Dazed and confused - Posted by Bruce

Posted by Tony-VA on September 08, 2001 at 09:58:03:

I think you are looking at profit without considering the time value of money. The first payment of $228.23 is worth $228.23 to me in the present, but that same $228.23 amount will not be worth the same to me when I receive it 4 years from now. Computing yield based upon the time it takes to receive these payments you will be provided a present value picture of the return.

Clear as mudd now right?


Dazed and confused - Posted by Bruce

Posted by Bruce on September 07, 2001 at 20:21:38:

Operating on the premise that the only dumb question is the one that goes unasked I would like to ask the following. I was reading an article written by Lonnie which contained the following example: “We bought a 14 x 60, 1985 home in good condition for $2,000. The move, setup and some other expenses totaled $2,185, making our total cost in the home $4,185. The home was sold in less than two weeks for $8,900. Our buyers paid $1,200 down and signed a note for $7,700, 12.75%, $228.23 per month for 42 months. Our yield on the mobile home is 86%.” I don’t understand the math that brings us to the 86% yeald figure. Could someone explain? Thank you.

Re: Dazed and confused - Posted by Mike Trouth

Posted by Mike Trouth on September 09, 2001 at 16:12:52:

The 91.75% ROI assumes that you receive all 12 monthly payments at one time. When your buyer pays each subsequent monthly payment, more goes to principal and less to interest. Thus the annual yield is reduced to 86%. In my book, still"Good Nuff". Have fun!

Re: Dazed and confused - Posted by Tony-VA

Posted by Tony-VA on September 07, 2001 at 20:36:42:

Using a financial calculator, you are trying to solve how much % yield the money you have left into the deal is making.

Using the numbers in the example given, you would take the original investment of $4,185 and subtract from that number the amount of the downpayment received $4,185 - $1200= $2,985

That $2,985 is bringing in $228.23 for the next 42 months. We are solving for that yield.

PMT= $228.23

solve for % = 86%

Re: Dazed and confused - Posted by Bruce

Posted by Bruce on September 07, 2001 at 21:20:00:

Tony thanks for your speedy response! I am a little less dazed but still slightly confused. What is the difference between yeild and return on investment. I would look at our example as a net investment of $2985 which will return $2738.76 ($228.23 X 12Mo.)in the first year. I calculate this as a 91.75% ROI. ???

Re: Dazed and confused - Posted by steve h

Posted by steve h on September 08, 2001 at 11:14:35:

It is nice to know about your yield on your deal.Don’t forget whether it is 90%, 50% or 30%. It is still better than 3% that you get at your bank. That alone makes you just love real estate doesn’t it?

good luck from steve in florida