit from the remaining assets. I also decided to limit the loan to $1,000 as I did not want to overextend myself – which is partly how we got into the financial mess we are in. This peer to peer loan is spread out across 3 years, so the monthly loan payments can fit within my monthly budget. Even if my assets from my stock purchases goes to zero – I can still make my payments.
I currently own shares of HTE (Harvest Energy Trust) with the capital I received from taking out this loan. Harvest Energy Trust is a CanRoy (Canadian Royalty Trust) that pays a monthly dividend. The last few months have been rough with CanRoys – especially Harvest Energy Trust. As a result, I have seen a sharp decrease in the value of my loan.
Monthly Prosper Loan Recap
Each month, I provide a status on my Prosper loan that I took out last year. When I last posted the status of my investments using this $1,000 Prosper loan, I had accumulated the following assets -
- Stock – I purchased 46 shares of HTE.
- Cash Generated – As a result of selling Covered Call Options against my HTE position, I have generated $58.68 in positive cash flow. It is important to note that selling a Covered Call Option contract requires 100 shares. I have combined my $1,000 Prosper loan with additional funds to meet the 100 share requirement.
- Remaining Cash – I had $14.55 remaining in leftover cash after making the purchase of HTE.
- Dividend Shares – I have received 6.237 shares of HTE stock through dividend DRIP payments. The total number of shares owned as of December (2008) was 52.237.
Current Status
I recently received the January monthly dividend payment, which was reinvested back into the stock using DRIP (Dividend Reinvestment Plan) -
- January Dividend Payment – I received approximately 1.416 shares of HTE as a result of the January (2009) DRIP payment. This brings the total number of shares owned up to 53.653.
As of the close of the market yesterday (February 24, 2009), I estimate that value of the assets listed above at -
- Shares – 53.653 @ $5.10 per share = ~$273.63
- Cash – $73.23
- GRAND TOTAL – ~$346.86
The value of my assets from my loan has decreased by (32%) compared with last month. The total payments required over the course of the 36-month (3-year) loan are $1,095.07, so I am now ($748.21) in the hole. There are 25 months remaining on my loan, so I will need to make up an average of ~ 29.92 per month over the course of the remaining months to break even.
This was not a very fun post for me to write to be completely honest. Each month I continue to see a negative decline in my asset value of this loan. This month was the worst drop yet. There is a lot of speculation that HTE will be cutting their distribution soon – which has helped to bring the price of the stock down along with sharp drop in oil and and natural gas prices. I will continue on with my plan as I am not even 1 year into my loan. I believe it is very important to learn from my mistakes that I made testing out my theory. Fortunately I had a plan (although not the best) to only take out a loan that I could afford to pay back.
I will be sticking with HTE from here on out through the course of this loan and will continue to provide a monthly status check.
Related posts:
- Peer Loan Status – March (2009)
- Peer to Peer Loan Status – January (2009)
- Peer to Peer Loan Status – November (2008)
- Peer to Peer Loan Status – October (2008)
- P2P Loan Status – September (2008)
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Thanks for sharing. I know what you mean about these kinds of posts being hard to write. Still, I guess that is part of what we do as bloggers, right? We share our successes and failures. Though, this isn’t a failure yet – so far it is just not working out as you had hoped, but there is still a long way to go and market conditions may change.
Dawn’s last blog post..Having a Roommate for Extra Income
Dawn – Thanks for making me feel better! I still have two years left and chances are the natural gas prices will come back up at some point.
Thanks for your honesty. Indeed without risks there will be no reward… and without education our risk-taking is even riskier. So, I appreciate your sharing your progress, I’m sure we will all learn right along with you. I tend to do these types of experiments… and have done many of them with the stock market. Like you, I only spend money I can afford to lose and have learned alot over the past few years. Most of my ‘experiments’ have been utter failures, with a few gains sprinkled in just enough to keep me taking risks. But, I have learned quite a bit of information during that time, which may actually be worth the moneys lost. Anyway, I say all of this to say although your post was hard to write, please know that it will benefit your readers.
Su – It is always so important to learn from your mistakes. I also think it is important that I share both my success and failures to my readers so that I am honest with myself and them. Thanks for stopping by!
PFI,
Don’t feel bad. You were smarter than most bankers with Ivy League school MBAs/degree since you only took leverage that you could afford.
Furthermore today you will find a story on my blog that shares a recent stock investment that I made, which lost close to 80-90% since May 08..Stay tuned
BTW when people share their failures it shows maturity. Maybe you could re-invest the dividends from HTE into an MLP like KMP/KMR?
DGI – Thanks for the pep talk! I am still reeling a little from my Wachovia debacle from last summer. I look forward to reading your post.
pfincome’s last blog post..Peer Lending – Review of 2008 Prosper Rate of Return