Re: Calculating Yield - Posted by Karl (Oh)
Posted by Karl (Oh) on July 17, 2001 at 16:01:17:
The yield we calculate IS on an annual basis. Notice that the annual yield decreases the longer the loan, even when the total principle profit is the same. Conversely, the total yield for the same deal will increase the longer the loan. When I calculate yield with excel, I get a monthly yield answer, then multiply by 12 to annualize my number. I get the same answer Lonnie got in his examples in his book. Or I can multiply by the total number of months of the loan to get the total yield.
An example. Say I buy a home for $4000, sell for $8000, nothing down, 10% interest, 36 months, payment of $258 per month. Monthly yield is 5.5%, annual is 66%, total yield is 199%. Now, if I’ve been doing this wrong for a year and a half, someone please straighten me out. I’d hate to think that I’m making more money doing mobile home deals than I really am!
I shoot for deals that are anywhere between 80% and infinity, using my method above.
Down to earth is okay, but its more fun to stand on the shoulders of giants!