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Monday, November 10, 2008

This Is Why I Want Passive Income

A week ago today, I was laid off from my day job of over 3 years. No warning, of course. I did survive two previous rounds of layoffs, so I suppose I can't ask that my luck hold out much longer. I did get a decent severance package and I already have a couple of interviews lined up. However, I don't like the idea that my income can be taken away at a moment's notice. Hence, my quest to get multiple streams of passive income.

Luckily, another opportunity came my way not long after I was laid off - call this one Hard Money #6. This is another mortgage lending deal that will earn me a 10% ROI. The property is in Livermore, California and was bought at auction by an investor who owns 10 properties in the area and knows the location well. He's already rehabbed 12 houses this year and netted about $500K of profits. His purchase price was $272K. The mortgage, of which I am a partial investor, is for $210K. The lender was owed $488K. Current market value of the property is about $350K. A conservative estimate would be the low $300Ks. So using a conservative value of $300K, we're at a 70% loan to value ratio. The property is a 3 bed / 2 bath, 1,125 square foot house built in 1955. The mortgage is interest only for 1 year with a ballon payment of the entire principle due at the end of the term. We expect the loan will be paid off via refininacing or a sale in 6 months.

I'm not going to replace my day job with income from this loan, but it is nice to have some extra funds coming in. And it's nice to know I have some options out there for generating income.

On another note, I'm starting to see more professional investors return to buying properties at auction lately. Maybe things are going to be turning around soon for real estate.

4 comments:

Another Investor said...

I'm very sorry about the job. With your IT skill set, you should be back at work quickly. I know a lot of people in real estate fields in the Phoenix area that have been out of a job and earning nothing for a year.

If the collateral for the hard money loan is in a good area of Livermore, you should be fine. Livermore has suffered more than Pleasanton because it's a little farther out the 580 corridor and a little farther down the economic ladder. It certainly is not as weak as the cities on the other side of the Altamont Pass. However, like almost everywhere else in the Bay Area, the trend is down. Get in and get out.

Good luck with the job search.

philippine real estate said...

i do hope that you succeed in your new work...just look forward!!! gudluck to you pal...

Steve said...

Sorry to hear about the job loss, Shaun. Have you thought about using your skills as a freelancer or starting your own company?

Shaun said...

Heh..Yeah. It's funny.. The last time therer were layoffs at the comppany I think about 50% of the people laid off started their own studios :-) But I am working on some things...

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