Tuesday, January 04, 2011

Hard Money Loan #14 Paid Off

The property behind hard money loan #14 was sold and closed escrow on December 30 and I received my final payment today. The loan lasted about 6 months. My principle is sitting with my partner, waiting for the next opportunity.

In other news, my wife and I are starting a remodel of a couple rooms in our house. We're paying for this using our HELOC, which I had previously been using for investing. Actually, I'll still be able to use my funds from that for investing and the remodel will be paid for from the unused portion of the HELOC, which will now be maxed out. The HELOC payments are interest only and the payments I receive from my investments will still cover the entire HELOC payment, even including the funds I use for the remodel, plus a little more. So my remodel costs will be paid for by the investments. My HELOC is at 3.25% and I'm investing at between 9% and 10% and pocketing the difference. Although, since it's not my money I am investing, my ROI technically is infinite.

Of course, as I feel compelled to say every time I bring this up, this is not without risks and I don't recommend everyone do this. If interest rates go up, I could end up losing money. But I don't think rates will rise anytime within the next year and the investments I make are for one year or less, so I could get my money back and pay down the line of credit rather quickly if I have to. There is also a pretty large spread between what I am being charged and what my investments are earning, so rates would have to jump by a large amount before I start losing money. Also, I opened this line of credit during the real estate bubble, so the maxed out HELOC plus my outstanding mortgage balance total more than the home is currently worth - meaning I would not be able to sell the home, should I have to. But that's not something we are planning on anyway. And again, my investments are pretty short term, so I could pay down the HELOC in fairly short order if I did need to sell for some reason. And, in the worst case scenario, I could still make the HELOC payments should all my investments go belly up.

Still, it's exciting to think that my passive income will pay for our remodel! The real estate investments I've made over the past two and a half years have also been paying for the loss I took on Rental #1. That loss has been just over 50% recovered. It's been slow going, especially since the apartment investment payments have been suspended for almost a year. (If they hadn't been suspended, my loss would be about 80% recovered.) But still, it's nice to know that all these things are being paid for from investment income and not from any money out of my pocket. (Yes, you could argue it is money out of my pocket since I don't get to keep my investment returns, but you know what I mean. I'm not writing a check to pay them.)


Philippine real estate said...

This time, don't loan huge money because there might be a chance that you will not pay for it because of up and down economy.

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Barrie Real Estate said...

It's just fine to have a loan, but make sure that it won't get you out of budget. Wise decisions should always be made. You can even think twice, trice, or how many times you want just to make sure that it won't evolve into a big problem.

Anonymous said...

not to rain on your parade or anything, but you haven't had any passive income yet. you're still in the hole. your remodel is coming out of your pocket, while your "passive income" is trying to pull itself out of the red...

investors tend to ignore losses and remember gains, and think they're better investors than they are. so far you've lost money, not made it. be careful out there, and maybe one day you'll end up making money on your RE adventures.

Shaun said...

If you are going to be that picky, then yes, I DO have passive income. I do not have overall REI *profits*. I should also note my loss was from active investing, not passive. My passive investing has not lost a dime and has returned consistent profits. My active investing has lost money.

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