Passive Income Increased

How’d I do it? I’m increasing passive income by purchasing value stocks and purchasing lending notes.

Purchase value stock for more passive income

I purchased 20 shares of TGT @ $72.35. Yield: 3.5%. Estimated annual passive income: $50 or $4.17/mo. As I said in Day 3’s post, I planned to make some investments.

target chart passive income

Why Target (TGT)?

First, I selected a number of stocks that paid dividends. I then copied each of their financials into Excel so I could see them side by side. I wasn’t planning on doing a complete valuation of each one to figure out which one was best or worth it. I really just don’t have time for that level of analysis. I plan on keeping these for the long run and I know that the companies on the list were pretty solid based on year over year numbers. Someone might look at Target’s numbers for 2017 and say that I’m making a mistake but it’s just one year of the last four and they’re posed for a better year this year.

A couple of the things that I looked at for making my decision were earnings per share (EPS) and Price to Earnings (PE) Ratio. I like that the EPS was higher than the others that I was looking at and the PE Ratio was smaller or at least relatively smaller in relation to the EPS of the oters. I also have a tendency to look at the beta ratio (how the price of the stock moves with the market). With a beta of 1, it shouldn’t move to erratically.

The operating cash flow looks good, gross profit looks good, etc. I see nothing that stands out as an indicator to not buy; no red flags. So, with a dividiend of 3.5% it looks good to me.

Final thoughts about buying TGT

I also looked through what others were saying about the stock; the general position is that people are in the buy/hold range. Again, this is a value stock, I’m not looking for it to go up a lot, it’s done most of its growth already, I just need to go up as the market goes up and pay me out with regular dividends. If you want to argue with my analysis, you’re free to take it over to Seeking Alpha, I’ve looked at what I’m interested in, done my quick analysis, and made my purchase. Nobody should do what I’ve done, don’t buy TGT and then act like I said to do it. As I said in the post on making more money to invest more money, you need to get educated, do your research, and make your own decisions.

Investment in P2P Lending for more passive income

Purchase of two $25 notes through Lending Club.

Calculating your passive income here is a bit difficult. I generally just consider the total expected monthly payments I receive as passive income but the reality is that some fraction of that is the principal I loaned. How much is principal and how much is interest? That’s actually kind of hard to determine when you have a lot of notes. If you put in $5,000 and bought 200 notes and put them in a portfolio you could say that for the first few months, just about everything you’re receiving is interest. As time goes by this shifts towards principal (see more info on amortization schedules). So, if you’ve been buying notes for years like I have and you try to assess how much is passive incomes, it becomes difficult because it varies by note.

As I said, I just consider the whole amount passive income. However, if I want to make a guess based on my average adjusted interest rate, I take the total monthly payments and divide by 1 + the interest rate and subtract that from the total payments. Example, if I have $10 monthly income from Lending club and I’m making an average of 6% I calculate $10/1.06 = $9.43 (the estimated principle) and subtract it from the total which makes my estimated interest $0.56 per month. It’s not really accurate but it gives me a pretty good idea of where I am.

Here’s my latest LendingClub order.

Lending Club Order summary - passive income, P2P lending

Choice of credit ratings

I’ve chosen two notes to help me increase passive income where the credit ratings were somewhere in the low to mid 700s. Why are they in that area? They may be people who don’t have a very long credit range, maybe they don’t have a good credit mix, maybe they have a few blemishes, or perhaps they have a high debt to credit ratio. There’s no way of knowing but overall 700s is in the range of average so I’m fairly comfortable with it.

Choice of loan purpose

Another reason I chose these two was that they’re not for frivolous things like vacations or major purchases. They’re also not for debt consolidations so I know they aren’t trying to get out of trouble they’ve incurred. Home improvement is considered a capital investment. Hopefully, the small business loan is for buying equipment or materials. Businesses typically prioritize paying bills so they can stay in business.

To get these I had to look at the loans that were further out in terms of closing. This means that I’ll be waiting almost a month for the loans to be issued and then another month before they start paying back the loan. Not a problem though, it’ll be three years before these stops paying out so I’ve got time.

About the order summary image above

There are a few things of interest. The effective interest rate is what I’m expecting, the expected charge off rate is what LendingClub calculates could happen, and then they let you know that they take a 1% fee. It says estimated but you can pretty much bet it’ll be 1%. They then show you your projected return. In this case it says 5% but I’d guess that it’ll actually be closer to 6.5% either way, 5-6% isn’t bad for a relatively safe investment. Using the rule of 70, 5-6% doubles your money in about 11-14 years. In dollars I can expect this to increase the per month income (principal + interest) by about $1.40.

This is how I invest in P2P lending.

Categories: investing, P2P Lending

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  1. Free Passive Income Each Month – On9Income
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